Vanderbilt Law Review

First Page



Religious freedom has played a pivotal role in the history and cultural development of the United States.' Religion historically has been considered a fundamental aspect of American culture, resulting in the granting of numerous legal rights and privileges to religious personnel and institutions. These grants stem from the protections in the Bill of Rights and include privileges that, though of undoubted importance, are not known widely and may fail to provoke controversy to the same extent as perceived infringements or endorsements of religion.'

Section 107 of the Internal Revenue Code grants one of the lesser- known privileges. This statute permits a "minister of the gospel" to exclude from gross income either the rental value of a furnished home or rental allowance paid to the minister as compensation to the extent that it actually is used to provide a home. Section 107, also known as the parsonage allowance exclusion, historically has created little controversy," probably because it has had relatively little impact on tax revenues and is known primarily to its beneficiaries. In recent years, however, individuals who see its potential as a tax-avoiding device have paid increased attention to the exclusion. The government, seeking to preserve an ever, shrinking tax base, has taken strides to narrow the scope of the statute or eliminate it altogether. Given the Supreme Court's recent church-state decisions, section 107 seems destined to receive even greater attention in the coming decade.

This Note analyzes the current section 107-determining its roots, discussing its application and effect, and expressing concern about its future vitality. Part II examines the history of the statute. Part III analyzes current interpretation of the section to determine the criteria that guide the Internal Revenue Service (IRS) and the courts in their application of the statute. Part IV discusses events of the last decade including publicized abuses by mail-order ministries, as well as IRS and judicial decisions, that suggest future changes in the statute's interpretation and application. Part IV also discusses various governmental efforts either to eliminate or to amend the reach of section 107. Finally, Part V examines the constitutionality of section 107 in light of recent Supreme Court decisions. Focusing on the major shift in establishment clause analysis evident in Supreme Court decisions since 1983, Part V first considers whether the exclusion passes constitutional muster under the Court's old and new tests. Next, this Note specifically examines two recent Supreme Court tax exemption cases and suggests that section 107 fails to meet the enunciated first amendment standards. Finally, this Note concludes that section 107 in its present form faces an uncertain future and suggests that Congress should scrutinize the parsonage allowance exclusion and any other tax relief for ministers to the same degree as benefits enjoyed by any other taxpayer class.