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.


The Seventh Circuit U.S. Court of Appeals is presently reviewing briefs in Gaylor et al. v. U.S. Treasury (Mnuchin), a case involving the Freedom from Religion Foundations’ (FFRF) latest attempt to have a housing tax exemption unique to clergy under 26 U.S. C. section 107(2) declared unconstitutional.

This is the second time in recent years that the issue has found its way to the 7th Circuit. In 2013, U.S. District Judge Barbara Crabb ruled that the law, which allows clergy to deduct their housing expenses, which can include rent or mortgage, home improvements and repairs, utility costs, home decorations, appliances, and other costs from their taxable income.

The plaintiffs in the case, who are in leadership positions in the non-profit FFRF argued that they should also be provided these benefits, and in 2013, District Judge Barbara Crabb declared the deduction unconstitutional, but the 7th Circuit ruled that because the plaintiffs did not have standing to sue because they had not sought a refund of these amounts from the IRS.

This time, they did seek the refund, and Judge Crabb issued the same decision finding the exemption unconstitutional. The matter is now back before the 7th Circuit, captioned Annie Gaylor et al. v. Steven Mnuchin et al. (0:18-cv-01280).

The FFRF alleges that the tax code “directly benefits ministers and churches, most significantly by lowering a minister’s tax burden while discriminating against individual plaintiffs, who as the leaders of a nonreligious organization opposed to government endorsements of religion are denied the same benefit.”

Churches and clergy alike, led by the Becket Fund, are challenging the lawsuit ( , arguing that the rule is consistent with a historical understanding of the Establishment Clause, that non-ministers similarly receive “convenience of the employer” housing allowances in certain circumstances, and that churches and ministers should receive an exception to general tax laws to reduce government entanglement with religion and discrimination between religions.

The litigation targets the portion of the code that allows for the exemption for off-site housing, not on-site parsonages under 26 U.S. C. section 107(1).


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