By BJC Associate General Counsel Jennifer Hawks
A federal district court in Wisconsin has once again declared the clergy housing allowance an unconstitutional preference for religion, and the case is expected to continue.
In the Gaylor v. Mnuchin decision, the court examined the history and constitutionality of the clergy housing allowance, which permits churches to designate part or all of the salary of qualified ministers as a housing allowance, thereby excluding it from the ministers’ taxable income.
This ruling was not unexpected as the judge had issued a similar ruling in 2013. That decision was overturned by the 7th U.S. Circuit Court of Appeals the following year when it said that the plaintiffs — executives at the Freedom From Religion Foundation — lacked standing to challenge the statute. The court held that “there is no reasonable interpretation of the statute under which the phrase ‘minister of the gospel’ could be construed to include employees of an organization whose purpose is to keep religion out of the public square.” The plaintiffs seemingly corrected the standing issue when they applied for — and were subsequently denied — the housing income inclusion from the Internal Revenue Service.
Historically, many houses of worship have provided parsonages (church-owned homes) for their pastors. In the U.S., parsonages are typically exempt from state and local property taxes. Since at least 1921, the rental value of parsonages has also been excluded from the gross income of the pastors who reside in them.
The provision at issue in this case — the housing allowance — was added to the tax code in 1954 in the same bill as the so-called “Johnson Amendment,” which protects all 501(c)(3) organizations, including houses of worship, from politicians and political donors seeking partisan campaign endorsements. The housing allowance gave parity to religious denominations that provided housing through compensation with denominations that provided housing through parsonages. In 1954, Congress decided that a clergy housing allowance should be treated like a military housing allowance: tax free. One benefit of the housing allowance to local communities that is often overlooked has been more clergy housing being on the property tax rolls.
In Gaylor v. Mnuchin, the court specifically held that the clergy housing allowance “violates the establishment clause because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.” At press time for Report from the Capital, intentions to appeal the ruling to the 7th Circuit had been announced but no appeal had yet been filed.
With the standing issue seemingly resolved, the 7th Circuit should rule on the merits if the case is appealed.