By Michael Peabody –

Last November, a federal judge stuck a stick in a beehive when she found that a long-standing tax-exemption for clergy housing was unconstitutional. The case, Freedom from Religion Foundation (FFRF) vs. Lew,  is currently on appeal to the Seventh Circuit Court of Appeals and religious organizations are out in force defending the exemption.

Currently, the Internal Revenue Code (26 USC § 107) allows religious congregations to provide a “minister of the gospel” with a tax-free housing allowance that is additional to, and not reported as, income. Additionally, members of the clergy are allowed to deduct real estate taxes and mortgage interest from their taxable income even if it was already covered by the tax-free housing allowance, they can get further info on TheAdvisory house selling guide.

This allowance has been provided since the 1950s when it was promoted as an ideological bulwark against communism, and it is believed that clergy receive over half a billion dollars in tax benefits resulting from § 107 each year. At the time of its inception, Congressman Peter Mack described the purpose when he said, “Certainly, in these times when we are being threatened by a godless and antireligious world movement we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this foe. Certainly this is not too much to do for these people who are caring for our spiritual welfare.”

Although the term “minister of the gospel” is indisputably Christian in nature, the IRS has not barred clergy from other faiths from participating. All a minister needs in order to participate is some sort of ordination, licensing, or commission and he or she must actually be performing ministerial functions, rites, or ceremonies.

In contrast to their clerical brethren, employees of secular non-profit organizations are not eligible for the tax-free housing allowance.

In 2003, then University of Southern California Law Professor Erwin Chermerinsky, analyzed the issue in response to a request from the Ninth Circuit and concluded that the parsonage exemption violated the Establishment Clause and should be declared unconstitutional.  (Professor Chermerinsky's article can be found in its entirety at

At the time, the Ninth Circuit was studying a situation involving Purpose Driven Life author Rick Warren, who also was a local pastor at Saddleback Church. Warren had claimed the entire payment from the church of approximately $80,000 was a tax-free housing allowance. The IRS claimed this was unreasonably generous.  For instance, in 1994, Warren's entire income of $86,175 was a housing allowance but the records showed that the actual housing expenses were $76,309. That year Warren also deducted $27,107 for mortgage interest paid with tax-free money.

In his paper, Chermerinsky argued that the housing allowance (aka parsonage exemption) failed to pass the Lemon test because it does not advance a secular purpose but instead advances religion, even if the religion advanced conceivably solves a secular problem.

Chermerinsky also argued that the parsonage exemption failed to pass the neutrality test that some of the U.S. Supreme Court justices advanced in Mitchell v. Helms which prohibits the government from favoring religion or particular religion. In that case, a plurality of four justices, writing for the dissent, argued that providing instructional equipment for parochial schools was permissible because it was “allocated on the basis of neutral, secular criteria that neither favor nor disfavor religion, and is made available to both religious and secular beneficiaries on a nondiscriminatory basis.” Applying this reasoning to the clergy housing exemption, Chermerinsky concluded that it was not neutral because it specifically only applies to “ministers of the gospel.”

He finally argues that the exemption is an impermissible government endorsement of religion because it only provides a benefit for clergy and religion and excludes all others, including others involved in charitable work.

Understandably, members of the clergy who have been allowed to pay less in income taxes because they are “ministers of the gospel,” are unhappy with Wisconsin federal Judge Crabb's decision that the tax-free housing allowance is unconstitutional.  Even those clergy who are typically in the church-state separation camp might be upset as this would be their money.

Not surprisingly, churches, synagogues, and mosques, are marching down to the Seventh Circuit Court of Appeals amicus brief in hand (38 have signed onto the Church Alliance brief – , arguing that the tax exemption is not special treatment for religion, but rather is “merely lifting government-imposed burdens so as to allow those organizations to exercise their religious mission more freely.” In their view, the clergy allowance doesn't violate the Lemon test by advancing religion – instead the government is staying out of the business of religion when “it honors, rather than transgresses, this nation's long tradition of separation between church and state.”

Given that requiring members of the clergy to pay taxes means that the government is involved in their affairs, perhaps those writers of the amicus could also demand their Free Exercise rights to be free of government-imposed sales taxes and car registration fees and the U.S. Postal Service could stop deliveries.

The Church Alliance claims that the statute does not advance religion because it is not promoting “a particular point of view in religious matters.”  It continues this line of argument, but ultimately reaches the real crux of the issue which is addresses as a “reliance interest.” In other words, overturning the ministerial exemption would present a financial hardship for churches and ministers.  It would be very difficult to build parsonages on the church premises and would adversely affect retirement plans of ministers. Perhaps for this reason enough, the Seventh Circuit may be inclined to find a way to make the ministerial exemption work, although it will most likely seek another way to reach this same result.

In the event that the ministerial exemption is overturned by the Seventh Circuit, a legislative fix might be in order.  it seems that there is a clear distinction between having a member of the clergy live in a church-owned property, often adjacent to the church property and regularly used for ministerial purposes, as opposed to providing a “minister of the gospel” with an allowance to purchase a home of his or her own in which the church has no ownership rights, and where the pastor can also deduct mortgage interest from the taxable portion of his or her income and accrue the benefits of home equity.

In short, if the church owns the home and reaps the benefits from equity, the pastor could conceivably use it tax-free to the extent that anybody else can use an employer-owned home tax-free.  In other words, the employer's needs for a particular living space would be the dominant interest.

At present, Judge Crabb in her ruling in FFRF v. Lew has exposed a shaky foundation that undergirds many ministries in North America and it would not be inappropriate to consider contingency plans should the Seventh Circuit uphold her opinion.


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