Seventh Circuit Upholds Tax Break for Clergy Housing

CHICAGO (CN) – The Seventh Circuit ruled Friday that a 65-year-old income tax exemption for clergy member housing is constitutional because it has historical significance and a secular legislative purpose.

Writing for the unanimous three-judge panel, U.S. Circuit Judge Michael Brennan said the so-called parsonage allowance “is simply one of many per se rules that provide a tax exemption to employees with work-related housing requirements.”

“The government and intervenors, and amici curiae supporting their position, have provided substantial evidence of a lengthy tradition of tax exemptions for religion, particularly for church-owned properties,” wrote Brennan, an appointee of President Donald Trump.

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 IRS has interpreted the 1954 law to apply to religious leaders of all faiths, not just Christian ministers.

In 2016, the Freedom From Religion Foundation, or FFRF, challenged the housing allowance in a federal lawsuit after two members of its board of directors applied for the housing exemption as leaders of an atheist organization, but were denied.

The FFRF claims the law discriminates against secular employees in violation of the First Amendment’s establishment clause and the equal protection provision of the Fifth Amendment.

In 2017, a federal judge in Wisconsin agreed and ruled that it violates the establishment clause because it lacks a secular purpose and is an endorsement of religion.

The government appealed that ruling to the Seventh Circuit, which heard oral arguments last October from Associate Attorney General Jesse Panuccio, FFRF attorney Richard Bolton and Adam Chodorow, who argued on behalf of a group of amici tax professors who joined FFRF.

The Chicago-based appeals court on Friday overturned the district court ruling, finding that “Congress’s policy choice to ease the administration of the convenience-of-the-employer doctrine by applying a categorical exclusion is a secular purpose, not ‘motivated wholly by religious considerations.’”

The Seventh Circuit panel also noted that “Congress has enacted federal tax exemptions for religious organizations as far back as 1802…today, more than 2,600 federal and state tax laws provide religious exemptions.”

Luke Goodrich, vice president and senior counsel at religious liberty law firm Becket, which represented clergy interveners, praised the ruling in a statement Friday.

“The tax code treats ministers the same as hundreds of thousands of nonreligious workers who receive tax-exempt housing for their jobs—that’s not special treatment, it’s equal treatment,” he said. “The court rightly recognized that striking down the parsonage allowance would devastate small, low-income houses of worship in our neediest neighborhoods and would cause needless conflict between church and state.”

FFRF Co-President Annie Laurie Gaylor, meanwhile, slammed the decision.

“The housing allowance is so clearly a handout to churches and clergy, and it so clearly shows preferential treatment and discriminating in favor of ministers,” she said in a statement Friday, adding that the provision also discriminates against nontheistic leaders.

U.S. Circuit Judges William Bauer and Daniel Manion, also appointees of Republican presidents, rounded out the panel.

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