Originally published on Forbes.com.
Freedom From Religion Foundation’s litigation over the dubious constitutionality of tax-free cash housing allowances for “ministers of the gospel” (Code Section 107(2)) has been chugging along for a while now. FFRF actually won in district court on the merits of the issue, but the Seventh Circuit overturned the decision based on standing. Having jumped through the standing hoops, they are back.
The latest in the case is a proposed intervention by clergymen and religious organizations represented by the Becket Fund For Religious Liberty. The argument is that they have more skin in the game than the IRS since an FFRF win would affect them. Quite grievously as they lay it out. The proposed intervenors are Bishop Edward Peecher and Chicago Embassy Church, Father Patrick Malone and Holy Cross Anglican Church and the Diocese of Chicago and Mid-America of the Russian Orthodox Church Outside of Russia. The Diocese has eight clergies who live in church-owned parsonages, who would be unaffected by this litigation, and thirteen who receive housing allowances.
Background
Code Section 107(2) allows a “minister of the gospel” to exclude from gross income
the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
“Minister of the gospel” is interpreted to include rabbis and imams and the like and in the right circumstances basketball coaches, but that’s another story.
Poster Boys For Parsonage
With Bishop Peecher and Father Malone as the individual plaintiffs in the case, Beckett Foundation is bringing forward clergy whose selfless sacrifices make us feel mean to resent the modest tax benefit that lets them live in the vicinity of their churches. First up is Bishop Peecher, or Bishop Ed as he is fondly called
Bishop Ed leads a predominantly African-American congregation of about 200 people. He has pastored this congregation and community for over 30 years. To facilitate his ministry to the Englewood community, Bishop Ed lives in nearby Bronzeville. Id. Bishop Ed and his Church are deeply involved in serving the people of Englewood: They have supported a youth tutoring and mentoring program, a community food distribution program, a drug rehabilitation program, and a homeless shelter for women. Id. Bishop Ed is a central figure in the “Chicago Peace Campaign,” a ministry where he and members of the Church pray on the street corners of the most violent sections of Englewood at the most violent times …….
Without the parsonage allowance, Bishop Ed would likely have to take a part-time job to cover the increased tax burden. Alternatively, if the Church were to increase his pay to compensate for the
tax, the Church would need to cut back its vital community ministries
Then comes Father Malone, who it seems is not referred to as Father Pat.
There are 65 active members of the church who regularly attend Sunday worship services. Father Malone is responsible for leading worship services at Holy Cross as well as counseling individuals both in and out of the parish who are dealing with spiritual or temporal challenges. He has over 25 years of pastoral and ministry experience. Father Malone receives a housing allowance as part of his compensation that he excludes from his gross income pursuant to § 107(2). Without the parsonage allowance, Father Malone could not support his family and would have to seek additional employment, or leave Holy Cross altogether. Id. Because Holy Cross is a church of very modest means, the church would not be able to increase Father Malone’s housing allowance to compensate for the increased tax burden without becoming insolvent.
It is a similar deal for the Russian Orthodox priests. Further, into the motion, we learn that Bishop Ed receives a monthly housing allowance of $3,000 and Father Malone receives $1,500. Of course, we don’t know Father Malone’s marginal income tax rate, but given all the other circumstances mentioned 25% would probably be reasonable. Becket Foundation in the motion indicates that it might all fall apart for Holy Cross if Father Malone had to pay income tax on his housing allowance. By my reckoning, if the 65 members of the congregation each dropped another two bucks in the plate each week, they would be able to make their pastor whole with a bit left over. Just saying.
My View
I have been following this drama long enough to be entitled to an opinion. The Code Section 107(2) exclusion is sometimes compared to a similar benefit for people in the military and the exclusion for people working abroad. There is, however, one enormous difference. There is no dollar limit to the 107(2) exclusion. Televangelists and mega-church ministers can and do exclude amounts in the hundreds of thousands. Defenders of the exclusion are dismissive of this reality.
The other problem is that it is disturbing to have the IRS sorting out who is or is not a “minister of the gospel”. Ministers who become faculty or administration in denominational colleges will maintain the status. The Churches of Christ have a kind of priesthood of all believers theology so that anyone on the faculty or in the administration at Pepperdine University who is a member of one of the congregations qualifies as a “minister of the gospel”.
With that all said, I have to say that in general, the parsonage allowance is usually a very modest benefit. It has been around for over sixty years and its repeal would be very disruptive to a lot of small churches that do a lot of good things not only for their members but also for their communities. The best reform would be to cap the exclusion at an amount that does not adjust for inflation and restrict it to people actually working in parishes (or whatever else you might want to call them).
The Becket View
In its press release about the intervention, The Becket Fund wrote
For much of the past century, pastors, rabbis, imams and other faith leaders – whose job requires them to live close to their church or in an underserved community – have been eligible for a tax-exempt housing allowance under the same tax principle that allows businesses and the military to reimburse travel and overseas housing costs and provides tax-free housing to teachers and police who live in the communities they serve.
America has a long and proud tradition of incentivizing service. When pastors can live near the congregations and communities they serve, everyone benefits.
I was aware of the military and foreign housing issues, but the thing about teachers and police was new to me. I spoke with lead attorney Hannah Smith about that. She explained to me that they were referring broadly to a variety of programs like HUD’s Good Neighbor Next Door Program
Law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD’s Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.
Of course, there is nothing in 107(2) that requires the minister to be living near the church. Ms. Smith did not think abuses by mega-church ministers and televangelists like those in John Oliver’s send-up (He mentions parsonage around 9:50) should affect our view of churches like Chicago Embassy and Holy Cross Anglican.
Not His First Rodeo
This is not Father Malone’s first time as a Becket Fund plaintiff. There was an attempt to intervene in FFRF’s lawsuit that was supposed to encourage the IRS to look into church political activity. The IRS settled with FFRF on that one.
Other Coverage
The Catholic World Report ran a story titled “Threats to tax exemption could ruin Chicago pastor’s ministry“. The coverage is somewhat distorted
Many types of employees make use of this exemption for secular purposes, Smith explained, like military employees or persons who have to move to other countries for their work. “Ministers who live in the communities they serve shouldn’t be left out in the cold,” Smith said.
Those are different exemptions and unlike 107(2) have dollar limitations and fairly clear guidelines for who qualifies.
“Not only is this explicitly discriminatory against religious groups when so many secular businesses and organizations receive similar tax treatment, but it hurts churches and the communities they serve,” Becket Fund stated of the newest lawsuit.
I don’t think so.
Hemant Mehta at the atheist oriented Patheos had a measured response to Becket’s announcement.
Their sob story is compelling, no doubt. And it would be wrong to argue, as I’m sure some atheists will be tempted to do, that this is all an exaggeration. These pastors aren’t rich and they’ve come to rely on these tax breaks.
But — and this has to be repeated — tradition alone isn’t a good reason to continue bad policy. They’ve gotten an unfair advantage for decades that they never should have received in the first place, and it’s time to level the playing field again. Just because you’re a religious leader doesn’t mean the government owes you a financial reward for it.
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