10 Key Points from the Housing Allowance Ruling
On November 22, 2013, federal district court judge Barbara Crabb of the District Court for the Western District of Wisconsin (a President Carter appointee) struck down the ministerial housing allowance as an unconstitutional preference for religion. The ruling was in response to a lawsuit brought by the Freedom From Religion Foundation (FFRF) challenging the constitutionality of the housing allowance and the parsonage exclusion.
Judge Crabb stayed the decision, pending an appeal to the Seventh Circuit Court of Appeals in Chicago. As this issue went to press, it is unclear whether an appeal will occur, but one seems likely. If one is filed, but the Seventh Circuit affirms Judge Crabb's decision, churches and clergy in Illinois, Indiana, and Wisconsin will be affected.
The implications on a nationwide scale remain unclear. From a judicial perspective, the ruling would only become a national precedent if it is affirmed by the United States Supreme Court, but this is an unlikely outcome. However, the Internal Revenue Service has discretion to follow, or not follow, the ruling nationwide, and may be inclined to follow it to promote consistency in the application and enforcement of federal tax law.
Here are 10 things church leaders should note about this ruling.
Section 107(1) of the federal tax code exempts, from federal income tax, the fair rental value of a church-owned parsonage provided to a minister as compensation for ministerial services. Section 107(2) exempts the amount of a minister's compensation that is designated in advance as a housing allowance to the extent that the allowance represents compensation for ministerial services, is used to pay housing expenses, and does not exceed the fair rental value of the home (furnished, plus utilities).