The Tax Court held that a parsonage allowance paid to an ordained minister used to pay the housing expenses of a second home could be excluded from income, saying the phrase “a home” used in IRC § 107 should be interpreted as any home, not just one.
Section 107 allows ministers to exclude from income the rental value of a home furnished to them as part of their compensation or an allowance paid to them and used for rent or expenses related to a home. For tax years beginning after Dec. 31, 2001, the excludable rental allowance is limited to the fair rental value of the home (including any furnishings and garages) plus the cost of utilities.
During 1996 –1999, Philip Driscoll, an ordained minister (and Grammy award-winning trumpeter), received a housing allowance from Mighty Horn Ministries Inc. (later renamed Phil Driscoll Ministries Inc.) that was used to pay the mortgages, utilities, maintenance, furnishings and improvements related to two homes, one in Cleveland, Tenn., and a second one at a nearby lake. On their joint income tax returns, Driscoll and his wife excluded from income housing allowances of $104,312 in 1996; $113,416 in 1997; $188,018 in 1998; and $283,033 in 1999. The IRS issued a deficiency notice increasing their income by $25,843 for 1996; $70,708 for 1997; $116,309 for 1998; and $195,779 for 1999 related to the portion of the housing allowances allocated to the second home. The taxpayers petitioned the Tax Court for relief.
The IRS argued that the section 107 exclusion applies only to one home, since the Code, regulations and legislative history all use the phrase “a home,” not “homes,” and under a common-law principle, exclusions from income should by default be narrowly construed (U.S. v. Burke, 504 U.S. 229 (1992) (J. Souter, concurring)).
A seven-judge majority of the Tax Court rejected that interpretation, noting that among general definitions provided in section 7701, subsection (o)(1) (subsequently redesignated subsection (p)(1)), refers to section 1 of Title 1 of the U.S. Code to determine when singular words in the Code are meant to also be considered plural. That section states that unless the context indicates otherwise, “words importing the singular include and apply to several persons, parties, or things” when determining the meaning of any act of Congress. The court stated that it could override the plain meaning of a Code section only if there is unequivocal evidence of legislative purpose to do so. Finding no such intent by Congress, the court held that “a home” used in section 107 means any home of the minister.
Six judges, however, joined a dissenting opinion stating that by the singular phrase “a home,” Congress appeared to have meant only the one home where a minister principally resides. If a minister lives in more than one home, he or she should be required to apportion the exclusion between them, they said.
By Charles J. Reichert, CPA, professor of accounting, University of Wisconsin–Superior.
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