A federal judge in Wisconsin has ruled for the second time as unconstitutional an Internal Revenue Service provision which exempts clergy from paying taxes on portions of their income designated for housing.
U.S. District Judge Barbara Crabb ruled Oct. 6 that a portion of the tax code allowing a “minister of the gospel” a tax benefit available to no one else violates the First Amendment ban on establishment of religion.
The judge ruled similarly in 2013, finding the provision violates the establishment clause because it provides a special benefit to religious persons that is not necessary to remedy a substantial burden on religious exercise. The Seventh U.S. Circuit Court of Appeals vacated the order, saying the group challenging the clergy housing allowance lacked legal standing to sue.
The same plaintiffs, the Wisconsin-based Freedom From Religion Foundation, filed a second lawsuit following the appellate court’s directions to obtain standing. Unsurprisingly, the lower-court judge adhered to her earlier conclusion that the tax break violates the establishment clause “because a reasonable observer would view the statute as an endorsement of religion.”
The judge gave the parties until Oct. 30 to file briefs arguing about appropriate remedies and whether the ruling should be stayed pending a potential appeal.
The so-called “parsonage allowance” dates back to a time when most churches maintained a parsonage near the church where the minister and his family lived rent-free. The IRS allowed ministers to exclude such in-kind compensation from federal taxes beginning in 1921.
In 1954, during the Cold War, Congress extended the law to cash allowances to aid clergy who were moving out of parsonages to rent or purchase their own homes. The congressman who proposed the expansion argued it was needed to help ministers of the gospel in the nation’s fight against “a godless and anti-religious world movement,” referring to communism.
The law was amended in 2002 to cap the deduction at the home’s fair market rental value, to prevent abuse by highly paid celebrity preachers who were using it to avoid paying taxes on income earned from sources other than their church.
Becket, a nonprofit, public-interest law firm that specializes in cases involving the free expression of religion, said ending the longstanding tax provision would cost churches across the country nearly $1 billion a year in new taxes.
GuideStone Financial Services of the Southern Baptist Convention calls the deduction “the most important tax benefit available to ministers.”
GuideStone President O.S. Hawkins said an appeal is almost certain, and his agency plans to continue to advocate for keeping the housing allowance in friend-of-the-court briefs filed at appropriate times along the way.
“We continue to live and minister in a world that is increasingly hostile to religious life as compared to the world in which many of us grew up,” Hawkins said. “Rather than discouraging us, we seek to continue to serve as an advocate for hundreds of thousands of pastors and other ministers we have the privilege to serve.”