Atheist Organization Opts Not to Appeal Housing Allowance Ruling

Group says its arguments hold merit, but success at Supreme Court unlikely.

The atheist nonprofit group challenging tax-free housing allowances for qualifying ministers says it is ending its fight for now.

In a statement issued Friday, the Freedom From Religion Foundation (FFRF) said it will not seek review from the US Supreme Court after an appellate court’s decision earlier this spring reversed a lower court ruling favoring FFRF.

For years, FFRF has attempted to invalidate Section 107(2), the tax code provision permitting clergy to receive an annual housing allowance designated by their employing house of worship—and not pay federal income taxes on the designated amounts. FFRF argues the tax law is an impermissible preference for religion, since leaders of secular nonprofit organizations are not eligible to receive the same benefit.

The congressional Joint Committee on Taxation estimates the 65-year-old benefit is worth a combined $700 million annually. At the local level, the housing allowance is the single-most valuable benefit to clergy. It proves especially valuable to those who lead small and mid-sized congregations in small towns and rural areas, although clergy leading large and mega-sized churches also are eligible. Overall, the majority of senior and solo pastors nationwide receive one.

In 2013, a federal district court judge in Wisconsin agreed with FFRF’s argument, but on appeal the US Court of Appeals for the Seventh Circuit in Chicago dismissed the case without deciding the merits, stating FFRF leaders lacked legal standing to bring the lawsuit. In 2017, after those leaders gained standing and renewed their challenge, the same federal district judge again sided with them. The decision was again appealed.

On March 15, the Seventh Circuit rendered a decision on the actual merits, finding the tax code provision constitutionally works because it “falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter.”

“We have full confidence in the legal merits of our challenge of the discriminatory pastoral housing allowance privileges,” according to the FFRF statement issued Friday. “The IRS code preferentially favors the clergy as a special class, while penalizing those of us who are similarly situated in other 501(c)(3) organizations, particularly secular groups such as the Freedom From Religion Foundation that work to emancipate our society from religious dogma. It also penalizes ordinary taxpayers.”

The organization said the current makeup of the Supreme Court would work against it, were the Court to agree to review it. “After ‘counting heads,’ we concluded that any decision from the current court would put the kibosh on challenging the housing allowance for several generations.”

Instead, FFRF said it hoped to preserve the ability to bring a future legal challenge that could eventually go before a potentially more sympathetic Supreme Court.

But such conditions will require at least a few years, and likely more, to develop.

“This is one of the biggest *practical* wins for churches in recent years,” tweeted Becket Fund attorney Eric Rassbach, whose colleague Luke Goodrich helped make oral arguments on behalf of the government and intervening clergy. “Stopped crippling taxes for churches, synagogues, and other houses of worship.”

Matthew Branaugh is editor of content and business development for Christianity Today’s Church Law & Tax.

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