A renewed lawsuit challenging the income tax break on clergy housing allowances (sometimes called the parsonage exemption) has been upheld by the same federal district judge who ruled the law unconstitutional in 2013.
As members of clergy and their Vestries know, a portion of a minister of religion’s compensation package may be designated as housing allowance, and exempted from income taxes (although not from the minister’s self-employment taxes). Find a helpful background to the housing allowance exemption here.
US District Judge Barbara Crabb ruled in 2013, and again in Wisconsin on Friday, that the provision is unconstitutional because it provides a benefit to some people but not to others. Her 2013 ruling was reversed on appeal, but the Freedom from Religion Foundation believes that it has the grounds for that reversal covered this time around.
U.S. District Judge Barbara Crabb ruled Friday that the exemption provides an unconstitutional benefit to religious persons and no one else, violating the establishment clause of the U.S. Constitution.
“In reaching this conclusion, I do not mean to imply that any particular minister is undeserving of the exemption or does not have a financial need for one,” Crabb wrote. “The important point is that many equally deserving secular employees (as well as other kinds of religious employees) could benefit from the exemption as well, but they must satisfy much more demanding requirements despite the lack of justification for the difference in treatment.”
Crabb also struck down the law in 2013, but the 7th U.S. Circuit Court of Appeals reversed the ruling, saying the co-presidents of the anti-religion group who challenged it didn’t have standing to bring the lawsuit because they had never been denied the parsonage exemption.
So in 2015, Freedom from Religion’s co-presidents requested the tax benefit and were rejected by the IRS, leading them to file a new lawsuit last year.
Crabb stopped short of issuing any action to suspend the tax relief for now, instead ordering both sides to present arguments by the end of the month as to what remedies would be appropriate.