Originally published on Forbes.com.
In a long-awaited decision, the Seventh Circuit has ruled that Code Section 107(2) is constitutional overturning Judge Barbara Crabb’s 2017 ruling that the section violated the Establishment Clause. Code Sec 107(2) allows the exclusion from taxable income of cash housing allowances to “ministers of the gospel”. This is the second time Seventh Circuit has overturned Judge Crabb on this issue.
The first time the decision was based on standing. The plaintiffs including the Freedom From Religion Foundation fixed the standing issue, so this time the Circuit was ruling on the merits. And their ruling is that 107(2) is constitutional.
Although I will be studying the decision more, I think it is fair to say that the reasoning of Professor Edward Zelinsky author of Taxing The Church carried the day. The Court viewed 107(2) as just one of a myriad of provisions exempting housing. To treat ministers like secular employees receiving the 119(a) convenience of the employer exemption might lead to intrusive inquiries. This is weighed against the IRS having to patrol the boundary of who is a minister.
These parallel provisions show an overarching arrangement in the tax code to exempt employer-provided housing for employees with certain job-related housing requirements. Congress has exempted certain categories of employees from complying with the specific requirements of § 119(a)(2) to simplify the application of the convenience-of-the-employer doctrine to those occupations. Section 107, including subsection (2), recognizes ministers often use their homes as part of their ministry. This provision thus eases the administration of the convenience-of-the-employer doctrine by providing a bright-line rule, instead of requiring that ministers and the IRS repeatedly engage with a fact-intensive standard.
Here is the shoutout to Professor Zelinsky.
In contrast, the application of § 119(a)(2) to ministers would entangle church and state far more than under § 107(2). For example, to determine what constitutes the business premises of the employer under § 119(a)(2), the IRS would have to determine what the “business” of the church is and where and how far the “premises” of the church extend. See EDWARD A. ZELINSKY, TAXING THE CHURCH 168–69 (2017). To do so, the IRS would need to interrogate ministers on the specifics of their worship activities, even determine which activities constitute “worship.” Such government inquiries into the internal affairs of churches to determine their eligibility for tax relief have been rejected as excessive entanglement.
And the bottom line is.
FFRF claims § 107(2) renders unto God that which is Caesar’s. But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter. We conclude § 107(2) is constitutional. The judgment of the district court is REVERSED
I want to thank Robert Baty, who started all this trouble for the heads up on the decision. I will be providing additional coverage over the weekend, but I wanted to get this out quickly.
About The Picture
This ran on Forbes with a generic stock photo, but here on YTMP where the lower readership indicates higher intellects, I have gone with something from the Tate Museum, which I believe in good faith is public domain. There is a connection between the even pictured – the murder of Thomas Becket – and the parsonage exclusion, but I will leave that for the commenters.