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by Rick Warren
Dear Co-worker in Ministry,
Forgive me for this long letter, but it involves an important court case that will affect every minister in America. In the days ahead, you may hear my name connected to this court case regarding the minister's parsonage allowance - so I wanted to give you the background and motivation for my involvement.
 I've always had a heart for pastors of smaller churches. I dedicated my book, The Purpose Driven Church, to bi-vocational pastors, who serve with little or no salary. My father and Kay's father were pastors of small churches, and we both spent time living in a "parsonage" growing up. Our parents could not have served these small churches without the help of a parsonage allowance.
That's why in 1996, I challenged the IRS on behalf of all ministers, in an attempt to protect the parsonage allowance from arbitrary interpretation by different IRS agents. The parsonage allowance has been a legal deduction since 1921.
I got involved when the IRS audited my personal tax returns for 1993-95. It was a routine audit, and no problems were found, not even any math errors. Unfortunately, the IRS agent conducting the audit had a grudge against pastors. He publicly stated that he disliked all ministers. His words to my tax accountant were, "I'm an atheist" and, "I believe ministers are dishonest." He assessed the value of our brand new home at far less than it was worth, thus eliminating part of our parsonage allowance.
When I asked this agent to share the basis for his assessment, he refused my repeated requests. After weeks of asking, he finally claimed that his assessment of my home's "fair market rental value" was based on an evaluation made by a realtor at Associated Realtors in Mission Viejo. CA.
Since we have church members who work there, we asked them to get us in contact with the realtor who made the assessment. We were told that no such person had ever worked at Associated Realtors. The company was very upset that an IRS agent would use their name to mask a lie, and so they did a statewide search that revealed there was no licensed real estate sales person or broker by that name anywhere in California. The agent had no factual basis for his assessment, having never seen or been inside my home. He had just made up a number and then lied about it. That certainly wasn't a "FAIR market rental value."
My first reaction to this deception was to just accept the assessment anyway and get on with more important matters. It was a minor distraction to me, and I had the funds to pay it. But then my tax preparer, who has prepared tax returns for over 11,000 pastors, told me, "Some IRS agents have bullied ministers with this arbitrary abuse for years."
Right then, I knew what I had to do. The practical side of me wanted to just drop the issue, but I sensed God's call on this. With Kay's sense of justice and my desire to protect small church pastors from similar abuse, we decided to challenge the vagueness of the revenue ruling that allowed agents to arbitrarily assess the value of a parsonage without any objective standard. In other words, I wanted to make sure that the "fair" in the "fair market rental value" clause was really fair!
I next went to the IRS and asked them to answer two simple questions:
- First, "How do your agents objectively determine the 'fair market rental value' of a home when you have no written standard? Please, show me the clear, objective, fair standard that you use across the board.
- Second, show me how this revenue ruling is supported by the law Congress passed. Show me where Congress intended your interpretation? The IRS could not answer either question.
Not only could they not give us an answer; they could not even give their own agents an answer! Through court documents, we learned that my agent had tried to get the advice of his supervisors, first in California, and then in Washington, DC. Our Protest Letter to the IRS summarized the problem of a vague, undefined standard: "The IRS Examiner struggled for over 450 days attempting to make the above calculations. He asked for and was not given guidance from the District Technical Coordinator nor from the National office. Left to his own devices to interpret and apply Revenue Rule 71-280, in the final analysis, his calculation is nothing more than a wild guess and has no credibility."
Let me make this clear: I am not opposed to the "fair market rental value" clause if that is what Congress intended and IF the IRS will define a "fair" written, objective standard to be used by all IRS agents. The whole reason I took on this fight was to prevent agents from making arbitrary, unfounded evaluations without anything to back it up.
We knew a court challenge would actually cost us more than just paying the unfair assessment, but we felt we needed to stand up for what was right and to protect small church ministers from abuse. Over 240,000 pastors have attended one of our Purpose Driven Church seminars and I felt I owed it to these men.
Over the years, as the legal costs mounted, the IRS offered to settle with us if we'd just drop the court case. They did not want their vague standard challenged, but Kay and I refused because it was never about money. In fact, we've spent more than twice the amount fighting this case than what the unfair assessment amounted to. My explanation to the IRS was, " I'm fighting this battle, not for myself, but to keep individual agents from abusing other pastors. They deserve a clear revenue ruling that is fair no matter where they live."
Finally, on May 16, 2000, we got that ruling. The United States Tax Court gave us, in Warren v Commissioner, a stunning victory. We didn't just win by a small margin; the 17 judges ruled 14 to 3 in our favor. They agreed with every single point we made in the case. It was a four-year battle, but the court decided that the IRS had clearly misinterpreted the law as enacted by Congress. This case was reported in numerous legal publications as a major victory for every minister in America.
But on March 5th of this year the case was resurrected with a totally different twist. Judge Stephen Reinhardt, on the Ninth Circuit Court of Appeals, questioned the "constitutionality" of the 80 year-old parsonage law. He was not interested in the ruling we won, but was looking for an opportunity to challenge the constitutionality of parsonage allowances.
What is amazing is that no one - not even the IRS - has questioned the constitutionality of these allowances. In fact, both the IRS and the Justice Department offered briefs backing my position that it is constitutional. But Judge Reinhardt, along with a colleague, ignored these opinions, and the opinion of a 3rd judge on the panel, and appointed the USC law Professor Erwin Chermerinsky to write another opinion.
Right now, we've been told that most Christian organizations are encouraging the writing of legal briefs to support the constitutionality of the parsonage allowance, including The Evangelical Council For Financial Accountability, Focus on the Family, North American Mission Board, and many others. At the same time, our attorneys are in contact with members of Congress, the Department of Justice, and the IRS to address our concerns about fairness, so the issue might be settled out of court and we can prevent the case from being presented to Judge Reinhardt on May 30th. Please pray for all of these avenues.
 If Judge Reinhardt declares the parsonage deduction unconstitutional, this will have a devastating effect on churches and other faith-based non-profit organizations. If that happened, you can be sure that a huge coalition of religious ministries, denominations, and churches will undoubtedly take this issue to the Supreme Court.
We've sometimes felt overwhelmed in this battle for simple fairness, but at the same time, we've received encouragement and support from pastors, churches, and ministries across the country, and a number of noted constitutional experts have volunteered to fight this new case if it comes to that.
There are a few organizations that wish this case would just quietly vanish. They are willing to give up the 14-3 victory we won for all ministers in 2000. That victory has already saved tens of thousands of ministers untold millions in the past two years. But in fear, some pension groups have tried to restore the vague rule that the US Tax Court through out because Congress never intended it!
This happened once before. In 1981 a group lobbied Congress to eliminate the housing allowance. As a result of their efforts, the IRS issued a revenue ruling that disallowed deducting the mortgage interest and real estate tax twice ("the double dip"). The conventional wisdom of the denominational pension programs was to cave in to the new revenue ruling in fear that Congress might disallow the entire clergy housing allowance.
Fortunately, a few ministers fought the new IRS revenue ruling. There was enormous pressure put on those ministers out of fear of losing the entire housing allowance. But the ministers fought on and as a result of their efforts, Congress passed a Public Law stating that it was the intent of Congress to allow the double dip and ordered the IRS to revoke their prior revenue ruling. The wisdom of the denominational pension groups proved wrong and the housing allowance deduction emerged stronger than ever.
In my mind, any organization unwilling to defend the constitutionality of the housing allowance doesn't deserve it. So I encourage you to write your denomination and urge them to file an amicus (friend of the court brief) supporting constitutionality.
I certainly didn't ask for this battle. It would not have even happened if an IRS agent hadn't lied about an evaluation and called it "fair." But if this battle is not fought now it will certainly come up again soon.
Hugh Hewitt, who served in the Justice Department and now hosts a nationally syndicated talk show, wrote this: "Dear Rick. This challenge would have arrived sooner or later because of the implacable hostility of the political left to the role of God in the world and the country. Although it is a burden on you and Kay, I think it is providential that you control the case, and thus can designate the lawyers and speak on the matter or appoint spokespeople to do so. In the wrong hands, the case could be fumbled before it began. With the wrong words, the public would not understand. I am also convinced that your integrity will be a shield against tabloid treatment of the issue. In short, Reinhardt picked the wrong case and the wrong plaintiff on which to engage this issue. I see Providence in that."
No doubt anti-religious groups and the media will try to "spin" this issue through false headlines and personal accusations. Kay and I knew when we chose to champion this cause that it would attract criticism and misunderstanding, and that my motives would be maligned. They have been already, even by some misinformed Christians. But the truth is, fourteen judges in the United State Tax Court concluded that we did the right thing in challenging an IRS ruling which was vague, arbitrary, and never intended by Congress.
In closing, I urge you to pray for 4 things:
God bless you friends,
PS: Rejoice with me over some good news: We had over 32,300 attend one of Saddleback Church's 11 Easter services and 2, 414 people committed their lives to Christ!
For more information on this issue, see "Bill introduced to protect clergy housing allowance"
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