Originally published on Forbes.com.
The Freedom From Religion Foundation is renewing its struggle against the parsonage exclusion.
What Is The Parsonage Exclusion?
The so called parsonage allowance Code Section 107(2) is probably one of the most constitutionally dubious parts of the Internal Revenue Code. It allows “ministers of the gospel” to exclude from taxable income “rental allowances” paid as compensation to the extent used to provide a home. Although it is generally a fairly modest benefit to rank and file clergy, the mega ministers of mega churches and televangelists and the like exclude hundreds of thousands of dollars from their income. Unlike an analogous, if not similar, benefit for the military, there is no dollar limit on the 107(2) exclusion.
Reviewing The Bidding
In 2002 the IRS and mega church pastor Rick Warren were dueling about the fine points of the allowance. The Ninth Circuit decided that there was a question about the statute’s constitutionality and had Erwin Chemerinsky acting as amicus curiae, but arguably more like advocatus diabloli, start briefing the argument that the exclusion was unconstitutional, something not raised by either side in the case. Congress acted with alacrity to amend the statute to make the dispute moot and that was the end of that.
The Freedom From Religion Foundation picked up the baton and in 2013 won a stunning victory. Judge Barbara Crabb ruled that the exclusion was unconstitutional as it violated the establishment clause of the First Amendment. It is important to Judge Crabb’s decision is the only time that a judge has fully considered constitutionality of the exclusion.The decision was overturned by the Seventh Circuit a year later on grounds of standing.
Standing?
Standing is a very lawyerly concept. When your case gets kicked out on standing, the judge is saying in effect – “It’s no skin off your nose”. Standing makes it very hard to sue about somebody else’s tax benefits. In order to establish standing FFRF had started paying some of its officers housing allowances. They did not, however, jump through the extra hoop of asking the IRS for refunds. That is why they did not have standing
Now they have asked for refunds and the IRS has turned them down. So it is off to the races again.
Just Saying
I believe that I have covered the parsonage issue more thoroughly than any other tax blogger beginning from my earliest blogging days on the now archived Passive Activities and Other Oxymorons, which had a readership numbering in the scores. Thus I am pleased that in its new release FFRF quotes me quoting Reverend William Thornton, my go to guy on all matters evangelical.
“The manner in which our housing allowance has been used borders on clergy malpractice,” William Thornton, a Georgia pastor and blogger, told Forbes magazine in 2013. “A growing subset of ministers who are very highly paid and who live in multimillion dollar mansions are able to exclude hundreds of thousands of dollars from income taxation.”
What Is Coming
I’ve reached out to my legal brain trust for comments on FFRF’s latest effort. I think that some of them will say that FFRF should have taken this approach in the first place and that it failure to ask for refunds was a serious misstep. So there will be some commentary soon, I hope.
The Presidential Race
As far as I know, only one of the current Presidential Candidates has taken a position on the parsonage exclusion. That would be Jill Stein, who discussed it in my interview with her in 2012.
Something tells me we won’t be hearing from the other candidates, but you never know.