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The Warren Decision

You may have heard about a recent court ruling that changes the use of "fair rental value" when determining housing allowance, otherwise known as the Warren decision.

In a court case decided on May 16, 2000, (114 T.C. 23, Warren v. Commissioner Tax Court Case) seventeen judges voted 14 to 3 that Sec 107 is limited to the amount USED to provide a home (not the fair market rental value of the home.) This would allow the housing allowance to be up to 100% of compensation, provided that the pastor spends the money on housing. This becomes extremely important in years when a house is purchased or major improvements are made.

The IRS appealed this decision in September 2000. A new issue of the constitutionality of the Parsonage Allowance was raised during that appeal.

Congress acted with Public Law 107-181 on May 20, 2002. This reinstated the fair rental value limitation as their intent. "The Clergy Housing Allowance Clarification Act of 2002" added new text to Section 107.

The Warren v. Commissioner, Tax Court No. 14924-98, August 26, 2002, was then dismissed. The validity of the parsonage allowance has been reinforced by congressional action, but is once again limited by the fair rental value computation. The effect of all of this is that things are right back the way they started.

Please give our office a call if you have any questions regarding this case.


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Connie Buskohl CPA, PC

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Copyright 2006 Connie Buskohl, CPA PC
Last modified: January 19, 2006