A great victory for secularism: No more tax-free housing for preachers

One of the unconscionable deferences to religion in America is the law that ministers who get a housing allowance from their churches don’t have to pay income tax on it.  As far as I know, they’re the only group of people in this country with such benefit—a benefit estimated to cost taxpayers 2.3 billion dollars yearly.
But this may be on the way out thanks to a Wisconsin Judge’s decision that the exemption is unconstitutional.  The suit was filed by Annie Laurie Gaylor and Dan Barker, co-presidents of our own Official Website Secular Organization™, the Freedom from Religion Foundation. The defendants were U.S. Treasury Secretary Jacob Lew and acting IRS commissioner Daniel Werfel.  As The Wisconsin Journal reports:

The decision Friday by U.S. District Judge Barbara Crabb could have far-reaching financial ramifications for pastors, who currently can use the untaxed income to pay rental housing costs or the costs of home ownership, including mortgage payments and property taxes.

“It’s a really big deal,” said Annie Laurie Gaylor, co-president of the Madison-based Freedom From Religion Foundation, which filed the lawsuit. “A church currently could pay a minister $50,000 but designate $20,000 of it a housing allowance so that only $30,000 would be taxed as salary.”

Crabb acknowledged in her decision that the exemption is a boon to ministers, referencing a 2002 statement by then-U.S. Rep. Jim Ramstad of Minnesota that the tax exemption would save clergy members $2.3 billion in taxes from 2002-2007. But she said the magnitude of the benefit only underscores what’s wrong with the law.

The exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise,” Crabb wrote.

I see this as a watershed victory—unless it’s overturned by the U.S. Supreme court—for it’s a ruling by a federal judge, and that carries weight. (You can download a copy of the Judge Crabb’s decision here.) Here’s the upshot: ministers would be entitled to such an exemption if it such laws had a nonsectarian, secular purpose and included other people as well. From the judge’s decision:

Although I conclude that § 107(2) violates the establishment clause and must been joined, this does not mean that the government is powerless to enact tax exemptions that benefit religion. “[P]olicies providing incidental benefits to religion do not contravene the Establishment Clause.” Capitol Square Review & Advisory Board v. Pinette, 515 U.S. 753, 768 (1995) (plurality opinion). In particular, because “[t]he nonsectarian aims of government and the interests of religious groups often overlap,” the government is not “required [to] refrain from implementing reasonable measures to advance legitimate secular goals merely because they would thereby relieve religious groups of costs they would otherwise incur.” Texas Monthly, 489 U.S. at 10 (plurality opinion). Thus, if Congress believes that there are important secular reasons for granting the exemption in § 107(2), it is free to rewrite the provision in accordance with the principles laid down in Texas Monthly and Walz so that it includes ministers as part of a larger group of beneficiaries. Haller, 728 A.2d at 356 (noting that Texas amended statute at issue in Texas Monthly to grant sales tax exemption to broader range of groups). As it stands now, however, § 107(2) is unconstitutional.

Here’s a humorous video from the Mudbrooker that explains the decision:

The next thing that needs to go is religion’s exemption from property taxes.

Congrats to Annie Laurie, Dan, and the gang of attorneys at FFRF.

h/t: Michael

28 Comments

  1. gbjames
    Posted November 25, 2013 at 12:34 pm | Permalink

    Let’s hope it stands. I’m not optimistic about that… not because Judge Crabb didn’t rule correctly, but because I fear for the influence of religion on the appeals process.

  2. Posted November 25, 2013 at 12:37 pm | Permalink

    ….halleluia…

  3. Russell La Claire
    Posted November 25, 2013 at 12:39 pm | Permalink

    We shall see. But, even if it is overruled, a seed has been planted in the mind of the public.

  4. Timothy Hughbanks
    Posted November 25, 2013 at 12:56 pm | Permalink

    The thing is, churches are really businesses. (The product is worthless, but they’re selling it nevertheless.) If churches were taxed as businesses, I think the housing for clerics would be counted as income for the cleric, but probably deductible for the church. The property taxes on the church would be a deductible expense on Federal income tax (like the property taxes are for landlords). Is it constitutional for a local government to give a property tax exemption to a church? State and local governments provides lots of other property tax exemptions – many are very questionable as to their economic wisdom or fairness, but are they unconstitutional?

    • Posted November 25, 2013 at 1:12 pm | Permalink

      If this tax exemption were expanded to all 501(c) nonprofits, I’d be quite a fan of it. Then the problem would be religions semi-automatically being nonprofits, but that’s a different problem.

  5. thompjs
    Posted November 25, 2013 at 1:29 pm | Permalink

    Of course there is still a work around.
    May have been a complete waste of time.

    http://religionclause.blogspot.com/2013/11/court-holds-that-tax-codes-parsonage.html

  6. ploubere
    Posted November 25, 2013 at 1:44 pm | Permalink

    The Supreme Court will almost certainly overturn it, citing tradition or some other nonsense argument. But it’s a nice turn of events for the moment.

  7. Brian
    Posted November 25, 2013 at 1:48 pm | Permalink

    Federal District decisions are only binding in that district. It can be persuasive, but not binding. A SCOTUS decision is binding across the US.

  8. Scote
    Posted November 25, 2013 at 1:52 pm | Permalink

    It is a great decision, and the Judge seems to have put in a lot of extra work in the opinion to make it hard to overturn.

    Unfortunately, the parsonage exemption still remains, where churches can provide housing for free on church grounds and it doesn’t count as a taxable perquisite. The FFRF doesn’t provide a house to the co-presidents in that fashion, just a cash housing allowance, so they didn’t have standing to challenge it. But this case lays the ground work for an other secular org to do so.

    This victory also lays the ground work for other FFRF cases, including their case about the inequality of how churches don’t have to go through the same hoops and audits secular non-profits go through.

    Great Job FFRF!

    (Side note to Jerry: I don’t think the deductions were 2.3 billion each year, but combined for years 2002-2007.)

    • David Chumney
      Posted November 25, 2013 at 5:21 pm | Permalink

      You make several good points, especially about the parsonage exemption. This perk, unlike the allowance, is something that others get–e.g., military personnel, so that sort of housing benefit is possible for a range of workers who are required to live in employer-provided housing.

      • Scote
        Posted November 25, 2013 at 6:28 pm | Permalink

        Yeah, but the rules are stricter for non-ministers, they have to prove that living on site is a job requirement. Not so for ministers.

  9. frank43
    Posted November 25, 2013 at 2:22 pm | Permalink

    It will be finessed in the same way that College Presidents’ housing isn’t subject to income tax. The church will say that the house is owned by the church and the clergy-person is required to live there for the convenience of the employer (church). Same dodge applies to members of the Armed Services, scientists in Antarctica and college presidents.

    Hardly a great victory.

  10. George Hand
    Posted November 25, 2013 at 2:45 pm | Permalink

    Many of the tax exemptions for churches are predicated on them being politically neutral. That is already a dubious expectation. If their tax exemptions are revoked, expect them to stop even pretending to be non-partisan. This may be a good thing, and they may even like it after their whining is done.

  11. brandon
    Posted November 25, 2013 at 2:49 pm | Permalink

    Members of the US Armed Forces are another group that do not get taxed on their housing allowance. This applies both to people who live in base housing, as well as people who get an allowance to live in off-base housing.

    • Michael Fisher
      Posted November 25, 2013 at 4:05 pm | Permalink

      There may be some errors in the below as I’ve not had time for deep research…

      I think the difference is that military personnel are working for the government [or perhaps more accurately they are working for the tax payer] & the entitlement to these allowances depends on the availability of government quarters in the area. The religious housing allowance is also being paid for by the tax payer, but it’s harder to argue that they are offering a service in return to the tax payer. Also the parsonage allowance applies even if you’re a preacher earning into the six or seven figures whereas the higher your military grade the smaller your allowance.

      The non-taxable BHA [Basic Housing Allowance] compensates those members of the armed forces based within the U.S. who find themselves stationed where there is no military housing available. The allowance varies by area ~ one can imagine off base housing in an upmarket locale being out of reach otherwise. There is also an OHA [Overseas Housing Allowance]. Peculiarly the BHA & OHA allowance doesn’t depend on size of family.

      I had a look at the housing compensation arrangements for civilian U.S. government workers on foreign postings and there’s a whole slew of taxable & non-taxable compensation schemes. Very complex.

      • brandon
        Posted November 25, 2013 at 4:13 pm | Permalink

        I don’t disagree, overall, especially with the value of military over the value of a preacher. I was just mentioning that there are other groups that get tax-exempt housing allowances. Also, it is possible to get the housing allowance if there is space available on the base. That said, there’s rarely room on base, so you have to ask to get put on a waiting list. So, while I’m not aware of a specific stipulation that requires the lack of space on base to get a housing allowance, the rule itself is not heavily enforced. At the very least it’s extremely easy to “loophole” your way out of that stipulation. As for family size, military members do get more money for housing depending on whether or not they have dependents. Same goes for cost of living allowances. OHA is slightly different in how it works, and is way out of the scope here. I know this information because at one time or another, while on active duty, I received BAH, OHA, COLA, and other allowances.

        If you want to analyze it yourself, the easy way to remember is that if they call it “pay” it’s taxable. IF they call it “allowance” it is not taxable.

  12. Michael Fisher
    Posted November 25, 2013 at 3:21 pm | Permalink

    The unfairness to non-religious organisations in the application of Internal Revenue Code 501(c)(3) is being fought at the moment in American Atheists v. Shulman

    Here’s a snippet from the above link:-

    Groups like American Atheists receive tax-exempt status under Internal Revenue Code 501(c)(3) but, because the organization is not classified as religious, it costs American Atheists and other secular non-profits significantly more money each year to maintain that status. In this lawsuit, American atheists and the other plaintiffs are demanding that all tax-exempt organizations, including those characterized as religious by the IRS, have the same requirements to achieve and maintain tax-exempt status.

    In order to qualify for nonprofit tax-exempt status, any religious or secular organization must demonstrate it exists to benefit the public. After that basic element is established, religious non-profits are almost always declared automatically tax-exempt under the current IRC rules and definitions. However, secular non-profits face a lengthy application and a fee, which can be as high as $850.

    Religious organizations and churches are treated differently from secular organizations. The exemptions are applied in a way that discriminates solely on the basis of whether an entity’s members express beliefs and practices accepted as religious. The IRS treats your organization better if you profess belief in a supernatural deity.

    • Mark Joseph
      Posted November 25, 2013 at 10:09 pm | Permalink

      Good thing to know the next time some ignorant fundamentalist (pardon the redundancy) says that atheism is a religion.

  13. beyondbelief007
    Posted November 25, 2013 at 4:25 pm | Permalink

    I read the entire 43 page Crabb ruling, and haven’t felt so giddy since reading the Ninth Circuit’s flawless logic in the Newdow case re: “Under God in the Pledge.
    …which the SCOTUS promptly dismissed for lack of standing, dodging the logic.

    That is why Judge Crabb spent so much of this decision on establishing standing, and further why Barker (a plaintiff) spends so much time establishing that the ORIGIN of the law was a 1954 push to fight Godless communism.

    So… if this one gets through on standing, and if it is upheld, it will be the first precedent involving explicit reference to the fact that ALL of the changes made in 1954-56 re “In God We Trust” as the national motto, “Under God” in the pledge, and this law for parsonage exemption, were EXPLICITLY attempts at establishing religious preference. The other legs will fall.

    I love, particularly, that Scalia is hoist upon his own petard in this ruling because he noted in an earlier ruling that the implications were that 107(2) would have to be thrown out, too, if ever a case came up… well, here it is Antonin!!

    • gbjames
      Posted November 25, 2013 at 4:27 pm | Permalink

      I do hope you are correct!

  14. Kelton Barnsley
    Posted November 25, 2013 at 5:58 pm | Permalink

    This makes me happy.

  15. quine001
    Posted November 25, 2013 at 8:43 pm | Permalink

    It is a good start. Ultimately, religions need to stand on a equal basis with all not-for-profit public organizations. FFRF is using a good approach to standing by arguing that no religion should get a tax break that their own organization does not get. If this is not reversed by the SCOTUS, they will be able to come back and pull the rug out from under other unconstitutional privileges.

  16. Posted November 25, 2013 at 8:57 pm | Permalink

    “Ministers” commonly means Protestant ministers. I hope that this decision includes Rabbis and Catholic priests as well? If not, it is discriminatory.

  17. Ed Venegas
    Posted November 26, 2013 at 10:57 am | Permalink

    I think I’ll go grab me some popcorn and await the incomming “Persecution” whining.

    First “War on chrismas” next will be “War on minister’s pockets”

  18. Posted November 27, 2013 at 9:07 am | Permalink

    I myself am not a lawyer (physician/medical researcher), but a friend of mine is. His words:

    “So I read the opinion, I read some of the other trial related documents, and I talked to a professor about a couple issues, so I have a pretty good grasp on what is going on. First of all, this case was at the district level, so if appealed, it would go to the circuit level, then if appealed, it would go to the Supreme Court. Obviously this will get appealed, but what will probably happen is that the circuit court will look at it, and issue an order reversing without providing an elaborate opinion. The reasoning this Wisconsin judge used is clearly against controlling precedent. There was a very similar case in 2011 involving an Arizona tax credit for donating to private schools, and the Supreme Court ruled that this type of “harm” is not sufficient to provide standing, meaning that the taxpayer has not experienced a harm that is any different from any other taxpayer. Since it would obviously be a bad idea to let any taxpayer sue over any tax, the standing requirement ensures (theoretically) that only those who suffer a harm get time in court. Now, I have read that Arizona case, and in my opinion the logic was bullshit, but it was a traditional 5-4 split, and most of the right wing opinions are the same type of bullshit. Nevertheless, it is the law of the land, so the judge who made this ruling is just wrong. Further, assuming there was standing, there is no way to distinguish this tax code from others that do similar things. The tax code is filled with sections that discriminate, and you are aware of all the breaks religions get that were not on trial in this case. This doesn’t even begin to touch the insanity of deductions and credits for parents, home owners, capital investors, and all sorts of classes of people. To accept that this section is unconstitutional means that one wishes to transform some fundamental elements of our tax code. Don’t get me wrong, I’m on board with that, vive la resistance, and all that, but that kind of change is not going to happen quickly or soon. More importantly though, this kind of change is clearly the domain of the legislature, not the courts, so even if one could craft a clever legal argument, one must perform an even greater feat to justify why the court should make such an intervention. The most impossible part though, is assuming the circuit court went crazy and sided with the taxpayer, and the Supreme Court decided to take the case, one would have to convince those 5 conservative assholes to reverse themselves.

    So, tl;dr, I’m always glad when some judge can get a case into the media to bring attention to these things, but this will get reversed and disappear into the media graveyard.”

  19. Posted November 27, 2013 at 9:09 am | Permalink

    I am not a lawyer (physician/medical researcher) but a friend of mine is. His words:

    “So I read the opinion, I read some of the other trial related documents, and I talked to a professor about a couple issues, so I have a pretty good grasp on what is going on. First of all, this case was at the district level, so if appealed, it would go to the circuit level, then if appealed, it would go to the Supreme Court. Obviously this will get appealed, but what will probably happen is that the circuit court will look at it, and issue an order reversing without providing an elaborate opinion. The reasoning this Wisconsin judge used is clearly against controlling precedent. There was a very similar case in 2011 involving an Arizona tax credit for donating to private schools, and the Supreme Court ruled that this type of “harm” is not sufficient to provide standing, meaning that the taxpayer has not experienced a harm that is any different from any other taxpayer. Since it would obviously be a bad idea to let any taxpayer sue over any tax, the standing requirement ensures (theoretically) that only those who suffer a harm get time in court. Now, I have read that Arizona case, and in my opinion the logic was bullshit, but it was a traditional 5-4 split, and most of the right wing opinions are the same type of bullshit. Nevertheless, it is the law of the land, so the judge who made this ruling is just wrong. Further, assuming there was standing, there is no way to distinguish this tax code from others that do similar things. The tax code is filled with sections that discriminate, and you are aware of all the breaks religions get that were not on trial in this case. This doesn’t even begin to touch the insanity of deductions and credits for parents, home owners, capital investors, and all sorts of classes of people. To accept that this section is unconstitutional means that one wishes to transform some fundamental elements of our tax code. Don’t get me wrong, I’m on board with that, vive la resistance, and all that, but that kind of change is not going to happen quickly or soon. More importantly though, this kind of change is clearly the domain of the legislature, not the courts, so even if one could craft a clever legal argument, one must perform an even greater feat to justify why the court should make such an intervention. The most impossible part though, is assuming the circuit court went crazy and sided with the taxpayer, and the Supreme Court decided to take the case, one would have to convince those 5 conservative assholes to reverse themselves.

    So, tl;dr, I’m always glad when some judge can get a case into the media to bring attention to these things, but this will get reversed and disappear into the media graveyard.”


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