Apr 17 2014, 6:24pm CDT | by Forbes
Bill Cassidy, Republican Congressman from Baton Rouge, LA and physician was in the news last week as he provided emergency treatment to a fellow passenger on a Southwest Airlines flight. He may well have gained one more vote in his Senate race.
This week Congressman Cassidy is proving that he might have done better to continue practicing medicine full time as he introduced one of the stupidest pieces of tax legislation I have ever seen. ”The Faith and Fairness Act of 2014” is a response to Judge Barbara Crabb’s ruling that Code Section 107(2) which exempts from income tax cash housing allowances of “ ministers of the gospel” is unconstitutional.
There is no dollar limitation to 107(2), so this generally modest benefit allows the mega pastors of mega churches, whom my blogging buddy Reverend William Thornton calls religious racketeers, to exclude hundreds of thousands of dollars from their income. Reverend Frank Benson Jones believes the unlimited housing allowance is extremely harmful to religion, because it attracts the wrong type of people into ministry. He believes that if the profits were removed from the church, only prophets would remain.
The last time that the income tax exclusion for housing allowances of “ministers of the gospel” was threatened by the courts was in 2002. Rick Warren and the IRS were duking it out about whether there was a limitation to cash allowances based on the fair rental value of the minister’s home. The Ninth Circuit, on its own initiative, questioned why Section 107 did not violate the Establishment Clause. The Court appointed Erwin Chemerinsky as amicus curiae (Although maybe in this case advocatus diaboli might have been more accurate) to brief the issue. Congress acted quickly to amend Code Section 107 to agree with the IRS interpretation, but only prospectively.
On its face, providing a special tax benefit to “ministers of the gospel” seems blatantly unconstitutional, since it would only apply to Christians. The IRS early interpreted the statute more broadly to include many who would not otherwise want to be considered “ministers of the gospel” – rabbis and cantors for example. Hence the preservation of the clergy tax benefit has broad ecumenical support with, for example, Southern Baptists joining with the Russian Orthodox and Kirshna Consciousness and Islamic organizations to file an amicus brief supporting the government’s appeal of Judge Crabb’s decision.
For purposes of this section, the term ‘minister of the gospel’ includes any duly recognized official of a religious, spiritual, moral, or ethical organization (whether theistic or not).
I would really love to see how they could score the revenue loss on this monstrosity. You see there is no definition for what a “religious, spiritual, moral, or ethical organisation” is.
Under Section 501, we have 29 different types of exempt organizations. The gold standard is 501(c)(3), since that allows for tax deductible deductions. It is defined as:
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals
Now many 501(c)(3) organizations will probably say that they are not religious or spiritual, but how many of them will say that they are not ethical or moral? Remember there is no dollar limit to 107(2) and this legislation would vastly broaden its scope.
The fact is that being a regular parish clergy person is not actually that great a tax deal. A senior pastor making $80,000 per year might be able to exclude $20,000 or so from income tax, but they have to pay self-employment tax on the whole amount including the housing allowance. When justifying the housing allowance, a lot of them will point that out, although there is really no connection between the two that I have been able to discern. The clergy that are the greatest cause of concern would probably be made whole by getting a FICA match. They would also have much simpler income tax returns. Any parish that would not respond to a “Let’s make our preacher whole” campaign to provide social security coverage to their religious leader has a lot more than money problems. That’s why there should be a Clergy Tax Simplification Act of 2014 that repeals all special tax status for “ministers of the gospel”.
You can follow me on twitter @peterreillycpa.
I noted that Congressman Cassidy grew up in Highland Park, Illinois. Interestingly, I had the chance to interview another physician turned politician who grew up in the same town. I asked her about Code Section 107. Here is what Green Party Presidential candidate Jill Stein had to say
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