Originally published on Forbes.com.
Most religions have at their core non-verifiable beliefs that can be difficult for non-believers to accept. Requiring the IRS and then courts to determine which beliefs or purported beliefs should count as a religion for tax purposes is clearly entangling.
Indeed. That thought is from the amicus brief by Professor Adam Chodorow that was directed to the Seventh Circuit as it ponders the fate of exempting cash housing allowances to “ministers of the gospel” from the federal income tax. Twenty-two law professors joined in the brief which asks the Seventh Circuit to uphold Judge Barbara Crabb’s decision that Code Section 107(2), the parsonage allowance, is unconstitutional.
Law Professors On Clergy Housing
Code Section 107(2) does not seem very popular with law professors. The amicus brief from law professors arguing for Judge Crabb’s decision to be overturned only included three and one of them, Professor Edward Zelinsky has gone on record as it being bad tax policy. I didn’t realize that tax blogging would turn me into something of a law professor groupie, but so it goes.
I am a fan of both Edward Zelinsky and of Adam Chodorow. I really admire Professor Zelinsky’s nuanced view that something can be both bad policy and constitutional. Activists and advocates tend to use the Constitution like a drunk uses a lamppost – more for support than illumination. Nonetheless, team Chodorow also includes two of the other professors I really admire Samuel Brunson and Patricia Cain. So I’m going with Section 107(2) being unconstitutional.
Parsonage Is A Housing Provision Like None Other
The amicus brief does a pretty good job of disposing of the arguments that Section 107(2) is anything other than a subsidy to religious organizations.
First, Section 107(2) differs significantly from other tax provisions that exempt housing from income and is not part of a broad housing policy that naturally includes ministers. Second, Section 107(2) subsidizes ministers, as reflected in both court decisions and the government’s own admissions. Third, Section 107(2) is not an appropriate accommodation for religion because it (1) disregards important differences in ministerial income that warrant different tax treatment, and (2) creates significantly more church/state entanglement than would the generally applicable rule. Fourth, finding Section 107(2) unconstitutional would not imperil other exemptions.
The brief also challenges the notion that tax free housing allowances are required due the special nature of ministry.
As a factual matter, claims that ministers are unique are significantly overstated. Not all ministers use their homes for work, are on call, need to live near work, or are subject to being moved by their superiors. Moreover, many lay employees work out of their homes, are on call, need to live near work, and are subject to being transferred. For instance, doctors, police and other emergency responders are subject to being called out and often must live near work. Corporate employees are often transferred from office to office, often to more expensive locations. Yet no one claims that these employees should get tax-free housing. Moreover, many ministers who receive the exemption do the exact same jobs as secular taxpayers and indeed for the same employers. Taxing ministers differently violates the core value of horizontal equity, under which similarly compensated taxpayers should be taxed the same.
They also do a good job of explaining the policing of the boundary that ends up having the IRS getting entangled in religious issues.
For ministers who work outside a church, the government must decide whether the organization is an “integral agency” of the church79 and, if not, whether the church made a bona fide assignment to its religious purposes.80 Regardless of where the minister works, the government must also determine whether ministers claiming the exemption are performing ministerial functions.81 Ministers serve in a variety of capacities, whether within a church or for affiliated entities or secular organizations. The IRS has already been called on to decide whether ministers working within church organizations as clerks and stenographers qualify as ministers for purposes of the exemption. They do not. However, ministers working elsewhere as teachers, counselors, directors of business services and alumni relations, and as basketball coaches do qualify for the exemption.
I’m sure Robert Baty, the retired IRS appeals officer who got the Freedom From Religion Foundation interested in taking on parsonage, is pleased by the reference to basketball coaches qualifying for ministerial housing allowances. I have dubbed Bob “bane of the basketball ministers”.
Comments
I asked Professor Zelinsky about the indication that his team seems to be smaller. I wrote him “Any comments on Chodorow’s team? You are outnumbered.” He replied “Yes, it includes many friends who remain unconvinced by my arguments.”
I also managed a lengthy comment from Professor Patricia Cain. I leaned on her in my coverage of the fight over the constitutionality of the Defense of Marriage Act. In a round up of that issue which was resolved I referred to her “… Patricia Cain’s Same Sex Tax. Professor Cain is probably the only tax blogger who covered the issue more thoroughly than I did. After all, she didn’t have to worry about Kent Hovind and the parsonage exclusion”. Glad to see she now has time to ponder parsonage. She wrote me:
I am not a huge fan of the exclusion under section 119 as to the exclusion from income of the value of meals and lodging provided by certain employers to employees. It seems to me that the exclusion provides a tax subsidy to businesses like hotels and other employers who qualify for the exclusion. Meals and lodging are necessities of life. Everyone has to pay something for these necessities and the expenses are not deductible.
At the same time I do buy the Henry Simons argument about the flugel adjutant – just because you have to accompany the emperor to the Opera as his servant doesn’t mean that the value of the seeing the Opera should be included in your income. Ditto for the employee who is required to live in a hotel where the value of lodging may be beyond the bare necessities of life. But some of the value should be included in income in my view.
The exclusion of the value of meals and lodging for certain employees creates a huge advantage as compared with other employees (although I do assume it is the employer who benefits and is able to pay lower wages since the benefit of lodging and meals is excluded from income).
The exclusion under Section 119 is limited so that it will never include cash reimbursements for meals or lodging. But Section 107 expands that exclusion to exclude cash allowances for lodging paid by an employer to a minister of the gospel (statutory language, which of course must include rabbis and others who are not ministers of the gospel). That makes 107 a special subsidy to religious organizations and I see no justification for treating them differently from all other employers. A cash allowance gives the recipient choices that hotel employees or the flugel adjutant do not have.
I do think the standing issues are interesting. Who has standing to challenge a tax rule that benefits certain folks but doesn’t directly harm other folks has been a complicated issue under tax law for years. See Eastern Kentucky Welfare Rights case.
I joined the brief because I believe the importance of the basic policy issue – why give religious organizations such an advantage –that is an important question.
I think that the flugel adjutant going to the opera analogy probably should be updated – maybe thinking about roadies not being taxed because they get to listen to the concert.
Religious Establishment Needs To Examine Its Conscience
As the litigation heads to another inflection point, I have to say that I am very disappointed in the response of religious actors. They are behaving like any other industry with special tax status. I find it particularly disturbing that there seem to be almost no ministers coming out and suggesting that there is no particular reason for them to be taxed more favorably than anybody else. Even generally liberal denominations like the Unitarian Universalist Association are fighting to keep the exclusion.
I don’t blame congregations and ministers for taking advantage of 107(2). When I was on the governing board of a congregation I advocated that we use it and was careful about the nuances. As Learned Hand wrote:
Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.
Expending the dwindling moral capital of venerable institutions grubbing for tax breaks that benefit the wealthiest actors is another matter. Reverend Frank Benson Jones in Stop The Prosperity Preachers argues that special tax rules favoring religion draw the wrong type of people into ministry. He thinks the exemption of churches from the transparency required of other not for profits is particularly pernicious,
The government should make full disclosure a legal requirement for all churches just as it makes it a requirement for other nonprofit organizations. Requiring all churches to file an IRS form 990 would be a good place to start protecting the American people.
On the parsonage allowance he writes:
The Laodicean prosperity preachers are using and abusing the parsonage allowance to a degree that was never intended. They are using enormous parsonage allowances to purchase palatial estates, and thereby, greatly reduce their taxable income.
Revered William Thornton has also criticized abuse of the housing allowance.
We will see where this one goes. Probably nowhere. FFRF’s position that no clergy should get this tax benefit. They would make no distinction between Joel Osteens mansion and my humble abode. As long as the law allows an amount effectively limited by how expensive a house the ordained minister can secure, we will be in for criticism on this.
When you consider that Professor Zelinsky, who defends the constitutionality of the exclusion, thinks that it is bad tax policy, you would think that religious leaders might want to take another look at their position from a less self interested perspective.
Other Coverage
Freedom From Religion Foundation expressed delight at the amicus brief in this piece – Tax law profs back FFRF’s clergy housing challenge.
Further, the housing allowance is an outright subsidy. Exempting something from taxation is no less a benefit than sending a check, the experts remind the appeals court. Even the government has conceded that targeted tax breaks — and the parsonage exemption in particular — are equivalent to direct government spending. The tax brief points out that ministers with higher incomes receive a greater tax subsidy than lower-income ministers.
The housing allowance statute results in substantial entanglement between the government and churches, such as requiring the IRS and courts to determine which beliefs or purported beliefs should count as a religion for tax purposes, what constitutes a church or a minister, and ministerial functions, whether an ordained minister working for a secular nonprofit counts as a minister if she gives one sermon a year, and similar quandaries. The tax professors point out that ministers working not in churches but as teachers, counselors, directors of business services, alumni relations, and even as basketball coaches, now qualify for the exemption. “In sum, Section 107 requires the government to investigate and oversee both churches and ministers, delving into both doctrine and practice,” the brief states.
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