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Clergy Tax-Free Housing Allowance Ruled Unconstitutional

Freedom From Religion Foundation Wins Federal Suit

In what amounts to a double whammy for religious nonprofits in the past week, a federal judge has ruled that the long-standing IRS tax exemption on clergy housing allowance is unconstitutional.  We reported earlier this week on the ongoing court challenge to exemption from Form 990 filing that is given to certain religious groups.

U.S. District Court Judge Barbara Crabb ruled on Friday, November 22 in favor of the plaintiff, Freedom From Religion Foundation.  FFRF claimed in its suit that the law which allows clergy members to shelter from tax the portion of their income that provides for housing expenses violates the constitutional guarantee of equal protection.  In her ruling, Judge Crabb said the current law,

[quote]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.[/quote]

The housing allowance itself dates back to 1921 and originated in a time in which many clergy members lived in church-owned parsonages.  In more modern times, this practice has decreased dramatically and most clergy receive partially tax-sheltered salary instead.

Judge Crabb stayed her ruling indefinitely while all appeals are exhausted…and it will most certainly be appealed to the Chicago-based 7th U.S. Circuit of Appeals.  It is worth noting that this activist judge has a history of ruling against religious activity, having found in 2010 that the National Day of Prayer was unconstitutional.  That ruling was summarily overturned by a higher court the next year.

It is also very likely that Congress will in step and attempt to short-circuit this ruling legislatively.  Peter J. Reilly, a Forbes contributor, commented,

[quote]I’m not sure what Congress could do in this instance.  There is strong clergy influence on both sides of the aisle though, so there is a good chance that Congress will at least try to make it look like it has done something.[/quote]

This ruling potentially impacts as many as 44,000 pastors, priests, rabbis and other clergy members.  Expect the a vigorous fight as this case proceeds.

 

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.

This Post Has 11 Comments

  1. Sorry, iPad is not blog friendly. The submit button was too close to another button.

    ..there are too many contributing factors for allowing organizations, who have a human devote their entire life to same, provide for all needs for said human and not have the organization’s contribution be tax exempt at the corporate level only to be taxed at the human level.

  2. Anyone who studies the Christian Bible will see a setup where the shepherd, minister, pastor will benefit from monies given to further the cause. This setup was setup a millennia ago. Attempts to incorporate this inalienable right with the governing populace will always come under scrutiny by one or another and although we may have to bend to comply with those who rule over us these rulings do nothing to change what we will do.

    In this same entity there are members who give. They will not benefit from what others have given except what is delivered by the head. (Shepherd, Pastor, Minister) The only structure I am aware of that everyone (in theory) benefits from the pot would be communism. This structure did not work in Biblical days, it has it’s problems today. The idea that law should aid or govern in such a way that everyone benefits from the labor of others is something other than a Capitalist structure and would not meld well with the American Republic.

    That being said, there are to many contributing factors for allowing organizations who have a human devote their entire life to the organization, devote an acceptable amount of the orgNizations income to taking care of the entire needs of said human

  3. Hi Greg,

    Your website is a great resource. About this law, what the religious orgs are now supposed to do? Should they start paying taxes or wait for the final decision?

    Thanks.

    1. Churches and religious orgs should do nothing yet. The judge stayed her ruling so that the government can appeal the ruling. I believe that if it ever appears that the housing allowance won’t survive in its current form, Congress will amend the statute to keep it from going away.

  4. Hi Greg,
    Do you have any updates on this case? I just heard today that it still has not been appealed. I also heard that the IRS needs to challenge it before the middle of February or it will become effective. And, I heard it would be effective for pastors’ 2013 compensation? This seems kind of hard to believe (ie. that would result in the issuing of a lot of amended W-2s from employers and a lot of unexpected taxes payable by pastors). Do you have any information you can share with us?

    1. Heather..the federal government officially appealed the decision on Friday, January 25th. This was expected and Judge Crabb’s decision is stayed for now. I will write an updated article on this in a few days.

  5. I applaud Judge Barbara Crabb. If we are to separate church and state it is about time that religious organization pay their fair share of taxes.
    Non profit organizations should be for the benefit of the deserving regardless of religious connection and belief. Non profit organizations are supposed to benefit and assist the people in need not the lazy and non deserving individuals. All property regardless of ownership should have the same taxation as individuals. What gives anyone the right because of religious belief the ability to be different. Are we not all Americans with rights under the constitution to live in peace and freedom.?

  6. What ever happened to separation of Church and State? It seems that it is always used when it is to the Church’s disadvantage. The original intention of separation of Church and State was to keep the State from having any jurisdiction over the Church. Decisions applying to the Church, should be made by the Church.

  7. I see that 44,000 number constantly cited but I don’t know where it sources. I think that it is way low. The Southern Baptist Conference alone has more churches than that and more than twice that many ministers.

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