In a December 2010 decision, the United States Tax Court, in a case involving a Cleveland, Tennessee minister, took a totally different approach in dealing with a minister’s assertion that he could claim two homes under the ministerial housing allowance provision of the Internal Revenue Code. In Driscoll vs. Commissioner (135 T.C. No. 27), the Tax Court, in a divided opinion, held that the minister/taxpayer could claim the ministerial housing allowance for two homes under Section 107 of the tax code.
In the Driscoll case, the minister had one home in Cleveland that was his primary residence and another residence that the Tax Court called a “second home” on the Ocoee River just outside of Cleveland. When the minister initially claimed the ministerial housing allowance on both homes, the IRS rejected the exemption on the “second home.” However, the Tax Court held that the IRS had no authority under Section 107 of the Tax Code to reject the minister’s claim and therefore ruled that the minister was eligible to have the ministerial housing allowance on both homes.
When this decision was handed down, the writer of this article noted that the Driscoll decision could do more harm than good in the long run when it came to maintaining the ministerial housing allowance. It was noted that not only were exorbitant amounts claimed by Driscoll for housing allowance, but also that the majority of ministers do not have the ability to own two homes. It was noted that opponents of the ministerial housing allowance could use the amounts claimed in the Driscoll case and the discussion of a “second” or “vacation” home to turn public opinion against those who have tried to follow the letter of the law over the years. In the time since the Driscoll decision was initially handed down, such has been the case, putting the ministerial housing allowance under more scrutiny and attack.
Realizing that the Driscoll decision was an overstatement of what most people had considered to be settled principles of law, the Internal Revenue Service appealed the decision in the Driscoll case. In early February 2012, a three-judge panel from the U.S. 11th Circuit Court of Appeals in Atlanta overturned the Tax Court’s decision in the Driscoll case.
The decision by the Appeals Court hinged on whether “a home” as used in the housing allowance provision of Section 107 of the Tax Code also includes “homes.” The Appeals Court concluded that ‘a’ maintains a singular connotation in the context of Section 107 and was meant to deal with one home, rather than multiple homes. The Appeals Court clearly stated their holding by noting that “the consistent use of the singular in this legislative history— “a dwelling house,” “a home,” and “the home”—demonstrate that Congress intended for the parsonage allowance exclusion to apply to only one home.”
Legal counsel for Driscoll requested a full hearing of this matter before an en banc panel of the 11th Circuit Court of Appeals and appealed the decision to the U.S. Supreme Court. At all courts, the decision overturning the Tax Court has stood, thus limiting the ministerial housing allowance to only one home. Therefore, any minister who relied on the Tax Court decision to apply a housing allowance to more than one home should immediately consult with your tax professional about amending your tax returns.