1. Status of the housing allowance

The latest constitutional challenge to the clergy housing allowance brought by the Freedom From Religion Foundation (FFRF) cleared its first significant legal hurdle in October, when a federal district court judge ruled the valuable longtime tax benefit for ministers to be an unconstitutional preference for religion. The decision may now head to the Seventh Circuit Court of Appeals, the outcome of which will affect ministers in Illinois, Indiana, and Wisconsin—and may even have implications for clergy nationwide, depending on how an unfavorable ruling for the benefit would be treated by the Internal Revenue Service.

This case is several years in the making. FFRF challenged the housing allowance in 2013 through a lawsuit filed in the District Court for the Western District of Wisconsin. Judge Barbara Crabb at that time ruled the benefit was unconstitutional. Upon appeal, however, the Seventh Circuit said the FFRF lacked standing to pursue the challenge, meaning the FFRF's officials hadn't suffered a direct injury. The appeals court suggested that this deficiency could be overcome in a future challenge if the FFRF's officers filed tax returns claiming a housing allowance that was later rejected by the IRS in an audit: "The plaintiffs could have sought the exemption by excluding their housing allowances from their reported income on their tax returns and then petitioning the United States Tax Court if the IRS were to disallow the exclusion. Alternatively, they could have … paid income tax on their housing allowance, claimed refunds from the IRS, and then sued if the IRS rejected or failed to act upon their claims."