Clergy Housing Allowance Ruled Constitutional

Clergy Housing Allowance Ruled Constitutional


Ross Williams

3/21/2019

Dear Clergy,

There is some good news!  The text below is from the National Catholic Reporter, which summarizes the latest developments on the taxability of Housing Allowances better than I could.  Keep in mind that it was only the Housing Allowance that had been challenged.  The tax exempt treatment of a parsonage was not at stake.  This very positive development does not mean that the matter is settled once and for all.  The decision could be appealed or pursued again in new challenges.  But for the time being, this is very good news for all of our hard-working clergy!

Sincerely,  Ross

A federal appeals court has ruled that the clergy housing allowance authorized by the Internal Revenue Service is constitutional.

The Freedom From Religion Foundation argued successfully in a Wisconsin district court that the long-standing exemption for religious housing in the IRS tax code violated the First Amendment's establishment clause. But a three-judge panel of the 7th U.S. Circuit Court of Appeals reversed the lower court decision on Friday (March 15).

The Freedom From Religion Foundation argued that the allowance gives ministers and churches a financial benefit that is not available to secular nonprofit groups.  But the court determined in a unanimous ruling that it did not overly entangle church and state.

"Any financial interaction between religion and government — like taxing a church, or exempting it from tax — entails some degree of entanglement," wrote Judge Michael Brennan. "But only excessive entanglement violates the Establishment Clause."  He noted that the allowance also is not forbidden by the free exercise clause of the First Amendment.

Under current IRS regulations, clergy do not have to pay taxes on housing that is supplied by their congregation in a parsonage or on the portion of their salary that they use for housing expenses.

Freedom From Religion Foundation claimed that the clergy housing allowance "renders unto God that which is Caesar's," Brennan said at the conclusion of the decision. "But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter."

The appeals court stated that the allowance is one of many rules that permit employees with work-related housing requirements to get a tax exemption.