The federal government filed notice Jan. 24 that it’s appealing the Freedom From Religion Foundation’s significant federal court victory declaring the “parish exemption” unconstitutional. Under the 1954 law, “ministers of the gospel” don’t pay any taxes on salary designated as a “housing allowance.”
U.S. District Judge Barbara B. Crabb for the Western District of Wisconsin issued a strong, 43-page decision on Nov. 22 declaring 26 U.S. C. § 107(2) unconstitutional. The case is FFRF, Annie Laurie Gaylor and Dan Barker v. Jacob Lew, Acting Secretary of the Treasury Department and Daniel Werfel, Acting Commissioner of the International Revenue Service.
The appeal will go before the 7th Circuit U.S. Court of Appeals in Chicago.
The law allows “ministers of the gospel” who are paid through a housing allowance to exclude that allowance from taxable income. Ministers may even use untaxed income to buy a home and deduct interest paid on the mortgage and property taxes — known as “double dipping.”
The clergy benefit costs the government up to $700 million a year in lost revenue, and benefits not just ministers but their employer churches, which can pay ministers less because untaxed income goes further.
Christianity Today found that 84 percent of senior pastors receive a housing allowance ranging from $20,000 to $38,000 in added (but not reported or taxed) salary.
“I agree with plaintiffs that §107(2) does not have a secular purpose or effect,” wrote Crabb, adding that a reasonable observer would view it “as an endorsement of religion.”
At the time of the federal ruling, attorney Richard L. Bolton, representing FFRF, noted: “The Court’s decision does not evince hostility to religion — nor should it even seem controversial.” However, the decision set off “shock waves” in the clergy network.
Clergy are permitted to use the housing allowance not just for rent or mortgages, but for a wide range of home improvements, including maintenance and repairs. They may exempt from taxable income up to the fair market rental value of their home, particularly benefiting well-heeled pastors.
The 1954 bill’s sponsor, Rep. Peter Mack, argued ministers should be rewarded for “carrying on such a courageous fight” against a “godless and anti-religious world movement.”
All taxpayers are burdened by taxes, Crabb noted. “Defendants do not identify any reason why a requirement on ministers to pay taxes on a housing allowance is more burdensome for them than for the many millions of others who must pay taxes on income used for housing expenses.”
Gaylor and Barker, as co-presidents of FFRF, are the primary plaintiffs. Crabb agreed they have standing to sue and are injured because FFRF designates part of their salaries as a “housing allowance,” but they are not lawfully able to claim the same benefit “ministers of the gospel” are accorded.
“The clergy and churches have become accustomed to privileges and prerogatives from our secular government which are not only unconstitutional, but which don’t play fair. The rest of us should not have to pay more taxes, because clergy don’t pay their fair share,” said Gaylor.
Barker, a former minister, now heads the volunteer Clergy Project, which helps clergy who have changed their minds about religion leave the pulpit. Barker said he knows hundreds of former ministers who agree with FFRF that “the housing exclusion is an unfair and unwarranted boost from the government and should be abolished.”