By Bob Allen, Associated Baptist with BJC Staff Reports
A federal judge said that an IRS rule allowing clergy to avoid paying taxes on a part of their income designated as a housing allowance violates the constitutionally mandated separation of church and state.
Judge Barbara Crabb of the U.S. District Court for Western Wisconsin ruled Nov. 23 that a section of the tax code granting a benefit for “ministers of the gospel” not available to everyone else favors religion over non-religion, thus creating an establishment of religion prohibited by the First Amendment of the U.S. Constitution. She ordered that her ruling should not take effect until after the conclusion of any appeal.
The so-called “parsonage allowance” dates back to 1921, when most churches maintained a parsonage near the church where the minister and his family lived rent-free. The IRS allowed ministers to exclude such in-kind compensation from federal taxes.
In 1954, Congress extended the law to cash allowances, as more and more ministers were moving out of parsonages to rent or purchase their own homes.
Over the years challenges have arisen, including a high-profile case in 1996 when Purpose Driven Life author and megachurch pastor Rick Warren deducted his entire $77,663 salary from Saddleback Church in Lake Forest, Calif., as a housing allowance. The IRS ordered Warren to pay back taxes on a portion of his income.
Warren spent four years in court defending his housing deduction and won in 2000, when a court struck down the IRS argument capping the deduction at a “reasonable” amount and accepted Warren’s argument that the amount could be unlimited.
The IRS filed an appeal, but before it reached a three-judge panel, Congress swiftly passed the 2002 Clergy Housing Allowance Clarification Act to protect the parish exemption but limit it to the fair market rental value of a home.
Several challenges to the benefit have failed due to the legal loophole of “standing.” Courts have ruled that non-ministers suing for a benefit available only to clergy cannot possibly prevail, and the only result would be to deny it to those who qualify.
The current case, filed in September 2011 by the Freedom From Religion Foundation, cleared that hurdle by designating a portion of employee compensation as a housing allowance. Two employees in turn sued the federal government, claiming that denying them a benefit available to ministers violates the Establishment Clause and gives the IRS and Treasury Department authority to make “sensitive, fact-intensive and subjective determinations” on religious matters such as whether an individual is “duly ordained.”
The IRS has interpreted the exemption broadly, taking “ministers of the gospel” to mean not only those who preach from the New Testament, but also as applying to thousands of ministers, priests, rabbis, imams and other faith leaders.
In her 43-page ruling, however, Judge Crabb said because a minister’s primary function “is to disseminate a religious message, a tax exemption provided only to ministers results in preferential treatment for religious messages over secular ones.”
Brent Walker, executive director of the Baptist Joint Committee for Religious Liberty, disagreed.
“The ministerial housing allowance does not violate the First Amendment’s Establishment Clause,” Walker said in a statement. “Government violates the Establishment Clause when it gives religion a tangible benefit, such as grants to churches to finance their ministries or vouchers to parochial schools to pay for the teaching of religion. However, accommodations of religion, such as tax exemption and other exclusions, are generally permitted.”
Walker says the Free Exercise Clause of the First Amendment does not require such accommodation but the Establishment Clause does not forbid it. While Section 107 of the tax code applies specifically to clergy, he said, other sections give similar relief to other segments of society including members of the military, taxpayers living abroad and employees required to live on premises or who are on 24-hour call.
In her ruling, Crabb said if members of Congress believe there are “important secular reasons” for granting the exemption, they can rewrite the law in a way that includes ministers as part of a larger group of beneficiaries, but as currently written the tax code “is unconstitutional.”
From the January 2014 Report from the Capital. Click here for the next article.
