*28 Decision will be entered under Rule 155.
P is a minister of the gospel within the meaning of sec.
of his compensation as a housing allowance during each of the
taxable years in issue. Ps used the allowance to provide a home
for themselves and their children.
The amount they used to provide a home, and exclude from
income under
rental value of their home. R contends that Ps' exclusion under
used to provide a home or the fair market rental value of their
home.
HELD: The exclusion under
to the amount used to provide a home, not the fair market rental
value of the home.
*343 OPINION
COLVIN, JUDGE: Respondent determined the following deficiencies and accuracy-related penalties with respect to petitioners' Federal income taxes for taxable years 1993, 1994, and 1995:
Sec. 6662(a)
Year Deficiency Penalty
____ __________ ____________
1993 $ 11,932 $ 2,386
1994 18,061 3,612
1995 16,080 3,216
*344 Petitioner is a minister of the gospel within the meaning of
Unless*30 otherwise indicated, section references are to sections of the Internal Revenue Code in effect for the years in issue, and Rule references are to the Tax Court Rules of Practice and Procedure. References to petitioner are to Richard D. Warren.
This case was submitted fully stipulated under Rule 122.
BACKGROUND
A. PETITIONERSPetitioners are married and resided in Trabuco Canyon, California, when they filed their petition in this case. Petitioner is a minister with a bachelor of arts degree from California Baptist College, a master of divinity degree from Southwestern Theological Seminary, and a doctor of ministry degree from Fuller Theological Seminary.
In December 1992, petitioners bought a residence for $ 360,000. The annual fair market rental value of petitioners' residence was $ 58,061 in 1993, $ 58,004 in 1994, and $ 59,479 in 1995.
B. SADDLEBACK VALLEY COMMUNITY CHURCHIn 1980, petitioner founded the Saddleback Valley Community Church (the church) in his home. Over the years the church used many different facilities to house the congregation. The congregation had grown to more than 18,000 individuals by 1992, and it continued to grow thereafter.
During the years in issue, *31 petitioner served as a duly ordained Baptist minister of the church. He also authored books entitled The Purpose Driven Church, The Power to Change Your Life, and Answers to Life's Difficult Questions, and he owned and operated a tape and book ministry called The Encouraging Word.
*345 C. PETITIONER'S COMPENSATION FROM THE SADDLEBACK VALLEY COMMUNITY
CHURCH
Each year, before the fiscal year began, the church's trustees met to designate the amount of compensation to be paid to each of its ministers. The trustees also allocated these amounts between salary and housing allowances. In 1992, the church adopted a fiscal year ending May 31. For the short year from January 1 to May 31, 1993, petitioner received $ 42,496, all of which the trustees of the church designated as a housing allowance. For the fiscal year ending May 31, 1994, the trustees approved compensation of $ 85,000 for petitioner and designated the full amount as a housing allowance. For the fiscal year ending May 31, 1995, the trustees approved compensation of $ 100,000, all of which they designated as a housing allowance. For the fiscal year ending May 31, 1996, the trustees approved compensation of $ 100,000 and allocated*32 $ 20,000 for salary and $ 80,000 for a housing allowance.
Petitioner received the following amounts from the church as compensation for the calendar years in issue: $ 77,663 for 1993, $ 86,175 for 1994, and $ 99,653 for 1995. Petitioners used $ 77,663 in 1993, $ 76,309 in 1994, and $ 84,278 in 1995 to provide a home for themselves and their children by paying expenses for mortgage, utilities, furnishings, landscaping, repairs, and maintenance and real property taxes and homeowner's insurance premiums. 1 Based on these expenditures, petitioners excluded from income on their 1993 return all of petitioner's compensation from the church and reported as income $ 9,866 in 1994 and $ 19,654 in 1995.
The amounts remaining in dispute are the differences between the rental values of petitioners' home and the amounts petitioners excluded from their returns. The following table summarizes relevant financial information:
*33 Amount in dispute
Amount (i.e., amount
excluded Rental excluded less
Taxable Compensation Housing from value rental value of
year received expenditures income of home home)
_______ ____________ ____________ ________ _______ _________________
1993 $ 77,663 $ 77,663 $ 77,663 $ 58,061 $ 19,602
1994 86,175 76,309 76,309 58,004 18,305
1995 99,653 84,278 79,999 59,479 20,520
*346 Petitioners reported that petitioner had net Schedule C, Profit and Loss From Business, income from his tape and book ministry of $ 183,635 in 1993, $ 217,770 in 1994, and $ 221,401 in 1995, and total income (not including the housing allowance paid by the church to the extent excluded by petitioners from their gross income) of $ 187,652 for 1993, $ 219,919 for 1994, and $ 241,238 for 1995. 2
*34 DISCUSSION
A. RESPONDENT'S CONTENTIONSRespondent contends that the exclusion under
Compensation for services is generally included in gross income for purposes of calculating Federal income taxes. See sec. 61(a)(1). However,
In the case of a minister of the gospel, gross income does
not include --
(1) the rental value of a home furnished to him as
part of his compensation; or
(2) the rental allowance paid to him as part of his
compensation, to the extent used by him to rent or provide
a home.
*35 Contrary to respondent's position, neither
We have previously held that, under
The trouble with petitioners' analysis is that the
Congress, faced with the "rental value" language of section
107(1), did not choose to use such language in
Instead, the Congress provided that the exclusion applies to
"the rental allowance paid * * *, to the extent used by [the
minister] to rent or provide a home." (Emphasis added.) Thus,
the Congress clearly provided a different measure for the
exclusion under
problem so overwhelming as to force us to conclude that the
Congress could not have meant what it said. * * * [
Our reasoning in Reed also applies to the instant case.
C. RESPONDENT'S ARGUMENTS BASED ON STATUTORY TEXTRespondent contends that the title of
Respondent contends that to not impose a fair rental value limit requires that we disregard the word "rental" in
*38 The church designated all of petitioner's compensation as a housing allowance for its fiscal years ending May 31, 1994, and May 31, 1995, and 80 percent for its fiscal year ending May 31, 1996. Respondent contends that the language in
The "part of his compensation" language also appears in
*40 *349
Where a statute plainly authorizes an exclusion from income, as here, we require "unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein."
Respondent contends that respondent's position prevents unequal treatment between ministers for whom housing is provided and excluded under
*41 is unfair to those ministers who are not furnished a parsonage,
but who receive larger salaries (which are taxable) to
compensate them for expenses they incur in supplying their own
home. * * * [The new provision] has removed the discrimination
in existing law by providing that the present exclusion is to
apply to rental allowances paid to ministers to the extent used
by them to rent or provide a home.
H. Rept. 1337, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 15 (1954); S. Rept. 1622, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 16 (1954).
*350 Respondent contends that the
If we adopt respondent's position, ministers eligible for an exclusion under
There may be concern that, under
For the foregoing reasons, we hold that the exclusion from gross income for a designated parsonage allowance is not limited to the lesser of the fair market rental value of the home or the amount used to provide a home.
To reflect the foregoing,
Decision will be entered under Rule 155.
Reviewed by the Court.
CHABOT, PARR, WELLS, WHALEN, HALPERN, BEGHE, CHIECHI, LARO, FOLEY, VASQUEZ, GALE, THORNTON, and MARVEL, JJ., agree with this majority opinion.
Footnotes
1. The parties stipulated that all of these expenditures were used to provide housing.↩
2. Although the record is silent as to why petitioners excluded only $ 79,999 when they spent $ 84,278 on housing for 1995, we infer that it was because the church designated an $ 80,000 housing allowance for the church's 1996 fiscal year.↩
3. The dissent contends that the effect of our interpretation of
sec. 107(2) is to read the term "rental" out ofsec. 107(2) . See dissent, infra pp. 16-17. We disagree, and we believe our reading gives full effect to all of the words insec. 107(2) . First,sec. 107(2) specifically excludes not only the cost of renting a home, but also the cost of providing a home. Second,sec. 107(2) does not include language used insec. 107(1) that limits the amount of thesec. 107(2) exclusion to the rental value of the residence; instead,sec. 107(2)↩ requires that the amount excluded be a rental allowance paid as compensation to the minister and used by him or her to rent or provide a home.4. In
Rev. Rul. 71-280, 2 C.B. 92">1971-2 C.B. 92 , a minister bought a home, making a downpayment and mortgage payments in excess of the amount of his annual compensation as a minister. The Commissioner ruled that the taxpayer's exclusion undersec. 107(2) is limited to the fair rental value of a house, including furnishings, appurtenances thereto such as a garage, and utilities. Despite this, we apparently have never so held, nor have we held that the "part of his compensation" language insec. 107(2) bars exclusion of all of a minister's compensation. InDeason v. Commissioner, 41 T.C. 465">41 T.C. 465 (1964), the taxpayer received $ 1,300 compensation as a minister both in 1959 and 1960, and used more than those amounts to provide his own home. The Commissioner apparently did not challenge the taxpayer's exclusion of 100 percent of his pay. Cf.Marine v. Commissioner, 47 T.C. 609">47 T.C. 609 (1967), where a taxpayer who received $ 13,000 compensation as a minister, sold a house and used the proceeds to buy another house. As a result of his use of the proceeds of the sale of the first house to buy the second house, we found that he "used" only $ 3,142.22 of his $ 13,000 compensation for housing. In dicta, we noted that if the taxpayer were to prevail inMarine v. Commissioner, supra , "his entire compensation * * * would escape taxation, a result that seems clearly contrary to the statute."Id. at 613↩ . We found that the taxpayer's entire salary was artificially designated as a rental allowance, and limited him to an exclusion of the actual amount ($ 3,142.22) used by him to rent or provide a home.5. In
Reed v. Commissioner, 82 T.C. 208">82 T.C. 208 , 213 (1984), we noted that the predecessors ofsec. 107(1) date back to 1921. See sec. 213(b)(11) of the Revenue Act of 1921, ch. 136, 42 Stat. 227, 239;sec. 22(b)(8) of the Revenue Act of 1928, ch. 852, 45 Stat. 791, 798;sec. 22(b)(6) of the Revenue Act of 1932, ch. 209, 47 Stat. 169, 179;sec. 22(b)(6), I.R.C. 1939 ,53↩ Stat. 1, 10.6. The dissent asserts that the majority is sanctioning abuse and that this case is an archetypical example of abuse. We recognize that the fact that petitioner has income from a Schedule C activity enables him to spend more for housing. The same financial flexibility would be available to a minister who has investment income or who is married to a spouse that earns a separate income. Despite the dissent's concerns, there are no special limits in
sec. 107(2) providing for those situations. Concern over those issues does not, contrary to the urging of the dissent, justify our adding a fair rental value limit tosec. 107(2)↩ .