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Appeals Court Finds Clergy Housing Allowance To Be Constitutional

It took over five years, but a unanimous 3-judge panel of the 7th US Circuit Court of Appeals ruled in March that the clergy housing allowance is constitutional, overturning a District court decision from 2013.

The original suit was brought by the Freedom From Religion Foundation (FFRF), claiming that the clergy housing allowance violates the Establishment Clause of the 1st amendment.  The clergy housing allowance, which dates back to 1921, allows a minister to claim the portion of their compensation that covers housing costs to be excluded from federal income tax.  The FFRF filed a similar suit a few years prior, but were found to not have standing to challenge the law.  After that, two senior employees of FFRF attempted to claim a housing allowance on their personal tax returns and were subsequently denied by the IRS.  FFRF filed a new suit on the employees’ behalf, this time with standing.  District Judge Barbara Crabb ruled in favor of FFRF, but stayed enforcement of the decision pending appeal.

The US Treasury appealed the case, and Judge Crabb’s decision was overturned.  Appeals Court Judge Michael Brennan wrote,

Any financial interaction between religion and government – like taxing a church, or exempting it from tax – entails some degree of entanglement.  But only excessive entanglement violates the Establishment Clause.

He continued,

FFRF claimed that the clergy housing allowance “renders unto God that which is Caesar’s.  But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause:  neither commanded by the former, nor proscribed by the latter.

In finding the allowance to be constitutional, precedent in other similar tax matters weighed into the ruling.  Judge Brennan again,

For over two centuries, the states have implemented church property tax exemptions in various forms.  When challenged on establishment grounds, such tax exemptions typically have been upheld.

FFRF co-president, Annie Laurie Gaylor, in communicating her disagreement with the ruling, said her organization would have to analyze the decision to determine whether or not they would attempt to appeal it higher.

So, for now, the clergy housing allowance tax exclusion remains available to licensed, commissioned, and ordained ministers.


Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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