The Minister’s Housing Allowance (I.R.C. Section 107(2)), was again deemed unconstitutional by a federal judge in 2017.  Now, the appeals process is progressing.




Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.



From CapinCrouse LLP webpage:

On October 6, 2017, Judge Barbara Crabb of the U.S. District Court for the Western District of Wisconsin issued her anticipated decision declaring Sec. 107(2) of the Internal Revenue Code, the section authorizing the exclusion of a minister’s housing allowance from taxable income, an unconstitutional violation of the Establishment Clause of the First Amendment to the U.S. Constitution.


An appeal was filed in February 2018 in the Seventh Circuit Court of Appeals.  An adverse decision could initially affect ministers and ministries in Indiana, Illinois, and Wisconsin.  It would generally be at the IRS’ discretion if they wanted to enforce nationwide – pending an appeal to the Supreme Court.  A wise and detailed “friend of the court” brief has been filed with the court by several organizations such as ECFA, The Lutheran Church – Missouri Synod, and the Christian Legal Society.  The brief makes a strong case for the “MHA” in that, among other things, the provision has been a part of our tax law for many years and that “ministers and congregations that have relied on it in good faith would suffer substantial ‘disruptive effects’ – especially small congregations and retired ministers, who have ‘the least ability’ to absorb the resulting costs.” The case should reach the appeals court later this year.

With potential additional federal taxes, state taxes, plus Social Security and Medicare withholding and matching, the budget ramifications on your institution could be profound.  We suggest that TBC’s Accounting Team consider and communicate the following:

    1. An increase in clergy taxes will generally bring the need for increased quarterly estimated tax payments.
    2. Institutions should be considering the budget implications of increasing compensation for their ministers to offset the negative impact of significant additional taxable income.
    3. Ministers who are considering the purchase of a new home – or refinancing – should factor in the potential that the minister’s housing allowance may not be available in the future.


  • The “Minister’s Housing Allowance” is under fire in the courts currently.
  • An adverse Appeals Court decision (with possible Supreme Court ruling in the future) could cost ministers and ministries over $1 billion per year in additional taxes.
  • Internal Revenue Code Section 107(1) – the “Parsonage Allowance” provision is not in question – for now.
  • Wise institutions should be doing some planning and analysis currently in the event their future budgets are affected by a potential adverse court decision on the “MHA.”


Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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