Originally published on Forbes.com Sept 11th, 2014
It seems that the Freedom From Religion Foundation has inadvertently found the way to bring unity to the many disparate religions. FFRF’s credible threat to a major clergy tax benefit, the ability to exclude from income tax cash housing allowances, has Jews, Christians of many varieties from Baptist to Orthodox, Unitarian Universalists and believers in Islam and Krishna consciousness all singing from the same hymnal. Don’t mess with what Reverend William Thornton calls the “Sacred Clergy Tax Break”. Judge Barbara Crabb ruled that Section 107(2) of the Internal Revenue Code, which provides that cash housing allowances to “ministers of the gospel” are exempt from income tax, is unconstitutional. The Government appealed which unleashed a flood of ecumenical amicus briefs defending the allowance. The Seventh Circuit heard oral arguments on Tuesday which, I covered earlier.
There has not been a lot of other coverage of the oral arguments yet. It seems though that the defenders of the housing break like what they heard, which is consistent with my assessment of the arguments.
Tom Strode, bureau chief of the Baptist Press wrote:
Supporters of the ministerial housing allowance should be hopeful about a federal appeals court’s anticipated ruling on the 60-year-old provision, a religious liberty lawyer said after oral arguments in the case.
Reverend Thornton also expressed optimism.
Becket Fund Is Very Encouraged
I reached out to my parsonage brain trust and so far have only heard from one source, who I think is who Tom Strode heard from. Luke Goodrich is the Deputy General Counsel of The Becket Fund. Mr Goodrich, who favors the exemption, was very encouraged by what he heard.
For those who favor the constitutionality of the 60-year-old parsonage allowance, today’s oral argument went very well. The Court was interested in the question of standing, asking several questions about why the plaintiffs should be allowed to litigate someone else’s tax treatment. But because a ruling on standing would merely delay the litigation—not resolve it—the questions about underlying Establishment Clause challenge have more enduring interest.
If the case gets knocked out on standing, the delay might be quite long. The officers of FFRF would file refund claims with the IRS which they would expect to be denied, but when you consider what happened with the OID scam, I think there is a good chance that they will just get issued checks.
Getting into the establishment clause merits, Mr. Goodrich notes:
Judge Rovner’s first question on the merits asked about how the parsonage allowance equalizes treatment of ministers and non-ministers. As we explained in our brief, in addition to 119(a)(2), Congress has enacted numerous provisions relaxing the “convenience of the employer” doctrine for various types of employees—such as employees in foreign camps (119(c)), at educational institutions (119(d)), in the armed services (134), working for the government overseas (912), working for private employers overseas (911), and temporarily away from home on business (162 & 132). For all of these employees, Congress has decided that the type of work, the burdens on their housing, or the non-commercial working relationship make it likely that the lodging was intended to benefit the employer.
In 107, Congress made the same decision with respect to ministers. And as we detailed in our brief, that decision makes sense, because ministers face similarly unique demands on their housing—such as required physical proximity, availability day and night, use of their homes for work duties, frequent movement, and limited choice. You (Peter) and other critics of the parsonage allowance have argued that this is sub-optimal tax policy, and that not all ministers face unique burdens on their housing—but that is the wrong question for this litigation. The question is whether the parsonage allowance is constitutional—not optimal. And for purposes of constitutionality, it is enough if “it can be fairly concluded that religious institutions could be thought to fall within the natural perimeter .” Texas Monthly, 489 U.S. at 17 (emphasis added). That’s a fairly low bar, and it’s easily satisfied here.
The most telling exchange on this point came at 29:52, when Judge Rovner said, virtually paraphrasing the Becket Fund’s brief, that 107(2) could be “read simply as a codification of all of those judicial holdings that give recognition that, given the duties of ministers, the housing choice is almost always for the convenience of employer.” The plaintiffs’ counsel said, “I think I agree with you.” And Rovner said, “If you do, you lose.”
In his post on the subject Reverend Thornton notes that those “special demands” are hardly universal among ministers.
Another weak argument is that ministers who own their houses have upon them certain expectations that require them to use their domicile for certain church purposes. Well, some do. Some don’t. It should be noted here that those who live in parsonages receive the HA under a provision not threatened. Most of us know that living in a church-owned pastorium, almost always next to or near the church, places many duties that are at the “convenience of the employer.” That’s why most of us celebrate when churches move away from pastoriums to paying a cash housing allowance. I own my house. The church has no claim on it even though I am a hospitable guy and am happy to have church groups out. I am not compelled to do this.
Weak as Reverend Thornton and I think the argument might be, the Seventh Circuit judges did seem to be lapping it up.
Mr. Goodrich also noted that the argument that the allowance prevents a disparate impact on churches that decide to not own parsonages also seemed to fly well with the judges.
Judge Hamilton highlighted the second benefit of the parsonage allowance—that, by treating in-kind and cash housing benefits equally, it reduces discrimination between wealthier denominations, which can afford in-kind parsonages, and poorer denominations, which cannot. The plaintiffs’ counsel tried to argue that such discrimination is reasonable, because the rest of the tax code draws the same distinction between in-kind and cash housing benefits for secular employees. But as Judge Hamilton noted, the constitution places a very high value on equal treatment of various religious denominations, so it is rightly more concerned about discrimination among denominations than about discrimination among secular employers.
Moreover, the plaintiffs’ counsel was simply wrong that the tax code always distinguishes between in-kind and cash allowances. Perhaps the most prominent example is 912, which ensures that overseas government workers get the same tax treatment regardless of whether they receive in-kind or cash housing benefits—just as 107 does for ministers. (The government’s attorney effectively made this point about cash allowances on rebuttal, citing the Becket Fund’s brief.)
I’m Not The Only One That Was Disappointed
My disappointment was not so much with a prediction about the outcome as the quality of the discussion. Apparently I may not have been alone based on this story by Jack Bouboushian which noted one of the more amusing exchanges between the FFRF attorney and one of the judges
Bolton also raised the analogy to seamen, pointing out that they receive benefits only in the form of housing itself and that any cash allowance would be taxed.
Judge Ilana Rovner wondered if this meant that a sailor whose ship crashed ashore would be taxed for any money he received to find temporary housing.
“You look perplexed,” Bolton said.“I always look perplexed,” Judge Rovner replied with a sigh, and the courtroom erupted in laughter. Her sheepish but knowing voice may have reflected the mood of a crowd that had likely expected to hear more substantive debate over the establishment clause issue.
Maybe It’s Constitutional But Not Such A Great Idea
When the powers that be finally realize what the country needs and appoint me tax policy czar, one of my first acts will be to cap the housing allowance at $4,000 per month not indexed for inflation so that its significance will gradually phase out. A couple of people recognize that the unlimited housing allowance is not just bad tax policy. It is also bad for religion. Reverend Thornton wrote:
We should also make the admission that in some small number of cases the Housing Allowance is unethical, unfair, and abhorrent. Million dollar Minister lives tax free in mansion while Average Wage Willie pays taxes on all of his. Phooey. If a pastor or ministry leader receives millions in clergy income, he or she doesn’t need a tax provision that excludes potentially hundreds of thousands. Our SBC Ethics and Religious Liberty Commission should wake up and at least make an honest examination of how ethical and fair it is to have examples of this among us.
Reverend Frank Jones thinks the unlimited housing allowance and lack of transparency attract the wrong people into ministry. He believes that when the profits are gone, only prophets will remain.
Regardless of the constitutional merit, I think it is probably a bad idea for denominations to invest their dwindling moral capital in this fight. The Christians among them might reflect on the source of their inspiration who is said to have remarked “Foxes have dens and birds have nests, but the Son of Man has no place to lay his head”.
On Parsonage Exclusion Coverage
I actually think that I have covered this issue more thoroughly than any of my brothers and sisters in tax blogging. My coverage is not up to the minute though. If that is what you want you should check out the facebook site administered by my most constant commenter and bane of the basketball ministers Robert Baty.