Originally published on Forbes.com Nov 20th, 2014
Last year Judge Barbara Crabb ruled that Code Section 107(2) – the parsonage exclusion -, which allows the mega pastors of mega churches to exclude six figure cash housing allowances from their taxable income, was unconstitutional. Last week, the Seventh Circuit ruled that the plaintiff in the case, the Freedom From Religion Foundation, did not have standing effectively kicking the can, (i.e. the dubious constitutionality of an income tax exemption for “ministers of the gospel”), down the road. I’ve been following this issue pretty intently since my earliest days of blogging back in the summer of 2010. So I thought it would be good to gather some reactions to the decision.
What’s This Standing Thing?
Frank Benson Jones is a minister who believes that large housing allowances and lack of transparency draw the wrong type of people into the ministry. He is the author of Stop The Prosperity Preachers. He wrote me:
I believe that all Americans who pay taxes should have standing in the issue of the clergy housing allowance since the Joint Committee on Taxation’s Estimate of Federal Tax Expenditure has estimated that about $700,000,000.00 is lost in taxes each year by granting ministers unlimited tax-free housing allowances.
That $700 million dollars in lost tax revenue has to be made up by all Americans who pay taxes, and the fact that we are required to pay more in taxes should give us standing.
I should note that the $700 million is for both the in-kind housing exclusion and cash housing allowances. The former is less dubious and not addressed by Judge Crabb’s decision.
Presumably the rest of us taxpayers have to look to Congress. As it happens Bill Cassidy, a congressman now in a senate run-off, addressed the dubious constitutionality of the housing allowance by introducing a bill to expand it to include officers of “religious, spiritual, moral, or ethical organizations.”
Decision Does Not Surprise Legal Scholars
Samuel Brunson is an associate professor at Loyola University Chicago School of Law. He was not surprised by the decision and has some sharp words for FFRF’s handling of the case.
So, about the opinion: it’s clearly correct, and it’s what I expected back in November (here’s my prediction on a Mormon blog, and here it is on my non-religious, occasionally-updated tax blog).
What’s really shocking to me is how slipshod and lazy Freedom From Religion Foundation was in parsonage case(and how the trial court let them get away with it). I think they have a constitutional winner on the merits: it’s hard to see how section 107 can be squared with the Establishment Clause .
But the Establishment Clause isn’t the end-all, be-all of constitutionality: the Constitution is just as clear about the standing requirement. And in this case, the FFRF didn’t do anything at all to meet that bar; ultimately, they just argued that, because they would have been denied, standing was irrelevant. And the stupidity and laziness of that argument is underscored by the Seventh Circuit’s footnote 3: all they had to do, for standing purposes, was file their returns claiming the section 107 exclusion. Or file an amended return claiming it. Sure, they lose and they have to pay the unpaid taxes with interest. But they also overcome the bar to having their suit adjudicated.
I know that things like “standing” don’t really resonate with the general public (and I’ve read a couple blogs that treat this like it’s a substantive victory for the pastoral housing exclusion). But to a large degree, the validity of our judicial system rests on its procedural fairness—maybe the courts get things wrong sometimes, but at least they follow a fair, knowable procedure, giving litigants a legitimate shot at justice. By attempting to circumvent that (constitutionally-prescribed) procedure, the FFRF and the district court risked not only the precise decision that the Circuit delivered, but also undermining the very Constitution they try to enforce.
In order to have standing the officers of FFRF would needed to have filed refund claims (or original returns) in which they claimed the exclusion and were denied by the IRS. Judge Crabb thought this was a pointless hoop, but the Circuit Court disagreed.
Edward Zelinsky a professor at Benjamin Cardozo School of Law at Yeshiva University who has written extensively on the subject had a similar view, but also suggested another approach.
The Seventh Circuit’s decision is consistent with the trend, encouraged by the U.S. Supreme Court, to narrow taxpayer standing in the federal courts. The corollary of this trend is that First Amendment challenges like FFRF’s must increasingly occur in the state courts which are today generally more receptive to claims of taxpayer standing in these kinds of cases.
Other Comments
Freedom From Religion Foundation is as, we might expect, not pleased, faulting Seventh Circuit for its timidity and noting that the court practically admitted that the exclusion probably is unconstitutional.
“It’s important to note,” said attorney Richard L. Bolton, who handled the litigation, “that the court’s opinion in no way reflects that the housing allowance is constitutional.” As Flaum himself noted, the court did “not reach the issue of the constitutionality of the parsonage exemption.”In fact, the court seemed to acknowledge that the law is discriminatory, saying “the mere fact that discrimination is occurring is not enough to establish standing.”
Of course in other circles things are more celebratory.
Family Research Council President Tony Perkins, whose organization oversees a pastors’ network of about 40,000 clergy, said in a statement that he “welcomed” the decision.”We commend the 7th Circuit for holding accountable a judge whose name became virtually synonymous with religious harassment when she tried to strike down the National Day of Prayer as unconstitutional four years ago,” said Perkins. “What’s more, the Supreme Court has already made it clear that these sorts of tax laws don’t injure anyone, which is why Judge Crabb’s decision ended the same way as her last attack on religion: in embarrassment.”
I’ll have to agree to disagree with Tony Perkins. I kind of admire Judge Crabb. She did handle the Wisconsin Walleye War quite well. The Becket Fund For Religious Liberty was also celebratory.
“This is a great victory for fair treatment of churches,” said Luke Goodrich, Deputy General Counsel of the Becket Fund of Religious Liberty. “When a group of atheists tries to cajole the IRS into raising taxes on churches, it’s bound to raise some eyebrows. The court was right to send them packing.”
I actually have Luke to thank for getting me ahead on this. He e-mailed me a copy of the decision within hours, if not minutes, of it becoming avalilable.
Will There Be More?
I expect there will. Unless the FFRF officers already have refund claims in, it might take them a year of so to get back in front of Judge Crabb by getting the IRS to deny refund claims. Of course, there is a good chance they will get checks instead of denial given the sad state of the IRS right now. We’ll stay tuned. For now I will predict that this will still be a live issue when 2016 rolls around. I will further predict that candidates will most likely ignore it.
My most constant commenter Bob Baty, retired IRS appeals officer and bane of the basketball ministers encouraged me to get one presidential candidate to take a stand in the last election. We’ll see if we do better the next time.
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