Originally published on Forbes.com.
Professor Adam Chodorow has produced a very timely article (pdf downoland) on the constitutionality of the parsonage exemption. The parsonage exemption (Code Section 107) allows “ministers of the gospel” to exclude the value of church provided in-kind housing and cash allowances in lieu thereof. The only limitations are that the excludible allowance cannot exceed the fair rental value of the housing and that the exclusion can only apply to one home at a time. There is no dollar limitation. Televangelists and mega-church ministers receive tax-free housing allowances in the hundreds of thousands. To the extent the allowances are used to pay deductible interest and real estate taxes, much of the rest of their income can be sheltered.
On the other hand, for most ministers, the housing allowance is a fairly modest benefit. There is a concern that eliminating it would have a significant effect on many small churches that provide important community benefits that spread beyond their congregations. That is the tack emphasized by the Becket Fund which helped the leaders of some small churches intervene in litigation against challenging the parsonage exemption being pursued by the Freedom From Religion Foundation.
Dubious Constitutionality
Regardless of the merits of the parsonage exclusion as tax policy, there is no question that its constitutionality is on the dubious side. It is so dubious that when Rick Warren and the IRS were duking it out about one of the fine points in 2002, the Ninth Circuit invited Erwin Chemerinsky to brief on whether 107(2), the cash allowance, was constitutional. Thanks to Professor Chodorow, I now know that lawyer-speak for judges acting without a motion by the parties is sua sponte. As it happens sua sponte is also the motto of the 75th Ranger Regiment, one of those facts that cannot be passed over regardless of relevance.
I sometimes remark that everything I know about the horse business comes from reading hobby loss cases. Similarly, pretty much everything I know about the First Amendment Religion Clauses, I learned from following the parsonage exemption controversy. Well, now you have the opportunity to catch up by reading The Parsonage Exemption by Adam Chodorow.
Two Religion Clauses In The First Amendment
It seems that the Founding Fathers thought religion was really important. When they decided that the new constitution needed a Bill of Rights, that is what they put first – sixteen words.
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.
There is a tension between the two religion clauses. Professor Chodorow explains it this way
The First Amendment contains both a Free Exercise Clause and an Establishment Clause, collectively referred to as the Religion Clauses. The Free Exercise Clause limits the government’s ability to interfere with religious practice, while the Establishment Clause limits the government’s ability to support religious organizations or practices. The jurisprudence on these clauses is a confusing mess, in part because the Establishment and Free Exercise Clauses are often in tension with one another, and in part because of the myriad ways in which First Amendment issues arise.
At the end of the day, ]most people who argue about whether something is constitutional or not don’t really care all that much about the Constitution. Activists and advocates use the Constitution like a drunk uses a lamppost – more for support than illumination. Just watch how views about federal supremacy versus states rights will mutate depending on who is holding power in Washington. Nonetheless, there are people who do care and Professor Chodorow is clearly one of them.
Play In The Joints
His analysis is that the parsonage exclusion violates the Establishment Clause and that the arguments that the Free Exercise Clause mitigates the concern do not stand up. Not every benefit to religious organizations violates the Establishment Clause. The treatment of churches as exempt 501(c)(3) organizations is part of a larger scheme to exempt organizations that can be viewed as serving the public good. Churches are exempt, but so is the Freedom From Religion Foundation.
On the other hand, churches are not required to file Form 990 or apply for exempt status and the IRS has to jump through enough hoops to initiate a church audit that it pretty much doesn’t bother. This relatively hands-off policy recognizes the free exercise clause. In the Walz v Tax Commissioner of the City of New York, Justice Burger wrote for the majority:
…there is room for play in the joints productive of a benevolent neutrality which will permit religious exercise to exist without sponsorship and without interference.
You might say that the most important joint is that first comma in the first sentence of the First Amendment that separates Establishment from Free Exercise.
Parsonage Exclusion Out Of Joint
In Professor Chodorow’s view, the parsonage exclusion comes up short.
Placing the parsonage exemption in its proper tax context makes clear that (1) other tax-free housing provisions and exemptions for religious organizations cannot provide the parsonage exemption constitutional cover; (2) the parsonage exemption involves significantly more entanglement than would the generally applicable housing provision; (3) permitting ministers to receive taxfree housing violates the core tax principles of horizontal and vertical equity; and (4) other exemptions for religious organizations cannot justify the parsonage exemption.
In the process of making his case, he provides not only a tour of the litigation on the Religion Clauses but also a deep discussion of the nature of income, which distinguishes the parsonage exclusion from the exclusion for housing provided for the convenience of the employer under Code Section 119.
Nothing in Section 107(1) ties the provision of housing to the ability to do the job, as is the case with Section 119. Indeed, ministers may receive tax-free housing as part of their retirement packages,158 completely undermining the notion that the housing is connected in any way to job performance
However, while some ministers may use their houses for prayer meetings and counseling, many do not. Moreover, secular counselors often work out of their homes, as do a multitude of others. Corporate CEOs and law professors often have people over for a variety of work purposes, but they are not permitted to receive off-site, tax-free housing
Housing benefits provided to the military and federal employees working overseas are also different in that they are working for the same entity that taxes them.
A Different View
Professor Chodorow takes specific aim at the position of Edward Zelinsky, who argues that the exclusion is a constitutional, if inept, as it lessens the inevitable entanglement that occurs when taxation crosses paths with religious institutions.
The claim is that taxing ministerial housing would entangle the government in religious doctrine and practice and that the exemption serves as the proverbial wall between church and state is belied by a simple review of the IRS’s efforts to implement the exemption. Section 107 requires the government to determine who qualifies as a minister, what activities are sacerdotal in nature, whether entities are “integral agencies” of religious organizations, and whether a church has made a good faith assignment of a minister to a secular organization.17 Such questions necessarily embroil the government in significant doctrinal and organizational questions that would be avoided under the general rule …….
Zelinsky and others claim that the entanglement issues that would arise by applying Section 119 to ministers would be far greater than those that currently arise under Section . This has
it exactly backwardsSection 107 requires the government to inquire into a number religious doctrines and practices. For instance, the government must decide who qualifies as a minister. For established churches with clear ordination rules, this is straight forward, but what about churches with different levels of ordination? The government has had to delve into Jewish religious doctrine and practices to determine whether cantors, in addition to rabbis, should qualify for the exemption. They do.
I could not resist asking Professor Zelinsky for his comments on the article. He answered at some length, which I shared here. Here are the high points.
Prof. Chodorow now writes that I have gotten this subject “exactly backward,” that Section 119 is “far less” entangling than is Section 107.
In contrast, I see no easy metric for determining whether the church-state entanglement inherent in Section 107 is greater than or less than the entanglement flowing from the application of Section 119 to church-furnished housing. The entanglement is similar which is why the ultimate decision makers in this area should be democratically-elected legislators, balancing the offsetting concerns.
One of the pleasures of being a law professor is that I spend my days debating important issues with my colleagues. Prof. Chodorow’s paper helps to clarify the issues involved in the constitutional status of Section 107. At the end of the day, I respectfully conclude that Section 107 is a constitutionally-permitted, though not constitutionally-compelled, means of managing the church-state tensions which are inevitable when the modern government meets the modern church.
I really appreciate that type of respectful disagreement.
What Is Coming
I was also pleased to see that Professor Chodorow gave a shout-out to Robert Baty, my constant commenter and the bane of the basketball ministers.
Freedom From Religion Foundation’s current assault on the parsonage exemption promises to be decided at the district court level sometime in the summer. We can expect an appeal to the Seventh Circuit and maybe even a trip to the Supremes, so this will not be affecting church budgets until 2019 or 2020. The government could probably solve the problem for the small churches that are the concern of the Becket Fund by following the example of Europe and stopping the issue of folding money that can’t even buy a candy bar. More five dollar bills dropping in the plate would probably allow the small congregations to make their preachers whole if the housing allowance goes away, but that is probably too pragmatic a view.