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From his column God, Government and Me—Money in the Church

god-government-me-05-14-1Rep. Dave Camp (R-MI), the leader of the tax-writing committee in the House, recently unveiled his proposals for tax reform in draft legislation entitled “The Tax Reform Act of 2014.” Before releasing the proposal in March, Rep. Camp’s committee held more than 30 hearings, organized 11 bipartisan working groups, and collected thousands of public comments. In doing so, the committee paid particular attention to a number of issues involving churches and other charitable organizations.

Still, the odds that lawmakers will move forward on tax reform this year are slim. Watch for tax reform legislation in the odd years: 2015, 2017, and 2019. However, the church-related proposals in Rep. Camp’s draft legislation should be taken seriously as they will likely set the stage for future discussions on tax reform:

A Floor of Two Percent of Adjusted Gross Income on Charitable Giving Deductions

Overall, incentives to make charitable gifts could suffer somewhat due to the proposed 2% floor on charitable contributions, meaning that only gifts to churches and other charities above 2% of an individual’s adjusted gross income (AGI) could be deductible.

Extension of the Deadline to Deduct Contributions

The Camp plan may encourage charitable giving for some individuals by extending the deadline to deduct contributions to churches and other charities from the existing year-end deadline to tax return due dates (adding four and a half months for most donors to make deductible contributions in a given tax year). This provision could create significant confusion for donors, churches, and tax preparers.

Non-cash Contributions Generally Limited to Adjusted Basis

The Camp plan would generally limit the value of non-cash gifts to adjusted basis rather than fair market value—dealing another devastating blow to incentives for charitable giving. Under existing rules, taxpayers are often encouraged to donate non-cash gifts like real estate and closely held business interests that have appreciated over time because they can deduct these gifts at their present fair market value.

No More Mortgage Interest “Double Deduction” for Ministers with a Housing Allowance

The mortgage interest deduction would be eliminated for ministers to the extent they receive an exclusion from income tax for a housing allowance under Section 107 of the code. This would eliminate the so-called mortgage interest “double deduction” for ministers who are designated a housing allowance from their church or other employer.

In the courts, the federal government has filed its latest brief in the clergy housing challenge, arguing that the Wisconsin District Court was wrong to declare the law unconstitutional. After reciting the history behind the longstanding clergy housing provisions now found in Section 107 of the tax code, the government’s brief summarized the proceedings thus far in the Freedom From Religion Foundation (FFRF) case and explains why the Treasury and the IRS believe the Western District of Wisconsin reached the wrong conclusion in finding the clergy housing allowance exclusion of Section 107(2) unconstitutional (the portion of the law impacting clergy-provided housing, which did not impact congregation-provided housing).

First, the government argued that the district court should have dismissed FFRF’s case because the organization and its leaders lack standing required of plaintiffs to bring a challenge in federal court. While FFRF claims the clergy housing allowance provision unlawfully discriminates against leaders of non-religious groups, FFRF’s atheist co-presidents never actually tried to claim a housing allowance for themselves with the IRS. As a result, the government argued it was premature for the district court to rule that FFRF suffered any kind of personal injury sufficient to bring the lawsuit.

Then, assuming for argument’s sake that FFRF and its leaders do have standing, the government’s brief went on to explain why the clergy housing allowance exclusion is not unconstitutional as a permissible accommodation of religion. The government suggested that the history behind the law demonstrates it satisfies each part of the test used by courts to evaluate whether a law violates the Establishment Clause of the First Amendment.

Until the appeals process concludes and the Seventh Circuit issues a ruling, the suit will have no effect on ministers who currently receive a housing allowance from their church or other employer.

Dan Busby is president of the Evangelical Council for Financial Accountability (ECFA)—an accreditation organization that sets standards for governance, financial management, and fundraising/stewardship for churches and other nonprofits across the country.

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