(Editor’s Note: A recap of the October 24, 2018, oral arguments is now available through this article on ChurchLawAndTax.com.)
The constitutional challenge to the clergy housing allowance takes an important next step Wednesday when oral arguments for the case are heard before a federal appellate court in Chicago.
At stake is a benefit estimated by some to be worth nearly $1 billion annually for clergy members, making it the most valuable tax benefit available to them. Last year, a federal judge in Wisconsin deemed the benefit to be an unconstitutional preference for religion, invalidating it for ministers in Illinois, Indiana, and Wisconsin. However, the judge “stayed” the decision, meaning it would not go into effect until after an expected appeal to the US Court of Appeals for the Seventh Circuit was completed.
The oral arguments Wednesday will not produce a decision, but one should come in the near future. Whether that’s a few weeks from now—or a few months—remains to be seen, according to the Seventh Circuit’s clerk’s office.
If the Seventh Circuit affirms the lower court’s holding, churches and ministers in Illinois, Indiana, and Wisconsin would lose the ability to use housing allowances. Alternatively, the Seventh Circuit could reverse the lower court’s decision, leaving the benefit intact for churches and ministers in the three states.
The parsonage allowance pertaining to church-owned housing remains unaffected by this case, regardless of how the Seventh Circuit decides.
Though the Seventh Circuit comprises only Illinois, Indiana, and Wisconsin, religious leaders nationwide still may feel the effects of the court’s ruling in the following ways:
- Were the Seventh Circuit to affirm, the Internal Revenue Service could decide at some point to apply that decision nationwide to promote consistency among taxpayers.
- Whether the court affirms or overturns the lower court’s holding, either side could seek “certiorari” from the US Supreme Court, and any decision from the Court would become precedential for the entire country. But commentators believe it’s very unlikely the Supreme Court would take the case.
- Future challenges could be brought in other parts of the country and eventually make their way through the other federal circuit court systems. Though those courts are not bound to a Seventh Circuit decision, they would consider the decision and possibly find it persuasive.
How we got here
This current legal challenge was brought by the Freedom From Religion Foundation (FFRF) after numerous previous attempts by the organization proved unsuccessful. Its most recent prior effort led to a similar holding by the same federal judge in Wisconsin, but ultimately failed before the Seventh Circuit. That’s because FFRF could not demonstrate any direct injury suffered by its officers in relation to the housing allowance and therefore lacked the necessary standing to bring a claim before the courts.
This time around, the organization said two of its officers attempted to claim the housing allowance and requested refunds on their income tax returns from prior years. The IRS denied their requests. Based on that denial, the organization said its officers suffered a direct injury and proceeded to bring the latest legal challenge.
What to note
- More details about what the housing allowance is and how it works;
- More details about the history of this case;
- The arguments made by the ministers appealing the lower federal court’s decision to the Seventh Circuit and the amicus brief filed by several organizations in support of the ministers’ appeal;
- More details about what this tax benefit means for churches nationwide from a statistical perspective;
- Why churches and ministers should still claim housing allowances this year and beyond until a decision gets made—but be ready to respond if the outcome proves unfavorable;
- Options for churches and ministers to consider—whether only those in Illinois, Indiana, and Wisconsin are affected, or the effects eventually spread on a nationwide level—if the outcome is unfavorable and the housing allowance goes away; and
- A sample housing allowance resolution churches can use for their ministers in the upcoming year (via the forthcoming November/December 2018 issue of Church Law & Tax Report).
Keep up with the latest news on this case, and other legal developments affecting churches and clergy, with the free weekly Church Law & Tax Update e-newsletter.
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