Clergy Housing Allowance Benefit Safe—For Now

Seventh Circuit reverses 2013 decision, but explains how a future challenge could proceed.

Update (November 14, 2014): In an article prepared for the upcoming January/February 2015 issue of Church Law & Tax Report, Richard Hammar reminds us of two things:

First, the exclusion of the fair rental value of parsonages from taxable income remains intact.

Second, while Thursday’s ruling still brings uncertainty about the long-term prospects of the clergy housing allowance benefit, there would still be a lengthy process involved before the benefit were ever to be changed. For now, all qualifying ministers who wish to receive housing allowances in 2015 should request their churches to adopt the allowances before 2015 begins, and should continue to do so in subsequent years until anything changes.

Be sure to read Rich’s full analysis, which further explains the process and the various potential outcomes, in the next Church Law & Tax Report. Also, Rich includes Thursday’s ruling in Chapter 6 of the 2015 Church & Clergy Tax Guide.

Need help setting a housing allowance for 2015? Order the electronic version of the 2014 Church & Clergy Tax Guide, which provides a sample allowance, plus detailed instructions on how to properly set one.


The Seventh Circuit Court of Appeals today reversed a federal district court’s 2013 decision deeming the clergy housing allowance as an unconstitutional preference for religion, preserving the most beneficial tax benefit clergy receive—for now.

In last year’s ruling, federal district court judge Barbara Crabb in Wisconsin struck down the ministerial housing allowance, rejecting the government’s argument that the plaintiffs, the Freedom From Religion Foundation and two of its officers, lacked standing to challenge the housing allowance. Standing is a constitutional requirement for anyone bringing a lawsuit in federal court, and generally means that a plaintiff must experience a direct injury.

Judge Crabb stayed the decision, pending the outcome of the appeals process, which began earlier this year.

This afternoon, the Seventh Circuit ruled that the plaintiffs lacked standing. The plaintiffs had argued that they had standing due to their “injury” of being denied a housing allowance exclusion should they claim one on their tax returns. The appeals court refused to base standing on theoretical injury. But it also suggested that this deficiency could easily be overcome if the FFRF officers actually filed tax returns claiming a housing allowance, only to be rejected later by the IRS in an audit.

This means FFRF officers now can take the simple step of claiming a housing allowance on their tax returns. Should the IRS reject the claim, FFRF officers then could bring another constitutional challenge and say they experienced the direct injury necessary for standing in such a challenge.

The bottom line: While this ruling extends the validity of the housing allowance for now, the ultimate outcome may be the loss of the housing allowance exclusion.

Watch, the upcoming January/February 2015 issue of Church Law & Tax Report, and the 2015 Church & Clergy Tax Guide for more details about today’s decision.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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