On October 6, a federal judge in Wisconsin ruled that the housing allowance provided to clergy by the Internal Revenue Code is unconstitutional and violates the First Amendment’s Establishment Clause.
A similar ruling had been handed down in 2013 by the same Wisconsin judge, only to be overturned the next year by an appeals court. Now, the judge has once again ruled in favor of the Freedom From Religion Foundation (FFRF), which had challenged the constitutionality of the tax break for ministers.
According to a report from our sister publication Christianity Today:
“I adhere to my earlier conclusion [that the allowance] violates the establishment clause,” wrote [Wisconsin federal judge Barbara] Crabb, ‘because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.
“Although defendants try to characterize [the allowance] as an effort by Congress to treat ministers fairly and avoid religious entanglement, the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees,” she wrote.
Crabb has now asked the parties to advise her on what relief should occur. “I am reluctant to make a definitive determination regarding the appropriate remedy because none of the parties developed an argument in favor of a refund, a particular injunction or both or otherwise developed an argument regarding what the court should do,” she wrote.
Crabb’s ruling would only apply to pastors in Wisconsin, Illinois, and Indiana if upheld by the Seventh Circuit Court of Appeals, which likely must now rule on the actual merits of the case. (The part of Section 107 which excludes the rental value of actual parsonages from being taxed is not being challenged.)
After the initial 2013 ruling, Hammar made this observation regarding the impact of a Seventh Circuit affirmation:
A ruling by a federal district court judge in Wisconsin is not binding on other courts, and does not apply to ministers in other states. If the ruling is appealed and affirmed by the Seventh Circuit Court of Appeals, it will apply to ministers in that circuit (Illinois, Indiana, and Wisconsin). It would become a national precedent binding on ministers in all states if affirmed by the Supreme Court (an unlikely outcome). Note, however, that the IRS has the discretion to follow, or not follow, the ruling in other circuits, and may be inclined to do so to promote consistency in tax administration.
To learn more details about the housing allowance as part of compensation for ministers, check out the 2018 Compensation Handbook for Church Staff.
Emily Lund is assistant editor for Church Law & Tax.
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