US Appeals Court Unanimously Finds Tax-Free Clergy Housing Allowances Constitutional

CHICAGO — The Seventh Circuit Court of Appeals has against dealt a blow to a legal challenge by the Wisconsin-based Freedom From Religion Foundation (FFRF) as it ruled for the second time on Friday that tax-free housing allowances for pastors do not violate the U.S. Constitution.

“We conclude § 107(2) has a secular legislative purpose, its principal effect is neither to endorse nor to inhibit religion, and it does not cause excessive government entanglement,” wrote Judge Michael Brennan, nominated to the bench by President Trump, on behalf of the unanimous three-judge panel.

“Here, ‘[t]here is no genuine nexus between tax exemption and establishment of religion,'” he wrote. “Section 107(2), then, does not violate the Establishment Clause …”

As previously reported, FFRF had first filed suit in August 2012 to challenge the 1954 “parish exemption” granted by Congress.

“In the case of a minister of the gospel, gross income does not include (1) the rental value of a home furnished to him as part of his compensation; or (2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities,” the pertinent statute states.

U.S. Representative Peter Mack, who introduced the legislation, was said to have introduced the law in order to reward ministers for working to fight against wickedness in the land.

“Certainly, in these times when we are being threatened by a godless and anti-religious world movement we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this foe,” he stated. “Certainly this is not too much to do for these people who are caring for our spiritual welfare.”

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FFRF asserted that the tax exemption violated the Establishment Clause of the First Amendment and the equal protection provision of the Fourteenth Amendment. The organization claimed that it was unfair for clergy to receive the tax break while others, such as the founders of FFRF, must pay taxes on their housing allowance.

“[I]t is pure discrimination to deny atheist leaders the housing allowance privileges given to clergy as a reward for fighting ‘godless foe,’” co-founder Annie Laurie Gaylor stated.

In November 2013, U.S. District Court Judge Barbara Crabb, nominated to the bench by then-President Jimmy Carter, agreed with FFRF, declaring section 2 of the tax code unconstitutional.

“Because a primary function of a ‘minister of the gospel’ is to disseminate a religious message, a tax exemption provided only to ministers results in preferential treatment for religious messages over secular ones,” she wrote.

However, the following year, the Seventh Circuit Court of Appeals reversed Crabb’s ruling, opining that FFRF had no standing in the matter. FFRF suffered no personal injury, the court said, because it has never sought to obtain the exemption and therefore cannot show that it had been denied under the law.

“The plaintiffs were never denied the parsonage exemption because they never asked for it, ” the three-judge panel stated. “Without a request, there can be no denial. And absent any personal denial of a benefit, the plaintiff s’ claim amounts to nothing more than a generalized grievance about §107(2)’s unconstitutionality, which does not support standing.”

Therefore, FFRF applied for the exemption, and refiled the suit in April 2017 after being denied. Named in the lawsuit were U.S. Treasury Secretary Steve Mnuchin and IRS Commissioner John Koskinen.

“Although defendants try to characterize § 107(2) as an effort by Congress to treat ministers fairly and avoid religious entanglement, the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees,” Crabb ruled again in 2017.

However, on Friday, the Seventh Circuit Court of Appeals again sided with the government and against FFRF’s claim that the exemption “renders unto God that which is Caesar’s” and excessively entangles the Church with the government.

It agreed with the U.S. Treasury Department that the exemption actually “prevents the IRS from conducting intrusive inquiries into how religious organizations use their facilities.”

“For example, to determine what constitutes the business premises of the employer under [tax law], the IRS would have to determine what the ‘business’ of the church is and where and how far the ‘premises’ of the church extend,” Brennan outlined. “To do so, the IRS would need to interrogate ministers on the specifics of their worship activities, even determine which activities constitute ‘worship.'”

“Such government inquiries into the internal affairs of churches to determine their eligibility for tax relief have been rejected as excessive entanglement,” he noted.

The court also found that the exemption is part of the fabric of American history, dating back to the 1800s.

“For over two centuries, the states have implemented church property tax exemptions in various forms,” Brennan outlined. “Congress has enacted federal tax exemptions for religious organizations as far back as 1802, when it permitted the County of Alexandria (then under federal control) to exempt church property from taxation … As early as 1885, the U.S. Supreme Court acknowledged and accepted religious property tax exemptions in Gibbons v. District of Columbia, (1886), ‘reflecting more than a century of our history and uninterrupted practice.’

Brennan cited that currently more than 2,600 federal and state tax laws provide religious exemptions.

“Before 1913, Congress could not constitutionally tax housing provided to ministers as part of their income. Within a few years of income becoming taxable, Congress moved to exclude parsonages from income, and a few decades later excluded cash housing allowances as well,” he stated. “Congress was continuing its ‘historical practice[]’ of exempting certain church resources from taxation.'”

“This endeavor limits entanglement between church and state,” Brennan declared on behalf of the court. “Given this history, we conclude § 107(2) does not violate the Establishment Clause under the historical significance test.”

Read the ruling in full here. 

FFRF expressed disappointment with the decision, remarking in a press release, “It’s an injustice not just to us, but to taxpayers who have to pay more than their share, because clergy pay less.”


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