cross and clouds

By Bob Allen, Associated Baptist Press

A Wisconsin judge has given a green light to a lawsuit challenging a federal law that exempts clergy from paying income taxes on the fair rental value of their homes.

U.S. District Judge Barbara Crabb ruled Aug. 29 that the Madison, Wis.,-based Freedom From Religion Foundation (FFRF) has legal standing to challenge the constitutionality of a 1954 law that grants certain tax benefits to “ministers of the gospel.”

The same group dropped a similar lawsuit in 2011 after the U.S. Supreme Court ruled in another case that individuals can sue the government only if they are affected directly by a law and not just because they are taxpayers. FFRF responded by changing its salary structure to include housing allowances, which employees cannot claim on their tax returns because they are not members of the clergy.

The plaintiffs contend that the law violates the First Amendment ban on establishing religion and the Fifth Amendment guarantee of equal protection under the law. A press release called it “pure discrimination” for the government to give tax privileges to clergy that are denied to atheist leaders.

The current law allows employers to set aside a portion of a minister’s compensation to be used to rent or purchase a home, including furnishings and utilities. Around in some form since 1921, the exemption’s original intent was to reduce the tax burden on ministers, assuming they were poorly paid, and in acknowledgement that clergy conduct much of their ministry from their home, making their residence akin to a home office.

The ministerial exemption has faced legal challenges before, notably in 1996 when the IRS ordered The Purpose Driven Life author Rick Warren to pay taxes on part of the nearly $80,000 he claimed as a housing allowance as pastor of Saddleback Church in Lake Forest, Calif.

Warren later won on appeal. During the process, however, focus shifted from whether Congress intended to allow an unlimited deduction or cap it at a fair market rental amount to whether or not the whole idea of exempting clergy is constitutional. Lawmakers responded in 2002 with the Clergy Housing Allowance Clarification Act to protect the parish exemption but limit it to the fair market rental value.

One study estimated the parsonage allowance saves U.S. clergy as much as $1.2 billion in tax exemptions each year.

—Bob Allen, Associated Baptist Press

From the September 2012 Report from the Capital. Click here for the next article.