The Seventh Circuit Court of Appeals heard oral arguments this week in Gaylor v. Peecher, a case that challenges the constitutionality of tax-exempt housing for clergy. Under 25 U.S.C. § 107(2), a pastor may receive a payment separate from taxable salary to pay for housing-related expenses including rent, mortgages from a forbrukslån and utility services.
The law, which applies only to members of the clergy and not other non-profit organizational leaders has received scrutiny in recent years. The Freedom from Religion Foundation (FFRF), an atheist organization, filed the case when two of its directors, which they claim are analogous to clergy, were denied the housing exemption.
Last October, a Wisconsin federal judge ruled that the housing tax exemption violated 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.”
The issue has been thorny, with those defending the exemption raising arguments that religious organizations serve a secular benefit. During the oral arguments, Judge Manion asked about the secular benefit of pastoral counseling, but counsel for FFRF responded that secular counselors should then also receive tax-exempt housing.
The traditional argument in favor of the constitutionality of the exemption is that the tax-exemption is a logical extension of tax-exemption for church-owned clergy housing. In other words, instead of giving the pastor a house on the church property, the church provides the pastor with money to get a house elsewhere.
Several tax law professors filed an amicus brief in favor of maintaining the exemption and noted that pastors are not required to pay social security or Medicare taxes, are exempt from unemployment insurance, and have different retirement benefit programs and that striking the housing exemption would conceivably lead to excessive government entanglement with religion.
A group of 40 religious organizations also filed an amicus brief in support of the current exemption. They argued that the exemption has the “secular purpose” of maintaining separation of church and state insofar as requiring churches to pay a tax would be “entanglement” with religion and that using the minister’s house for church functions meets the “convenience of the employer” standard. However, the statute does not require minister housing to be geographically located near a church, and the amici organizations argue that such an inquiry would require the IRS to impermissibly “second-guess ecclesiastical judgments.”
The religious organization concludes that taxing clergy housing would be “unjust” because churches have established pastoral salaries in .on tax-exempt housing and that the hardship imposed on pastors and churches would be disproportionate to the small increase in tax flow.
This is the second time the case has made it to the Seventh Circuit. The first time, the case was dismissed the grounds that FFRF did not have standing to bring the case. This time, FFRF attempted to overcome this argument by claiming that two directors were analogous to clergy and were discriminated against when they were denied the housing exemption.
Regardless of who wins at the Seventh Circuit, the case will likely make its way to the Supreme Court.
Audio of the oral argument is available on the Seventh Circuit Court of Appeal website.
ReligiousLiberty.TV has been following this line of cases since 2014. Our previous review and analysis is below.
The 7th Circuit will decide whether a tax rule that allows only members of the clergy to deduct housing costs including rent, mortgage, furnishing, utilities, maintenance, and other associated costs is constitutional.
Last Friday a federal judge in Wisconsin issued a ruling that a federal statute that exempts housing for members of the clergy from taxation violates the establishment clause of the First Amendment to the United States Constitution.
On November 13, 2014, the Seventh Circuit Court of Appeals ruled that an atheist group challenging a tax-exempt housing benefit only available to clergy lacked standing to bring the suit because members of the atheist group could not demonstrate that they had suffered an injury as a result of the clergy tax-exemption.
On September 10, the 7th Circuit Court of Appeals heard oral argument in Freedom from Religion Foundation (FFRF) v. Lew. The judges focused on whether FFRF had standing to bring the case.
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.