The Freedom From Religion Foundation and plaintiffs Annie Laurie Gaylor and Dan Barker won a significant ruling Nov. 22 in federal court declaring unconstitutional the 1954 “parish exemption” benefiting “ministers of the gospel.”
The challenge, filed in September 2011, has far-reaching ramifications for up to 83% of ministers who receive a housing allowance. (Read a story on the clergy outcry against this decision on page 17.)
“May we say ‘Hallelujah?’ ” said Gaylor. She and Barker are FFRF co-presidents. “The judge agrees with us that Congress may not reward ministers for fighting a ‘godless and anti-religious’ movement by letting them pay less income tax. The rest of us should not pay more because clergy pay less.”
The government has 60 days to appeal. While enjoining Treasury Secretary Jacob Lew and IRS Acting Commissioner Daniel Werfel from enforcing the tax break, U.S. District Judge Barbara Crabb for the Western District of Wisconsin stayed her ruling until the conclusion of any appeal, as is typical in significant cases.
The law allows “ministers of the gospel” paid through a housing allowance to exclude that allowance from taxable income. It is not a tax “deduction” but is a tax exclusion. Ministers may, for instance, use this untaxed income to purchase a home, and, in a practice known as “double dipping,” may then deduct interest paid on the mortgage and property taxes.
Crabb issued a 43-page decision declaring 26 U.S.C. §107(2) unconstitutional. Quoting the Supreme Court, Crabb noted, “Every tax exemption constitutes subsidy.”
Crabb wrote, “Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility. It is important to remember that the Establishment Clause protects the religious and nonreligious alike.”
“The court’s decision does not evince hostility to religion, nor should it even seem controversial,” said Richard L. Bolton, FFRF’s attorney in the case. “The court has simply recognized the reality that a tax-free housing allowance available only to ministers is a significant benefit from the government and is unconstitutionally provided on the basis of religion.”
The benefit to clergy is enormous, saving an estimated $2.3 billion in taxes in the years 2002-07 alone, according to a 2002 statement by U.S. Rep Jim Ramstad, R-Minn., cited in Crabb’s ruling. Clergy may use the housing allowance for rent or mortgages and home improvements, including furnishings, property taxes and maintenance.
In 2002, a case went before the 9th Circuit U.S. Court of Appeals when the IRS sued Rev. Rick Warren of Saddleback Church. Warren 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, so Congress immediately passed the Clergy Housing Allowance Clarification Act of 2002 to moot the case. From 2002 on, the law restricted the parsonage exemption to “reasonable rental value.”
The 1954 bill’s sponsor, Rep. Peter Mack, D-Ill., argued that ministers should be rewarded for “carrying on such a courageous fight against this [godless and anti-religious world movement].”
Judge: No secular purpose
“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.” Crabb wrote that “the exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”
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.”
Crabb rejected the claim that the 1954 law was necessary to eliminate “discrimination” against ministers not living in parsonages. “A desire to assist disadvantaged churches and ministers is not a secular purpose and it does not produce a secular effect when similarly disadvantaged secular organizations and employees are excluded from the benefit.”
She added, “Under defendants’ view, there would be no limit to the amount of support the government could provide to religious groups over secular ones.”
Crabb invoked the Supreme Court’s 1989 case, Texas Monthly Inc. v. Bullock, calling exemptions for religious publishers from having to collect state sales taxes “unjustifiable awards of assistance to religious organizations.”
“If a statute imposed a tax solely against ministers (or granted an exemption to everyone except ministers) without a secular reason for doing so, that law would violate the Constitution just as §107(2) does,” Crabb reasoned.
Other cases pending
Crabb dismissed as implausible the government’s bizarre argument that atheists Gaylor and Barker could “conceivably” qualify as “ministers of the gospel.” The government put forth that argument seeking to deny them standing and thus get the challenge dismissed.
Gaylor and Barker, as directors of an educational organization advocating atheism and freethought, earned standing because they have not been entitled to claim the housing allowance FFRF designates for them, while any “minister of the gospel” may do so for promoting religion.
Crabb’s decision noted that Treasury Secretary Donald Regan wrote a 1984 memorandum advising repeal of §107 because there “is no evidence that the financial circumstances of ministers justify special tax treatment.” Ministerial compensation may be low compared to other professions, but “not compared to taxpayers in general.” The recommendation was withdrawn after clergy protests.
In 1921, Congress passed a law allowing ministers to exclude from gross income the rental value of housing, such as a parsonage, received as part of compensation, saying it was for the convenience of the employer. Since FFRF does not provide Gaylor and Barker with a house, FFRF voluntarily dropped that portion of its challenge.
The far-ranging ruling makes interesting reading, even working in Robert Ingersoll’s maxim, “With soap, baptism is a good thing” (included on FFRF’s “Debaptism Certificate”).
FFRF has three federal lawsuits against the IRS for preferential treatment of religion versus irreligion. FFRF and its plaintiffs have been found to have preliminary standing in a challenge to the IRS for failure to enforce church electioneering restrictions.
FFRF has also been found to have standing to pursue its challenge of an IRS provision which exempts church denominations from an annual reporting requirement that applies to all other 501(c)(3) tax-exempt organizations, essentially shielding them from public accountability.
Read the ruling: