Churches Take Fight for Housing Tax Break to Seventh Circuit

(CN) – Religious leaders and churches filed an appeal to the Seventh Circuit on Thursday, challenging a federal judge’s decision to strike down a nearly 65-year-old income tax exemption for housing for members of the clergy.

Becket, a law firm representing a group of churches and pastors that intervened in the case brought by an atheist group against the IRS, announced the appeal.

“Ending the housing allowance would discriminate against religious groups by treating them worse than many other secular employees who receive the same tax treatment. It would also harm poor communities by diverting scarce resources away from essential ministries. It could even force some small churches to close,” the firm said in a press release.

The parsonage allowance, codified in 26 U.S.C. § 107(2), allows for a payment separate from a pastor’s salary that is used for paying mortgages, utility bills and other housing-related expenses, which can be excluded from gross income on tax returns.

The 1954 law applies to a “minister of the gospel,” which the IRS has interpreted to apply to certain religious leaders of Christianity and other faiths

The Freedom From Religion Foundation Inc., or FFRF, challenged the parsonage allowance in an April 2016 federal complaint against the United States of America, Treasury Secretary Steven Mnuchin and IRS Commissioner John Koskinen. The atheist organization claimed the law discriminates against secular employees in violation of the First Amendment’s establishment clause and the equal protection provision of the Fifth Amendment.

Last October, U.S. District Judge Barbara Crabb in the Western District of Wisconsin ruled that the housing allowance “violates the establishment clause because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.”

FFRF filed a similar lawsuit in 2013 and the same federal judge ruled in its favor, but the decision was later vacated by the Seventh Circuit on ground that the group did not have standing to sue.

Becket says Judge Crabb’s latest ruling threatens churches with almost $1 billion in new taxes each year.

Three Illinois clergy members – Pastor Chris Butler, Bishop Edward Peecher and Father Patrick Malone – and the Diocese of Chicago and Mid-America of the Russian Orthodox Church Outside of Russia, intervened in the case in January 2017. They filed the appeal Thursday with the Seventh Circuit.

Luke Goodrich, deputy general counsel for Becket, expressed disdain for FFRF in a statement Thursday.

“The same group of atheists claimed it was unconstitutional to put Mother Teresa on a postage stamp, so it’s no surprise they’re trying to sic the IRS on churches,” Goodrich said. “Treating ministers like other professionals isn’t an establishment of religion; it’s fair tax treatment.”

Becket’s press release was accompanied by a three-minute YouTube video titled, “The $1 Billion Threat to Churches.”

“If I’m here to pastor this community, if I’m here to make an impact in this community, it has to be done in the context of a relationship and it’s hard to have a relationship over distance. You’ve got to be there. There’s no substitute for proximity,” Bishop Peecher said in the video. “[FFRF] are people who don’t live in the community, wanting to stifle the way we do what we do addressing the issues that we address, without lifting a finger to help us at all except to hinder what we do.”

Neither FFRF nor Becket immediately responded Thursday to email requests for comment on the appeal.

The Seventh Circuit is expected to hold oral arguments and decide the case later this year.

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