Court of Appeal rejects challenge to clergy housing allowance

A federal appellate court has overturned a ruling by a Wisconsin Federal District Court judge banning the clergy housing tax exemption.


On 13 Nov 2014 the Seventh Circuit Court of Appeals overturned Judge Barbara Crabb’s November 2013 decision that the tax exempt treatment of the parsonage allowance was an unconstitutional regulation that violated the separation of church and state by providing ministers a tax benefit not available to all.


In its ruling, the Court of Appeal found the plaintiff, the Freedom from Religion Foundation lacked standing to bring the lawsuit in that the Foundation was not seeking to benefit from the allowance. Writing for the three judge panel, Judge Joel Flaum stated the plaintiffs say “they have standing because they were denied a benefit (a tax exemption for their employer-provided housing allowance) that is conditioned on religious affiliation.”


“This argument fails, however, for a simple reason: the plaintiffs were never denied the parsonage exemption because they never asked for it. Without a request, there can be no denial. And absent any personal denial of a benefit, the plaintiffs’ claim amounts to nothing more than a generalized grievance about [the parsonage allowance’s] unconstitutionality, which does not support standing.”


“This is a great victory for fair treatment of churches,” said Luke Goodrich, Deputy General Counsel of the Becket Fund of Religious Liberty, which filed a brief before the court in support of the housing allowance. “When a group of atheists tries to cajole the IRS into raising taxes on churches, it’s bound to raise some eyebrows. The court was right to send them packing.”


The co-presidents of the Freedom from Religion Foundation, Dan Barker and Annie Laurie Gaylor, voiced disappointment with the decision and vowed to fight on.  “We will continue to challenge this indefensible favoritism for religion in other forums until the issue cannot be circumvented,” Mr. Barker said.


“This privilege which religion and its leaders demand is discriminatory, and clearly signals governmental preference and subsidy for the promulgation of religion over nonreligion,” said Ms. Gaylor.


Under 26 U.S. C. § 107(2), passed by Congress in 1954, “ministers of the gospel” may exclude from their taxable income that portion of their stipend identified as a parsonage or housing allowance.  When the Federal Income Tax Code was enacted in 1913 the value of church supplied housing was excluded from calculations of income for tax purposes. In 1954 Congress allowed cash housing allowances to be excluded from taxable income.


The Becket Fund stated the purpose of a “parsonage allowance” was that it “ reduces tax discrimination among ministers from wealthy and poor denominations; and it keeps the government from making intrusive judgments about how ministers use their homes. Without the allowance, many minority or poor faith groups would have difficulty providing for their ministers.”



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