Originally published on Forbes.com.
It’s deja vu all over again in the United States District Court For The Western District of Wisconsin as Judge Barbara Crabb rules that Code Section 107(2) – the parsonage exclusion- is unconstitutional. The parsonage exclusion allows “ministers of the gospel” to exclude from taxable income payments designated as housing allowances that they actually spend on housing. In this ecumenical age “minister of the gospel” is expansive including not only your classic minister like my blogging buddy Southern Baptist Reverend William Thornton but also rabbis, cantors, imams and, subject to the right conditions, the occasional college basketball coach. Usually, the benefit is pretty modest and many moderately paid ministers would probably give it up in exchange for a FICA match, but in the case of the megapastors of megachurches and televangelists, the allowance can and does run into the hundreds of thousands.
The Ruling
Judge Crabb ruled:
….107(2) 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.
Although defendants try to characterize § 107(2) as an effort by Congress to treat ministers fairly and avoid religious entanglement, the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees. Ministers receive a unique benefit under § 107(2); it is not, as defendants suggest, part of a larger effort by Congress to provide assistance to employees with special housing needs. A desire to alleviate financial hardship on taxpayers is a legitimate purpose, but it is not a secular purpose when Congress eliminates the burden for a group made up of solely religious employees but maintains it for nearly everyone else.
Under my view of the current law, that type of discriminatory treatment violates the establishment clause…
That’s the heart of the decision.
Standing
It is not really different from Judge Crabb’s decision four years ago. So what happened then? The government appealed and the Seventh Circuit reversed the decision a year later. The reversal was not based on the merits of arguments about constitutionality. It was based on standing. Standing is a very lawyerly concept. Generally speaking, access to the courts depends on whether something happened to you. You don’t get to go to court just because you think something is unfair. For that, you can write or call your congressmen or maybe spend a few million dollars on political contributions. In the latter case, they will be calling you.
The plaintiffs in Judge Crabb’s 2013 decision (referred to as Lew) were officers of the Freedom From Religion Foundation and the Foundation itself. To establish standing FFRF started paying its officers housing allowances. Since they were clearly not “ministers of the gospel”, Judge Crabb thought that was enough to give them standing.
….there is no reasonable interpretation of the statute under which the phrase ‘minister of the gospel’ could be construed to include employees of an organization whose purpose is to keep religion out of the public square
The Seventh Circuit ruled that it was not enough. So this time, they went to the extra trouble of applying for refunds to the IRS, some of which were initially granted (Really, you stand a good chance of getting almost anything past the IRS, but don’t tell anybody, I told you that.) Ultimately they got a denial which gave them a standing ticket.
My review of the information previously submitted by you indicates your claim should be denied. Your claim appears to be based on a portion of your wages being deemed to be a housing allowance. Your letter dated 07/14/2015 states that you are aware that a housing allowance is excludable from income if you are a minister of the gospel and also avows that neither of you are ministers of the gospel. It goes on to state that this is unfair and discriminatory. It appears that your concerns are misdirected. Congress writes tax laws and it is the job of the Internal Revenue Service to implement them. In other words, Congress set the rules and the IRS has to explain how those rules are applied in different situations. IRC Section 107 specifically requires that to exclude a housing allowance from income you must be a minister of the gospel. The IRS does not have the authority to interpret this to include anyone other than those who meet this definition
There were some more maneuvers and complications on standing, but it looks pretty solid this time. So the Seventh Circuit will probably have to look at the merits.
The Arguments
In a book I recently reviewed Taxing the Church: Religion, Exemptions, Entanglement and the Constitution, Professor Edward Zelinsky puts forth an argument that the cash parsonage allowance, although poor tax policy, is a reasonable way to avoid church-state entanglement since the inquiries necessary to determine whether in-kind housing is for the “convenience of the employer” would be too intrusive. Maybe Judge Crabb will think differently after she reads his book, but likely not.
A law fails to pass constitutional muster under the Establishment clause when it has no secular purpose, primarily advances or inhibits religion or forces excessive entanglement with religion. (Professor Zelinsky has argued that in the area of taxation, entanglement is inevitable – either enforcement entanglement or policing a boundary.) Judge Crabb finds significant evidence that the very purpose of 107(2) is to advance religion and that it serves no secular purpose at all. Here are some of the high points.
At the time of enactment of 107(2) in 1954 Peter Mack made the following statement on the floor of the House of Representatives:
Certainly, in these times when we are being threatened by a godless and anti-religious world movement we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this. Certainly this is not too much to do for these people who are caring for our spiritual welfare
The idea of “discrimination against certain ministers of the gospel” was that some churches could afford parsonage buildings and others could not.
The defendant in the case was the government, but there were intervenors- churches and ministers that would be affected by the outcome of the case. They focused on the special housing needs of the clergy, but Judge Crabb noted that they hardly represented all of the clergy.
The relevant question for this case is whether it was permissible for Congress to expand the convenience of the employer doctrine for ministers in a manner that eliminated any requirement to show that their choice of housing actually is for the convenience of the employer. This is because § 107(2) applies to all ministers who receive a housing allowance, regardless whether the minister’s home is ever used for church purposes or whether the minister’s choice of home is restricted by the church in any way,
There are many groups of professionals who “often” need to live near their work and be on call even when they are not working, such as certain types of healthcare providers, hotel managers, maintenance staff, funeral service directors and many others. However, none of those groups receive a categorical tax exemption for housing expenses as ministers do
Defendants do not even attempt to explain why ministers may be singled out for favorable treatment while similarly situated groups are excluded.
I do not doubt that many ministers are paid significantly less than what their commitment and skill level would suggest. This is an unfortunate truth that applies to many devoted and talented employees in service professions, both religious and secular. However, the manner in which Congress alleviated a financial burden on a group of religious persons was neither required by the free exercise clause nor permitted by the establishment clause under the facts of this case
What Is Next?
Judge Crabb has ruled that the statute is unconstitutional. But, so what? She is asking the parties to put forth what the appropriate remedy might be given her ruling.
I am reluctant to make a definitive determination regarding the appropriate remedy because none of the parties developed an argument in favor of a refund, a particular injunction or both or otherwise developed an argument regarding what the court should do in the event that it concludes that § 107(2) is unconstitutional.
Whatever it might be, an appeal is close to certain, so we will have another year or so of suspense while the Seventh Circuit ponders. Thinking through how it might go from there, I think it is safe to say that this decision will not be affecting church budgets until 2020 at the earliest. The megapastors and televangelists should probably try to take big housing bonuses in the next couple of years to pay down their multi-million dollar mortgages. That is the main practice takeaway from this case. (See note below.)
What Should The Small Fry Do
The leadership of congregations similar to the intervenors might want to pass a “Make our pastor whole” resolution to reassure their spiritual leaders that they will come up with a few thousand dollars a year so that there will not be hardship on pastor families in the event that the exclusion is eliminated. I really think that it is a bad use of the dwindling moral capital of organized religions to spend it defending a special tax break that mainly benefits the wealthiest clergy. I would hope that some denominations would abandon the practice entirely but that seems unlikely. Even religious liberals like Unitarian Universalists will defend the practice.
Reaction
Robert Baty, my most constant commenter, Kent Hovind’s worst nightmare and bane of the basketball minsters is pleased and excited by the decision. Judge Crabb took note of his particular obsession
One commentator has noted that the IRS has granted the exemption to a rabbi working as a teacher, ministers working as guidance counselors or basketball coaches and every member of the Churches of Christ teaching at a Christian college.
Bob wrote me:
As noted in my earlier comment above, I liked the Chodorow reference given by Judge Crabb (i.e., the Jobe case, basketball ministers, and Rev. Rul. 70-549).
Bwahahahahahaha!
I got the heads up on the decision last night as I checked my email before going in to buy tickets for Blade Runner. Ryan Colby of Becket- Religious Liberty for All wrote me:
You may have missed this piece of news that will have crippling effects on leaders of all faiths around the country and threatens almost $1 billion in new taxes on houses of worship.
A judge in Wisconsin just struck down a nearly 65-year-old federal tax provision that ensures faith leaders receive the same treatment as as other employees who must live in the communities they serve.
Becket represents Pastor Chris Butler, a South Side, Chicago-based pastor who serves his community through gang ministry, homeless outreach, and youth programs. We’re available to discuss with you this ruling at your convenience. We intend to appeal this ruling to the Seventh Circuit Court of Appeals.
For whatever it is worth, the official score for Code Section 107 is $810 million for 2018 and it is not expected to go to break a billion until 2023. And that is for both in-kind and cash housing allowances. It is only the latter which are threatened.
Professor Samuel Brunson wrote me:
In the court’s first ruling, I thought the substantive result (that section 107(2) was unconstitutional) was probably correct; the problem was, the plaintiffs didn’t have standing, so the court couldn’t get to the substantive issue. And, in fact, that’s what the Seventh Circuit ruled.
This time, the plaintiffs have done exactly what the Seventh Circuit suggested, and I think their case for standing is almost certainly bulletproof this time. I also think the court has done a compelling job of supplementing the prior opinion, not only arriving at the correct result, but doing so in a compelling and evenhanded manner. I don’t know that there is a 100% guarantee that the Seventh Circuit will uphold the decision, only because Establishment Clause jurisprudence is inconsistent and certain in many cases. But if the Seventh Circuit wants to reverse this decision, it’s going to have to work to do so.
What’s really interesting to me, though, is that the court isn’t providing a remedy, but rather is ordering that the parties provide further briefing before looking at the appropriate remedy. The court strikes me as being really careful here not to overstep the appropriate conclusion.
Professor Adam Chodorow is cited as an authority by Judge Crabb. He wrote me.
Judge Crabb recognized the good work that many religious leaders perform and observed that they are often underpaid relative to their contributions. Nonetheless, the question in this case is not whether such leaders are sympathetic or provide valuable services. Rather it is whether the First Amendment permits the government to provide special benefits for ordained ministers that are unavailable to secular employees, many of whom work under similar conditions and constraints. I thought the judge did a thorough job considering the various arguments put forward in support of the parsonage exemption and came to the right conclusion. Allowing minsters—and ministers alone—to receive a tax-free housing allowance with no strings attached represents a clear subsidy for religion that violates the First Amendment. Other provisions in the tax code that allow for tax-free housing are structured differently and serve very different purposes. As a result, they cannot provide Constitutional cover for the parsonage exemption.
The mood at Freedom From Religion Foundation is celebratory.
The district court victory is FFRF’s third court victory in eight days. Last week a federal court in Pennsylvania agreed a Christian cross on a county seal and flag violates the constitutional separation of church and state and a federal court in Florida sided with FFRF, AU and ACLU in permitting an atheist invocation at the Brevard County Board.
Note
My tax planning note for the group that Reverend William Thornton refers to as religious racketeers was meant as a little joke. On reflection, I realized that it does not actually work. The allowance subject to the exclusion is limited to “the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities”. So a mega pastor could probably not say use excluded dollars to buy a new million-dollar house each year. That limitation was put in place in 2002 to moot the case of Rick Warren when the Ninth Circuit appointed Erwin Chemerinsky as a friend of the court or perhaps more aptly advocatus diaboli to brief on the constitutionality of the allowance.
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