I submitted what I thought was an appropriate amount to meet my housing needs this year, making certain the request fell within the fair market value of my home, but my church's board rejected it. Is that legal?
I know of no legal requirement that a church must approve a housing allowance for its minister. Stated differently, I do not know of any authority that would confer on a minister a legal right to a housing allowance. Nor do I know of any authority that states that a minister has the right to a housing allowance of a specific amount. In other words, if the church agrees to designate a portion of the minister's compensation to be a housing allowance and the minister submits a worksheet showing his or her expected housing expenses for the coming year, I do not know of any statute or regulation that would legally bind the church to set the minister's housing allowance at a level commensurate with the minister's projected housing expenses. The church and its leadership are free to set the minister's compensation, including the level and composition of that compensation, in the manner the church wishes to.
All of this said, assuming you meet the tax code's definition of a minister for the purpose of the housing allowance, it seems an odd result that a church would deny you a housing allowance altogether. The church leadership could question the amount you requested and set it at a different amount than you requested, although if the requested amount is in line with your anticipated actual expenses and the fair rental value of your home, this too would seem odd. Such a situation would seem to suggest there was not good communication between you and the board leading up to the point when you made the requested amount. To avoid such a situation, you and your board should make sure the mechanics of the housing allowance are understood by all parties and that your requested amount is supported by documentation. In some cases the church may seek the advice of a local real estate agent as to the fair rental value of your home to ensure the requested housing allowance is in line with the local market.
While the housing allowance cannot be amended to apply retroactively, it is permissible to prospectively authorize or amend a housing allowance. Thus, where a housing allowance was not authorized before the beginning of the tax year or there is a change in circumstances such that a different housing allowance amount is desired, the church's governing board can authorize a new amount to apply for the remainder of the year.
—Ted Batson is a tax attorney and CPA with the accounting firm CapinCrouse LLP.
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