A Lesson on the Housing Allowance! Part 2

By Raul Rivera

Setting up the Housing Allowance

After reading part 1 of this series you may feel a little lost. Although Congress made changes to the Housing Allowance which made it more complicated, it was forced to make these decisions because of a court case that was taking place in the Ninth Circuit Federal Court of Appeals in California. This case was an appeal by the IRS trying to convince the court that Rick Warren owed over $55,000 in taxes because he over-declared his housing allowance. Though neither Rick nor the IRS asked the court to consider the constitutionality of the housing allowance, the liberal court took it upon itself (this is not usual) to order each party to submit briefs on whether or not the housing allowance was constitutional. The court also asked a law professor from the University of Southern California to become a friend of the court and submit a brief on the constitutionality of the housing allowance. As expected, the professor and the liberal court quickly moved towards making it unconstitutional. However, in a unprecedented move, Congress acted quickly and unanimously passed the Housing Allowance Clarification Act of 2002. Congress specifically passed this law to end the IRS's need to continue its case before the ninth circuit of appeals. By ending the IRS appeal, the case became moot and was dismissed before the court could decide on the constitutionality of the housing allowance.

Though the changes made to the Housing Allowance may be more complicated than ever before, it is still a worthwhile tax benefit. You are able to write off 100 percent of either your actual expenses or rental value. It must be done right, however. In order for the Housing Allowance to be set up correctly, the church must have a board meeting to set up the Housing Allowance Designation. The language of the designation in the minutes has to be precise to reflect the new changes as well. That is why we offer it as a service. We want every minister in America to get it right.

At our church management conference, we teach you step-by-step how to set up the Housing Allowance in your church. Everything you need to know will be covered, from the concept of the Housing Allowance to the Section 265 double dip as well as the W-2 and the minister's tax return.