Religious leaders said Monday they’ll appeal a new federal court ruling that ends a housing allowance tax break claimed by clergy, saying it’s an unconstitutional benefit that only helps ministers and has no secular purpose.
The decision by U.S. District Judge Barbara B. Crabb, a Carter administration appointee in Wisconsin, would end the decades-old IRS practice of allowing ministers to exclude housing allowances from their taxable income.
“A desire to alleviate financial hardship on taxpayers is a legitimate purpose, but it is not a secular purpose when Congress eliminates the burden for a group made up of solely religious employees but maintains it for nearly everyone else,” the judge wrote in her opinion Friday.
Pastor Chris Butler of Chicago called the ruling “crippling.”
“Our job and our life’s purpose are one and the same: to serve our congregations and our communities 24/7. Living close to our faith communities is vital to our missions, and we should not face discriminatory tax penalties for doing so,” said Mr. Butler, who is being represented by the Becket Fund for Religious Liberty.
Most employees who get a housing allowance have to include it as income, but the parsonage allowance, as it’s known, allows ministers to avoid that, thus giving them a benefit they don’t have to pay taxes on.
It’s been considered part of a longstanding policy of tax exemption for houses of worship.
But in 2016, the Freedom From Religion Foundation filed a lawsuit against the federal government, arguing the tax benefit is a violation of the Establishment Clause because it amounts to government support for religion.
A group of religious leaders intervened in the case earlier this year, telling the court that the elimination of the parsonage allowance could cause some churches to close due to scarce resources and it would discriminate against religious groups by treating them differently than others, like military personnel or overseas workers, who also get housing allowances under the nation’s tax laws.
It’s the second time Judge Crabb has heard the case.
She first ruled against the clergy in 2013, but was overturned by the 7th U.S. Circuit Court of Appeals, which decided the foundation’s plaintiffs couldn’t prove they’d suffered an injury from the policy.
The foundation then had two employees who got housing allowances try to claim the exemption on their tax forms, and when the IRS denied them, the foundation re-filed the lawsuit.
Annie Laurie Gaylor, co-president of the Freedom From Religion Foundation, said they followed exactly what the 7th Circuit said they would need to do to have standing in order to bring the lawsuit.
“I think they are going to have a hard time saying we don’t have standing,” she said. “They’re going to have to look at the merits.”
Judge Crabb singled out wealthy ministers for special scrutiny, in one passage recounting Texas-based televangelist Joel Osteen’s $10.5 million home, for which he is allowed to exclude fair rental value as long as the church pays that amount for the housing.
The parsonage allowance has also been used to cover payments for home improvements, cable TV bills and appliances, the Freedom From Religion Foundation said. It pointed to a Christianity Today study that found 84 percent of senior pastors get a housing allowance of up to $38,000.
Now, the case is likely heading back to the 7th Circuit, according to the Becket Fund, which is representing clergy who were allowed to intervene and defend the tax break in court.
Becket said clergy could face nearly $1 billion in new taxes if the ruling is allowed to stand.
“It’s not unconstitutional for the federal government to treat faith leaders the same as other secular employees in their housing allowances. In fact, treating them differently would be discrimination against religion, pure and simple,” said Hannah Smith, an attorney with the Becket Fund.
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