The Seventh Circuit Court of Appeals Rejects FFRF Challenge to Clergy Housing Allowance.

A federal appellate court has overturned a ruling by a Wisconsin Federal District Court judge banning the clergy housing tax exemption.

 



On 13 Nov 2014 the Seventh Circuit Court of Appeals overturned Judge Barbara Crabb’s November 2013 decision that the tax exempt treatment of the parsonage allowance was an unconstitutional regulation that violated the separation of church and state by providing ministers a tax benefit not available to all.



The Freedom from Religion Foundation and its two co-presidents (collectively “the plaintiffs”) filed this suit to challenge the constitutionality of § 107 of the Internal Revenue Code, also known as the parsonage exemption. The exemption excludes the value of employer-provided housing benefits from the gross income of any “minister of the gospel.” 26 U.S.C. § 107. The plaintiffs conceded in the district court that they did not have standing to challenge § 107(1), which applies to in-kind housing provided to a minister, but argued that they did have standing to challenge § 107(2), which applies to rental allowances paid to ministers. The district court agreed that the plaintiffs had standing to challenge § 107(2), and held that the subsection is an unconstitutional establishment of religion under the First Amendment.

In the ruling the court said.. 

"We conclude that the plaintiffs lack standing to challenge § 107(2). We therefore do not reach the issue of the constitutionality of the parsonage exemption. ...

[P]laintiffs do not have standing to chal-lenge the constitutionality of the parsonage exemption. A person suffers no judicially cognizable injury merely because others receive a tax benefit that is conditioned on allegedly unconstitutional criteria, even if that person is otherwise “similarly situated” to those who do receive the benefit. On-ly a person that has been denied such a benefit can be deemed to have suffered a cognizable injury. The plaintiffs here have never been denied the parsonage exemption be-cause they have never requested it; therefore, they have suf-fered no injury."



“This is a great victory for fair treatment of churches,” said Luke Goodrich, Deputy General Counsel of the Becket Fund of Religious Liberty, which filed a brief before the court in support of the housing allowance. “When a group of atheists tries to cajole the IRS into raising taxes on churches, it’s bound to raise some eyebrows. The court was right to send them packing.”

 

The co-presidents of the Freedom from Religion Foundation, Dan Barker and Annie Laurie Gaylor, voiced disappointment with the decision and vowed to fight on.  “We will continue to challenge this indefensible favoritism for religion in other forums until the issue cannot be circumvented," Mr. Barker said.

 

"This privilege which religion and its leaders demand is discriminatory, and clearly signals governmental preference and subsidy for the promulgation of religion over nonreligion," said Ms. Gaylor.

 

Under 26 U.S. C. § 107(2), passed by Congress in 1954, "ministers of the gospel" may exclude from their taxable income that portion of their stipend identified as a parsonage or housing allowance.  When the Federal Income Tax Code was enacted in 1913 the value of church supplied housing was excluded from calculations of income for tax purposes. In 1954 Congress allowed cash housing allowances to be excluded from taxable income.

 

The Becket Fund stated the purpose of a “parsonage allowance” was that it “ reduces tax discrimination among ministers from wealthy and poor denominations; and it keeps the government from making intrusive judgments about how ministers use their homes. Without the allowance, many minority or poor faith groups would have difficulty providing for their ministers.”