Published by the Freedom From Religion Foundation, Inc. FFRF.org

FFRF’s housing allowance challenge backed by 22 tax law experts, CFI

Vol. 35 No. 7 September 2018
This screen shot from the TurboTax website shows where clergy members can enter the allowance for their residence.                                                                                                               

FFRF’s challenge of a special tax break for clergy, now before the 7th U.S. Circuit Court of Appeals, has unleashed a long list of legal adversaries, all loudly insisting that clergy deserve and must be given a unique housing tax privilege.

Most of the numerous signers of nine briefs against FFRF’s lawsuit are Religious Right legal groups and religious denominations.

This group of indignant clergy tax break defenders has, however, mischaracterized the tax code and the nature of the clergy housing allowance, according to 22 tax law professors. They and the Center For Inquiry (CFI), a leading national humanist group, have filed briefs in support of FFRF’s “David vs. Goliath” challenge.

The housing allowance was passed by Congress in 1954 with a stated intent by its sponsor to reward “ministers of the gospel” for fighting “godlessness.”

Church employers may designate part of ministerial salaries as “housing allowances,” which may then be subtracted from the minister’s taxable income. The generous provision permits ministers to exempt rent, mortgage interest, utilities, repairs and many other expenses for their homes.

The tax professors contend that the housing allowance is a subsidy for ministers, is not an appropriate accommodation for religion, ignores important differences in ministerial income and entangles church and state.

The tax break “provides a significant financial benefit available only to certain employees based purely on their religious status,” states the Center for Inquiry brief. “Religious organizations which do not employ ‘ministers of the gospel,’ may not offer this benefit. Nonreligious employers, even if identical in every other way to a church, may not offer this benefit. The law therefore discriminates ‘between religion and religion, and between religion and nonreligion,’” to quote the U.S. Supreme Court.

Both legal documents make strong points for abolishing this tax allowance.

“It defies reason to claim that requiring ministers to obey the same rules as other employees could be seen as discriminatory,” states the CFI brief, adding: “It is hard to see how the government could send a clearer message of endorsement than the grant of billions of dollars of tax benefits to ministers of the gospel alone.

FFRF has designated a housing allowance for its executive directors, Annie Laurie Gaylor and Dan Barker, arguing they are similarly situated to clergy as leaders of a nontheistic organization. Contending the housing allowance is both unconstitutional and discriminatory, FFRF went to court, winning a resounding victory at the district court level in 2013.

The 7th Circuit threw out the case the following year, contending Barker and Gaylor first needed to apply for a refund and be denied one before being able to sue. When the couple actually applied and were refused the refund, they and FFRF went back to court, again winning a firm ruling in federal court last year. Once again, the Treasury Department and IRS have appealed the lower court ruling.

Singles out ministers

The tax law professors note that Section 107(2) “indisputably singles out ministers for a tax benefit” that has nothing to do with convenience of the employer.

Ministers cannot be compared to seamen or lighthouse keepers or other employees who must live on-site to do their jobs. “It is hard to imagine how living in one’s own home can be for the employer’s convenience,” they write, particularly when ministers may receive tax-free housing in retirement.

Further, the housing allowance is an outright subsidy. Exempting something from taxation is no less a benefit than sending a check, the experts remind the appeals court. Even the government has conceded that targeted tax breaks — and the parsonage exemption in particular — are equivalent to direct government spending. The tax brief points out that ministers with higher incomes receive a greater tax subsidy than lower-income ministers.

The housing allowance statute results in substantial entanglement between the government and churches, such as requiring the IRS and courts to determine which beliefs or purported beliefs should count as a religion for tax purposes, what constitutes a church or a minister, and ministerial functions, whether an ordained minister working for a secular nonprofit counts as a minister if she gives one sermon a year, and similar quandaries.

The brief persuasively clarifies the financial and constitutional damage to citizens due to this unjustified tax handout.

The tax brief, written by Adam Chodorow, associate dean of academic affairs at Sandra Day O’Connor College of Law, Arizona State University, is joined by tax experts from a variety of public law schools and even religious schools of law, such as Saint Mary’s College of Law and Loyola University of Chicago School of Law.