Atheists Fight Clergy Tax Benefits in 7th Circuit

CHICAGO (CN) - The 7th Circuit struggled Tuesday with a federal income tax exemption for religious ministers that has cost the U.S. government billions.

In finding the Section 107(2) of the Internal Revenue Code unconstitutional earlier this year, U.S. District Judge Barbara Crabb in Madison, Wis., found that "the problem with the law ... is that it violates the well-established principle under the First Amendment that absent the most unusual circumstances, one's religion ought not affect one's legal rights or duties or benefits."

Back in 2002, Crabb noted, Congressman Jim Ramstad estimating that Section 107 "would relieve ministers of $2.3 billion in taxes over next five years."

The Freedom from Religion Foundation is the lead plaintiff in the challenge against the secretary of the Treasury and the commissioner of the Internal Revenue Service.

It told the 7th Circuit in its brief that Section 107(2) "undeniably confers a significant tax benefit upon religious clergy that is not available to nonclergy taxpayers."

"Only ministers can exclude cash housing allowances, a result that is patently unfair," the group's attorney Richard Bolton with Boardman and Clark wrote.

He went directly to the religious issue at the 7th Circuit hearing Tuesday.

"If you've got a benefit that's widely available for which religion is only one component, then you're OK," Bolton said. Benefits solely based on religion are on the other hand unconstitutional.

Indeed the plaintiffs' brief says: "whereas even the Bible commands citizens to 'render on to Caesar the things which are Caesar's,' the government simply dismisses basic principles of neutrality and fairness when it comes to clergy taxation."

Bolton also pointed out that the government had not argued "that unequal treatment, if established, would fail to amount to an injury for standing purposes."

In a discussion of standing, Justice Department attorney Judith Hagley said that the plaintiffs cannot challenge a tax benefit that has not been personally denied to them, as opposed to being only generally unavailable.

"Taxpayers do not have standing to litigate others' tax liability," Hagley said.

The argument spurred discussion on past cases involving "atheist churches," with Hagley noting that any "organization in which members hold sincere belief in a doctrine" could amount to a church.

When prompted, Hagley was unable to offer the name of one such atheist church.

The Justice Department attorney also tried to liken the clergy benefits to those that seamen receive because they rely on nontraditional housing.

Bolton also raised the analogy to seamen, pointing out that they receive benefits only in the form of housing itself and that any cash allowance would be taxed.

Judge Ilana Rovner wondered if this meant that a sailor whose ship crashed ashore would be taxed for any money he received to find temporary housing.

"You look perplexed," Bolton said.

"I always look perplexed," Judge Rovner replied with a sigh, and the courtroom erupted in laughter. Her sheepish but knowing voice may have reflected the mood of a crowd that had likely expected to hear more substantive debate over the establishment clause issue.

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