The Internal Revenue Service said last week that it will delay for one more year implementation of a controversial new policy that would close a tax loophole for clergy who own their homes.
Ever since 1962, ministers and rabbis who own homes have been allowed to deduct taxes and interest on mortgages even if they receive a tax-exempt housing allowance. Military personnel also are allowed such deductions if they receive housing allowances.
The IRS, however, has long wanted to end what is seen by some as an unjustified tax break for the clergy and military, and proposed in 1983 to reverse the policy, sparking protests from ministers, military families and their representatives in Congress.
The deduction can be worth as much as $1,000 a year for clergy or military people living in areas with high-cost housing such as Washington. Ministers said two years ago that they saw the proposed new policy as a way to force congregations to pay more for supporting their clergy.
The IRS dropped the proposal for military personnel in 1983, after the Department of Defense and members of Congress protested that the policy would create pressure for increases in housing allowances for the military, but went ahead with the ruling eliminating the deduction for clergy.
Congress, however, included a provision in the 1984 tax act that delayed the effective date of the new ruling until Jan. 1, 1986.
The IRS has now decided to delay the effective date until Jan. 1, 1987, and many ministers are hoping that the proposal will be snuffed out for good by congressional action sometime this year.
"I'm pleased, of course, that they have agreed to delay it but concerned that it is still on the books," said the Rev. Thomas Cox of the Emmaus United Church of Christ in Vienna. "With this tax reform business in the works, however, and everything up in the air, maybe the ruling will be eliminated by Congress."
Cox said that the United Church of Christ had urged Congress this spring to eliminate the ruling from any new tax laws.
"If they are going to keep the [ruling] then they need to address the issue of parity with military personnel," said Cox. "That still concerns us quite a bit."
The Rev. E. E. Wheeless of the First Baptist Church of Springfield, who also owns a house in Northern Virginia, said he, too, was relieved to hear of the delay.
"So many ministers bought houses based on their allowance and the deduction," said Wheeless. "It would be a great hardship on many families to take [the deduction] away."
Wheeless said that the General Board of the Virginia Baptist General Association in Richmond had also recently passed a resolution "suggesting to the government the need to maintain the deduction."
"There has definitely been a trend across the Southern Baptist Convention, nationwide, for ministers to buy their own homes," said Wheeless. "Many of those in the Northern Virginia area I know own their homes."
While most denominations do not keep records of how many clergy own homes, a number of denominations have said that many of their ministers jumped to take advantage of mortgage-interest deductions in the past 15 years by purchasing houses.
Even if ministers can afford homes, however, that doesn't necessarily mean they are wealthy people.
"The clergy is one of the lowest-paying professions around," said one local minister who asked not to be named. "They need this deduction to make ends meet."
A number of ministers in this area protested the ruling two years ago by saying that it would hit small congregations and their ministers hardest.
"There are many ministers who don't make more than $11,000 a year, and without the housing subsidy [provided under the old IRS rule on deductions] they might not be able to make it," said the Rev. John Falcone, the minister for St. John's Episcopal Church in the Glencarlyn area of Arlington. Falcone said that many ministers are required to live close to their churches and cannot always look for lower-cost housing in an area farther away.
IRS officials have defended the new policy by saying the loophole is "unfair," but many ministers argue that because they are required to pay 100 percent of Social Security, similar to self-employed people, they carry their share of the tax burden.
An IRS spokesman said there was no stated reason for the delay, except that IRS Commissioner Roscoe Egger has the statutory authority, if he chooses, to delay implementation of rulings that will have adverse effect.
"I hope this means they are eventually going to back down," said one minister. "The money to make up the difference just isn't there for some denominations. It's like justifying the cutbacks in human services by saying private business will take up the slack. But it hasn't, and you can't depend on the initiative of the church any more than you can depend on the initiative of private business."