How Raphael Warnock Dodges Income Taxes

Warnock doesn't pay income taxes on a $90K ‘parsonage allowance’ from Atlanta church

September 8, 2022

Sen. Raphael Warnock (D., Ga.) has an unusual financial arrangement with an outside employer that allowed him to avoid income taxes on $89,000 in outside salary last year, according to tax experts.

Warnock, who works as the senior pastor at Ebenezer Baptist Church in Atlanta, said the church paid him $89,000 last year as a "parsonage allowance"—as opposed to regular outside income, which is subject to strict limitations for senators under federal law. Lawmakers are not allowed to receive more than $29,895 in outside income.

The news raises questions about whether Warnock is taking a tax break that’s unavailable to the vast majority of Americans. Republicans say Warnock wants to raise taxes, pointing to his vote for a spending package in August that some analysts claim would increase taxes on low- and middle-income earners. The senator has also faced criticism for his outside financial arrangements from his opponent, Republican Herschel Walker. The Walker campaign has slammed Warnock for doubling his annual salary since taking office, raking in $120,000 from the Ebenezer Baptist Church and over $240,000 for a book deal.

Tax experts said the Internal Revenue Service created the modern "parsonage allowance" provision in the 1950s as a tax break for religious leaders, who historically lived in tax-exempt church-owned parsonages but now often rent or own their own homes. The provision allows pastors and other clergy members to deduct their estimated annual housing expenses—including mortgage payments, lawn care, furniture, and pool maintenance—from their income taxes.

Warnock’s campaign declined to comment on whether he paid income taxes on his housing allowance.

Some legal experts also questioned the Senate Ethics Committee’s decision to approve the arrangement, saying it appears to violate federal law that prohibits members of Congress from receiving more than $29,895 in outside income. Warnock’s campaign suggested that the "parsonage allowance" wasn’t subject to the same cap as regular income, according to the Atlanta Journal-Constitution, which first reported on the arrangement last month.

"Sen. Warnock's arrangement appears to be an abuse of both the parsonage allowance provisions of the tax code and Senate ethics rules," Charlie Spies, a Republican campaign finance attorney with Dickinson Wright, told the Washington Free Beacon. "The parsonage exception in Sec. 107(2) is targeted for those who are pastors, not boondoggles for politicians."

Tax experts told the Free Beacon qualified clergy members are allowed to designate up to 100 percent of their salaries as tax-free under the parsonage exemption. Although clergy members need written acknowledgment from their church to participate, religious institutions have no say over the percentage the clergy requests and don’t provide oversight into how the employee spends this money, according to experts. Instead, participating clergy members are supposed to be regulated by the IRS.

While many pastors claim less than 40 percent of their salary as a parsonage allowance, one forensic accountant said he has seen some who take upwards of 70 or 80 percent—an amount he said was "bordering on abusive."

Warnock’s parsonage allowance adds up to nearly 75 percent of his income from the Ebenezer Baptist Church, which breaks down to about $7,400-per-month in housing expenses.

The senator owns a home in Atlanta that was recently appraised at around $1 million, according to property records. In addition to mortgage payments, the parsonage allowance can be used to cover any housing-related costs, including security, landscaping, and home furnishings.

Gil Rothenberg, the former chief of the Department of Justice tax division’s appellate section, told the Free Beacon the parsonage allowance was intended to "even the scales" between wealthy churches and poorer ones, which can’t always afford to provide a well-maintained home for their ministers.

But he said there have also been past cases where religious leaders have abused the system. In 2002, Rothenberg represented the government in a legal dispute with Rick Warren, a megachurch pastor who had claimed $80,000 of his salary as a "parsonage allowance"—an amount that the IRS claimed exceeded the value of his housing. The case prompted Congress to update the law, capping the parsonage allowance at the fair rental value of the home, plus furnishings and maintenance.

"The kinds of cases that got to me when I was at DOJ were basically the really abusive ones," said Rothenberg. "I don’t know how many other ministers are basically padding their parsonage allowance. Nobody knows. You hope that the CPA, or whoever is doing their taxes, is doing it correctly."

While churches note that the provision is crucial for many clergy members, who often don’t earn large salaries, the rule has also been controversial. Critics have accused some clergy members of taking advantage of the exemption, using it to pay for lavish vacation homes and other luxuries.

Peter Reilly, a certified public accountant who has written about parsonage allowances, said Warnock’s allowance "seems like a lot, but it’s not crazy" in comparison with others he has seen.

"Some of the parsonage [allowances] can tend to be enormous," he told the Free Beacon. "Some of the televangelists, it’s millions."