The Freedom From Religion Foundation, with plaintiffs Annie Laurie Gaylor, Anne Nicol Gaylor and Dan Barker, filed a nationally significant federal lawsuit in Madison, Wis., on Sept. 13, 2011, challenging tax benefits for “ministers of the gospel,” commonly known as the “parsonage exemption," allowing ministers to deduct housing costs from their taxable income. The case advanced to the 7th Circuit Court of Appeals, which ruled that the plaintiffs lacked standing. FFRF will be retrenching its challenge of this unconstitutional subsidy.
FFRF sought a declaration that the federal statute creating the parish exemption, as administered by the IRS and the Treasury Department, violates the Establishment Clause of the First Amendment by providing preferential tax benefits to ministers of the gospel. FFRF requested the court enjoin the allowance or grant of tax benefits exclusively for ministers of the gospel.
The individually named plaintiffs, either currently directors or retired directors of FFRF, receive a housing allowance designated by FFRF's governing body, yet do not qualify for the housing allowance as they are promoting non-belief, rather than religion. In fact, Dan Barker is an ordained minister who previously was able to utilize the housing allowance and exclude such payments from his taxable income.
Ministers, who are paid in tax-free dollars, also may deduct their mortgage interest and property tax payments. Under federal law, allowances paid to “ministers of the gospel” are not treated as taxable income. “Ministers of the gospel” may uniquely claim these benefits, so the statutes convey a governmental message of endorsement, unconstitutionally favoring religious employees and institutions over all others. The exemptions permit clergy to deduct from their taxable income housing allowances furnished as part of compensation. The unique benefits to clergy date to 1954, when Congress amended the tax code to permit all clergy to exempt their housing costs from their incomes taxes. U.S. Rep. Peter Mack, author of the amendment, declared:
“Certainly, in these times when we are being threatened by a godless and antireligious world movement we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this foe. Certainly this is not too much to do for these people who are caring for our spiritual welfare.”
“The income taxation of ministers of the gospel under the general rules that apply to other individuals would not interfere with the religious mission of churches or other organizations or the ministers themselves,” the legal complaint maintained. The statutes are not an accommodation of religion, therefore, but a subsidy.
Defendants were Jacob Lew, U.S. Treasury Secretary and John Koskinen, Internal Revenue Service Commissioner, who are all providing tax benefits only to “ministers of the gospel,” rather than to a broad class of taxpayers. (When originally filed in 2011, defendants were Timothy Geithner and Douglas Shulman).
U.S. District Judge Barbara Crabb, Western District of Wisconsin, issued a strong 20-page opinion and order on Aug. 29, 2012, permitting FFRF Co-Presidents Dan Barker and Annie Laurie Gaylor and President Emerita Anne Gaylor to pursue their challenge of the 1954 law. The plaintiffs receive part of their salaries designated for a housing allowance. Yet they do not qualify for the parish exemption as they are not “ministers of the gospel.” The government contested their standing to sue, but Crabb wrote that “there is no plausible argument that plaintiffs could make that they qualify as ‘ministers of the gospel,’ so it would be pointless to require plaintiffs to jump through the hoop of filing a claim to prove that they are not entitled to the exemption.”
Motion to Dismiss
Opinion and Order - Motion to Dismiss
FFRF news release: "FFRF parish exemption case clears hurdle"
Opinion and Order, August 29, 2012
Government Brief for Summary Judgement
FFRF's Brief in Opposition
Annie Laurie Gaylor Declaration
Dan Barker Declaration
Decision in favor of FFRF (Nov. 21, 2013)
The federal government filed notice on January 24, 2014, that it was appealing Judge Crabb’s ruling in favor of FFRF. Oral arguments were held before the Seventh Circuit Court of Appeals in Chicago on September 9, 2014.
Amicus Briefs filed in support of Government:
Becket Fund for Religious Liberty
Foundation for Moral Law
National Jewish Commission on Law and Public Affairs
Alliance Defending Freedom
Christian Legal Society - Part I
Christian Legal Society - Part II
Amicus Brief filed in support of FFRF:
On November 13, 2014, a three-judge panel of the Seventh Circuit Court of Appeals ruled the plaintiffs lacked standing to challenge the exemption.