FFRF challenges IRS ‘parish exemption’ ministerial housing allowance

The Freedom From Religion Foundation has filed a federal lawsuit that says if “ministers of the gospel” are accorded preferential tax benefits, then FFRF's nonbelieving directors should get the same benefit.

The lawsuit goes after a relatively recent change in the tax code granting clergy significant tax benefits known as the “parish exemption.” The lawsuit, FFRF v. Geithner, was filed Sept. 13 in the courtroom of U.S. Magistrate Judge Stephen Crocker, Western District of Wisconsin in Madison.

FFRF, a state/church watchdog based in Madison, is the nation's largest association of atheists and agnostics with more than 17,000 members.

The suit names U.S. Treasury Secretary Timothy Geithner and Internal Revenue Service Commissioner Douglas Shulman. Individual plaintiffs are FFRF Co-Presidents Dan Barker and Annie Laurie Gaylor and President Emerita Anne Nicol Gaylor. All three 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.” Barker, an ordained minister, previously used the housing allowance to deduct such payments from his taxable income.

Barker, author of Godless and Losing Faith in Faith: From Preacher to Atheist, left the ministry in his mid-30s. Now, no longer an active “minister of the gospel” and as the head of a national atheist/agnostic group, Barker is denied those tax benefits.

FFRF seeks 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 asks the court to enjoin the allowance or grant of tax benefits exclusively for ministers of the gospel under 28 U.S.C. § 2201 that 26 U.S.C. §107.

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."

Ministers, who are paid in tax-free dollars, 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. Because “ministers of the gospel” are singled out as a class to uniquely claim these benefits, the statutes convey a governmental message of endorsement and unconstitutionally favor religious employees and institutions over others.

“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,” FFRF's legal complaint maintains. The statutes are not an accommodation of religion, therefore, but a subsidy.

The §107 tax exclusion can be used by ministers for virtually all of the costs of home ownership, including: Down payment on a home; home mortgage payments, including both interest and principal; real estate taxes; personal property tax; fire and homeowners liability insurance; rental payments; and cost of acquiring a home (i.e., legal fees, bank fees, title fees, etc.).

The housing allowance can also be used for maintaining a home. Eligible costs or expenses include: Home improvements; minor repairs; utilities; furnishings and appliances (dishwasher, TV, refrigerator, pool table, vacuum cleaner, personal computer, etc.); home decor (rugs, curtains, plaints, knickknacks, wallpaper, paint, towels, bedding, etc.); lawn care (lawn mower, garden hose, sod, landscape tools, etc.); basic telephone services; cable TV; Internet service; pest control; and miscellaneous (light bulbs, cleaning supplies, carpet cleaning, etc.).

"Preferential tax benefits provided exclusively to religious clergy violate the Establishment Clause; neutrality is required by the Establishment Clause, which means that tax benefits cannot be preferentially provided to ministers of the gospel," FFRF asserts.

FFRF points out that the IRS and Treasury Department must make “sensitive, fact intensive, intrusive, and subjective determinations dependent on religious criteria and inquiries, such as whether certain activities constitute ‘religious worship’ or ‘sacerdotal functions;’ whether a member of the clergy is ‘duly ordained, commissioned, or licensed;’ or whether a Christian college or other organization is ‘under the authority of' a church or denomination’; or whether a full-time cantor in the Jewish faith qualifies as a minister of the gospel. These and other determinations result in ‘excessive entanglement’ between church and state contrary to the Establishment Clause.”

“We don’t think the general public realizes the scope of this preferential treatment, how many everyday expenses may be excluded from taxable income for ministers and even retired ministers. They should know that we laypersons pay much more because individual clergy pay so much less,” said Annie Laurie Gaylor.

“And it is pure discrimination to deny atheist leaders the housing allowance privileges given to clergy as a reward for fighting ‘godless foe.’ ”

FFRF withdrew its previous federal challenge of the parish exemption, filed in October 2009 in federal court in Sacramento. Individual plaintiffs were 21 federal taxpaying, FFRF-dues-paying California citizens. FFRF was forced to withdraw the suit following the Supreme Court's 2011 decision voiding taxpayer standing in the Winn v. Arizona tax credit case, which was not an FFRF lawsuit.

FFRF is refiling its parish exemption challenge with its paid directors as plaintiffs, who have been directly injured by the preferential treatment of ministers in the federal tax code.

In 2002, a case went before the 9th Circuit U.S. of Appeals when the IRS sued Rev. Rick Warren of Saddleback Valley Community Church, who had claimed all or nearly all of his California housing costs for several years as a tax-free parsonage allowance. The 9th Circuit was poised to rule against Warren, having called in legal scholar Erwin Chemerinsky to brief it on whether the parish exemption is constitutional. Chemerinsky had asserted it is not.

Congress immediately passed the Clergy Housing Allowance Clarification Act of 2002 to moot the case. From 2002 onward, the act restricted the parsonage exemption to "reasonable rental value." The question of the constitutionality of the entire parish exemption statute has not been addressed by courts.

Freedom From Religion Foundation

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