                        114 T.C. No. 23



                 UNITED STATES TAX COURT



RICHARD D. WARREN AND ELIZABETH K. WARREN, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



 Docket No. 14924-98.                     Filed May 16, 2000.



      P is a minister of the gospel within the meaning
 of sec. 107, I.R.C. The church which employed him
 designated most or all 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 sec. 107(2), I.R.C., was more
 than the fair market rental value of their home. R
 contends that Ps’ exclusion under sec. 107(2), I.R.C.,
 may not exceed the lesser of the amount Ps used to
 provide a home or the fair market rental value of their
 home.

      Held: The exclusion under sec. 107(2), I.R.C., is
 limited to the amount used to provide a home, not the
 fair market rental value of the home.
                                 - 2 -

     Arthur A. Oshiro, for petitioners.

     T. Ian Russell, for respondent.



                                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

     Petitioner is a minister of the gospel within the meaning of

section 107.   After concessions, the sole issue for decision is

whether the amount of petitioner’s housing allowance compensation

that is excludable from gross income under section 107(2) is

limited to the amount used to provide a home, as petitioners

contend, or to the lesser of that amount or the fair market

rental value of the home, as respondent contends.        We hold that

it is limited to the amount used to provide a home.

     Unless 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.
                               - 3 -

     This case was submitted fully stipulated under Rule 122.

                            Background

A.   Petitioners

     Petitioners 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 Church

     In 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, 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.
                               - 4 -

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 $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
                                                 - 5 -

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:
                                                                              Amount in dispute
                                                                                (i.e., amount
Taxable       Compensation      Housing     Amount excluded   Rental value   excluded less rental
 year           received     expenditures     from income       of home         value of 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



          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



          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.
                                 - 6 -

                              Discussion

A.   Respondent’s Contentions

     Respondent contends that the exclusion under section 107(2)

may not exceed the lesser of the amount used to provide a home or

the fair market rental value of the home.       Respondent contends

that permitting a greater exclusion in the reporting of

compensation would be contrary to the “rental” language in the

statute and also contrary to the concern for equality among

ministers stated in the legislative history accompanying

enactment of section 107(2) in 1954.       We disagree for reasons

stated next.

B.   Section 107

     Compensation for services is generally included in gross

income for purposes of calculating Federal income taxes.       See

sec. 61(a)(1).     However, section 107 provides the following

exception:

     SEC. 107.   RENTAL VALUE OF PARSONAGES.

          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.

     Contrary to respondent’s position, neither section 107(2),

the regulations promulgated thereunder, nor the related
                                 - 7 -

legislative history, limits the amount that may be excluded from

income as a parsonage allowance under section 107(2) to the fair

market rental value of the residence occupied.    A rental

allowance excludable under section 107(2) may be used (1) to rent

a home, (2) to purchase a home, and (3) to pay expenses directly

related to providing a home.    See sec. 1.107-1(c), Income Tax

Regs.     Section 107(1) limits the exclusion to the rental value of

a home furnished as part of a minister’s compensation.    In

contrast, no fair rental value limit is stated in section 107(2)

or the regulations issued thereunder.

     We have previously held that, under section 107(2), the fair

rental value of a minister’s home is not excludable to the extent

that it exceeds the amount the minister uses to provide housing.

See Reed v. Commissioner, 82 T.C. 208, 214 (1984).     In Reed, we

were not required, and thus declined, to decide the issue here;

i.e., whether the exclusion under section 107(2) is limited to

the lesser of fair rental value or the amount used for housing.

See id.    We said:

          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
     section 107(2). 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 section 107(2) than the measure provided under
     section 107(1). Petitioners have failed to show us a
     policy problem so overwhelming as to force us to
                                - 8 -

      conclude that the Congress could not have meant what it
      said. * * * [Id. at 213.]

Our reasoning in Reed also applies to the instant case.

 C.   Respondent’s Arguments Based on Statutory Text

      Respondent contends that the title of section 107, “RENTAL

VALUE OF PARSONAGES”, shows that Congress intended to impose a

rental value limit under section 107(2).    We disagree.    It is

well settled that the heading of a section does not limit the

plain meaning of the text.    See Brotherhood of Railroad Trainmen

v. Baltimore & O.R. Co., 331 U.S. 519, 528-529 (1947); Stanley

Works v. Commissioner, 87 T.C. 389, 419 (1986).

      Respondent contends that to not impose a fair rental value

limit requires that we disregard the word “rental” in section

107(2).   We disagree.   Section 107(2) clearly is not limited to

payment of rent; on the contrary, it expressly applies to a

rental allowance “to the extent used * * * to rent or provide a

home.” (Emphasis added.)    This includes home purchases.    See sec.

1.107-1(c), Income Tax Regs.3



      3
        The dissent contends that the effect of our
interpretation of sec. 107(2) is to read the term “rental” out of
sec. 107(2). See dissent, infra pp. 16-17. We disagree, and we
believe our reading gives full effect to all of the words in sec.
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 in sec. 107(1)
that limits the amount of the sec. 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.
                               - 9 -

     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 section 107(2)

that excludes from income a rental allowance paid to a minister

“as part of his compensation” shows that Congress intended not to

allow an exclusion of all of a minister’s salary.   We disagree.

Respondent’s reading suggests that the “part of his compensation”

language in section 107(2) requires that, to be excludable under

section 107(2), any “part” of a minister’s compensation may be

designated as a rental allowance so long as less than “all” is so

designated.   Under that interpretation, a taxpayer could qualify

under section 107(2) if, for example, the amount designated as a

rental allowance were $1.00 less than the minister’s total

compensation.   This reading is not specifically indicated by the

legislative history or required by the regulations.   It seems

unlikely that such a tiny difference in amounts should control

whether section 107(2) applies.

     The “part of his compensation” language also appears in

section 107(1).   Thus, under respondent’s reading, no exclusion

would be available to a minister to whom a church provided a home

but no other compensation because the home would be all of that

minister’s compensation.   We do not think Congress intended to

require ministers living under those circumstances to pay tax on
                              - 10 -

the value of their church-provided housing, and we do not believe

the phrase “part of his compensation” in section 107(1) and

section 107(2) has that effect.   Instead, we give full meaning to

the words of the statute when we read section 107(1) and section

107(2) to require simply that the source of the funds be the

minister’s compensation.4

     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.”   Zinniel v. Commissioner, 89 T.C.



     4
        In Rev. Rul. 71-280, 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 under sec.
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 in sec.
107(2) bars exclusion of all of a minister’s compensation. In
Deason v. Commissioner, 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 (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 in Marine
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.
                                - 11 -

357, 363-364 (1987); Huntsberry v. Commissioner, 83 T.C. 742,

747-748 (1984).   Congress chose not to include the “rental value”

limit in section 107(2).   We do not read section 107(2) to

provide otherwise.

D.   Unequal Treatment Theory

     Respondent contends that respondent’s position prevents

unequal treatment between ministers for whom housing is provided

and excluded under section 107(1) on one hand, and ministers who

receive a rental allowance excluded under section 107(2) on the

other.   Respondent relies on legislative history accompanying

enactment of section 107(2) in 1954.     In explaining why section

107(2) was added in 1954, the tax-writing committees explained

that the then-existing law, i.e., what is now section 107(1)5–-

     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.



     5
        In Reed v. Commissioner, 82 T.C. 203, 213 (1984), we
noted that the predecessors of sec. 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.
                              - 12 -

L. 591), 83d Cong., 2d Sess. 16 (1954).

     Respondent contends that the section 107(2) requirement that

the rental allowance be used by the minister to rent or provide a

home (use limitation) and the rental value limitation at issue

here must both apply under section 107(2) to ensure that section

107 applies equally to all ministers.   We disagree.    We have not

previously construed section 107(1) and section 107(2) to require

identical treatment of ministers eligible under those two

subsections, nor does respondent’s position eliminate unequal

treatment.   In Reed v. Commissioner, 82 T.C. at 214, we held that

the excess of the rental value of a home over the amount used to

provide it is not excludable under section 107(2).     Thus, we

treated ministers who receive a housing allowance differently–-

and worse in some respects-–than ministers for whom housing is

provided under section 107(1).   That is, a minister eligible for

the exclusion under section 107(1) may exclude the full rental

value of a home even if the rental value of the home exceeds the

amount used to provide it, but, under Reed, a minister eligible

for the exclusion under section 107(2) may not.
                              - 13 -

     If we adopt respondent’s position, ministers eligible for an

exclusion under section 107(2) will face a compliance burden not

imposed on ministers eligible under section 107(1).   Under

respondent’s position, ministers who receive a rental allowance

could be required to obtain an estimate of the rental value of

their home every year in order to know how much to exclude under

section 107(2).   This burden is not imposed on ministers for whom

homes are provided, the rental value of which is excludable under

section 107(1), because they may simply exclude the value of the

home without any need to estimate the rental value.   In the

instant case, the parties stipulated the rental value for each

year.   However, the burden of obtaining valuation estimates could

become onerous where rental value is in dispute.   We decline to

endorse this disparate treatment here by imposing potentially

burdensome valuation obligations where neither the statute nor

the legislative history so requires.

     There may be concern that, under section 107(2), a minister

might exclude from income the cost of an expensive home.

However, respondent does not contend that petitioner’s home was

improperly expensive.   In any event, a more expensive home

presumably would have a greater rental value which presumably

would be excludable under respondent’s approach.   There may also

be concern that a minister with additional income from another

source could spend more for housing, and thus have a larger
                              - 14 -

section 107 exclusion, than a minister without additional income.

We are aware of no authority to justify our consideration of this

point in construing section 107(2).6

E.   Conclusion

     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.




     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 to sec.
107(2).
                               - 15 -

NIMS, J., dissenting:   I respectfully dissent.   The facts of this

case present an archetypical example of the potential for abuse

now sanctioned by the majority.    For the first 3 of its 4 fiscal

periods here involved, the Saddleback Valley Community Church

designated 100 percent of petitioner’s compensation as a housing

allowance.   Yet petitioners, with other income (largely Schedule

C income) near or in excess of $200,000 for each of the taxable

years at issue, are nevertheless awarded an exclusion from tax of

substantially all of petitioner’s salary.    (The parties

stipulated that the rental value of petitioner’s residence, in

all relevant taxable years, was an amount that was a great deal

less than petitioner’s salary in those years.)

     Moreover, with funds available from the above-mentioned

alternative sources to cover living expenses otherwise necessary

but unrelated to providing a home, petitioners were at liberty

to, and did, spend nearly all compensation for the betterment of

their residence.   Contrary to the majority, I am satisfied that

the rental allowance of section 107(2) was not intended to

operate in this manner.   I believe that both the statutory

language and the legislative history counsel a different result,

and I disagree with the majority’s reading of these sources.

     As regards the statutory text, section 107(2) excludes from

a minister’s income “the rental allowance paid to him as part of

his compensation, to the extent used by him to rent or provide a

home.”   (Emphasis added.)   The majority’s interpretation,
                               - 16 -

however, disregards “rental” as a modifier of “allowance” and

thereby renders superfluous a portion of the statute.   While the

majority correctly emphasizes that section 107(2) is applicable

to a rental allowance used for payment either of rent or of other

expenses and purchases involved in providing a home, the majority

fails to address the requirement that the funds so used must, as

a threshold matter, qualify as the equivalent of a rental

allowance.   The statute does not simply say that an allowance, or

even a housing allowance or a residence allowance, used to

provide a home may be excluded.   Rather, the law states that

gross income does not include a rental allowance so used.    The

majority’s interpretation effectively writes this term out of

section 107(2).

     I am convinced that the choice and use of “rental” as a

modifier indicates that Congress envisioned an exclusion with a

correlation to rental value.   I further believe that the title of

section 107, “RENTAL VALUE OF PARSONAGES”, offers additional

support for this conclusion.   I do not dispute that, as the

majority observes, a section heading cannot limit the plain

meaning of the text, but here the title serves to reiterate the

importance and purpose of a word expressly included in the

provision.

     I also feel that the reference in the text of section 107(2)

to the rental allowance as “part” of the minister’s compensation

is instructive.   No one would seriously contend that the phrase
                               - 17 -

creates a bright-line rule, subject to manipulation by

designating all but a pittance of the minister’s salary as a

rental allowance, a straw man constructed by the majority and

therefore easily demolished.   Nonetheless, I believe that the

words evidence the manner in which Congress envisaged that the

statute would typically operate.   If rental value limits the

section 107(2) exclusion, it follows that a rental allowance

would in the usual case generally constitute only part of a

minister’s compensation.

     Moreover, legislative history states unambiguously that

concerns of fairness and removing discrimination between

ministers furnished a home and those provided proportionally

larger salaries instigated the development of section 107(2).

See S. Rept. 1622, 83d Cong., 2d Sess. 16 (1954); H. Rept. 1337,

83d Cong., 2d Sess. 15 (1954).   This Court, too, has opined:

     Plainly, the purpose of the new provision was to
     equalize the situation between those ministers who
     received a house rent free and those who were given an
     allowance that was actually used to provide a home.
     There certainly does not appear to be any intention to
     place ministers of the second category in a favored
     position. * * * [Marine v. Commissioner, 47 T.C. 609,
     613 (1967).]


Nothing about the majority’s open-handed generosity to the

favored few, exemplified by petitioners in the instant case, is

consistent with this wise pronouncement.

     Although the majority points to a rental value limitation as

placing a compliance burden on ministers or churches utilizing
                               - 18 -

section 107(2), I do not feel that requiring a valuation or

appraisal is unduly burdensome in light of the significant tax

benefit obtained in return, but unavailable to all nonclerical

taxpayers.   Such a prerequisite is hardly unusual in tax law.

Nor do I believe that it affords sufficient reason to ignore

Congress’ expressed intent to strive toward fairness.

     Lastly, I note that a rental value limitation is not

inconsistent with the language from our opinion in Reed v.

Commissioner, 82 T.C. 208, 213 (1984), quoted by the majority,

which stresses that “Congress clearly provided a different

measure for the exclusion under section 107(2) than the measure

provided under section 107(1).”   A minister seeking treatment

under section 107(2) is subject to the distinct requirement that

the funds excluded actually be used to provide a home, regardless

of whether an additional rental value limit is imposed.     Only by

imposing such a limit, however, can all terms of the statutory

text, as well as the intentions expressed in legislative history,

be given meaning and effect.

     Therefore, I would hold that the exclusion from gross income

for a designated parsonage allowance under section 107(2) is

limited to the lesser of the fair rental value of the home or the

amount used to provide a home.

     COHEN and RUWE, JJ., agree with this dissenting opinion.
