Ministerial Housing Allowance Struck Down By Lower Court

[Backwoods Presbyterian]

The lawyers on the board can hopefully shed light on what this really means, but from a cursory layman reading this doesn't look good for those ministers who rely on housing allowances.

Judge strikes down law that gives clergy members tax-free housing allowances : Wsj

 

[SolaScriptura]

Ouch!

 

[KMK]

What was the reasoning behind the law in the first place?

 

[ProtestantBankie]

A big change which hopefully will not impact the church overnight.

Here in the UK there is no exemption from income and local taxes for our Ministers.

 

[SolaScriptura]

The fact that the Freedom From Religion Foundation filed the suit shows that this is in fact an attempt to repress Christian ministers and not merely to increase tax revenue.
As leftists are wont to do, they point to the rich and make it look like the tax laws are actually enabling them to "get over." So in this case, they reference mega-church pastors who live in "mansions." Even if they are living in opulence, mega-church pastors account for maybe 2% of the clergy in this country. What they don't want to talk about are the legions of ministers (of various faith groups!) who are barely making ends meet.

As far as historical rationale for the law - I could be wrong here, but I recall being told that the various tax benefits for ministers/churches were actually implemented to ensure free exercise (!). The idea being that the tax code could inadvertently "price out" and squelch small religious groups because the tax burden for their continuance would be too high. Clearly the law was implemented in a different day.

But as for striking down housing allowances - if it's REALLY about money, then when are they going to phase out the housing allowances enjoyed by many federal and state workers? By the military, by certain professors, etc.?

For example, for YEARS AND YEARS the myth that military people are poor has been given to the public... sure, a few of the lowest ranking guys are poor IF you don't count their housing allowance or food allowance or annual clothing allowance (which, conveniently, we DON'T count). With all my allowances (I also get a special cost of living allowance!) I make well over 6 digits though only about 70% of it shows up on my W2 as taxable income.

So before anyone on this thread says, "ministers don't deserve special tax treatment," just remember that this nation gives special tax treatment to a whole host of occupations. Without this housing allowance for ministers, free exercise is in jeopardy because many low paid ministers cannot afford the additional tax burden and may be required to take on a second job to subsidize their income, thereby limiting their ability to focus on ministry, or they may fold altogether

 

[Edward]

The judge in the case is a Jimmy Carter appointee; she is the same one that ruled the National Day of Prayer unconstitutional.

The plaintiffs apparently were careful in their shopping for a judge. I'll admit that I have not read the full 66 page opinion that she issued in Freedom from Religion Foundation v. Obama.

 

[SolaScriptura]

The judge in the case is a Jimmy Carter appointee; she is the same one that ruled the National Day of Prayer unconstitutional.

And yet we still have National Day of Prayer activities. So perhaps despite being ruled "unconstitutional," her ruling may not spell the end of ministerial housing allowances?

 

[Backwoods Presbyterian]

This is only the tip of the iceberg really. The property tax exemption will be on the docket soon (and there are already cases being prepared by organizations like the "Freedom From Religion Foundation" on that front right now, which would shutter the vast majority of church buildings).

 

[ProtestantBankie]

One of the things I dislike about the US system is just how many of your laws are decided by your courts and not by your congress.

I understand the reasoning behind it - but most of what I read from your courts is worse than what I read from your congress.

And your congress isn't the best.

 

[VictorBravo]

One of the things I dislike about the US system is just how many of your laws are decided by your courts and not by your congress.

The law at issue here was decided by Congress. It is from the Internal Revenue Code.

What the court cases you speak of usually do (in basic terms) is decide whether a law passed by Congress exceeds what is allowed under the Constitution.

This case is about Section 107 of the Internal Revenue Code:

26 USC § 107 - Rental value of parsonages


In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

Congress has historically had plenty of leeway in implementing social policy through tax benefits. In this case, it is an overt tax break for a "minister of the gospel." I'm not aware of any litigation on the definition of "gospel" in the Code, but I find it amazing that the term has held up for as long as it has in our tax code.

Nonetheless, the argument that Congress has authority in these matters is a two-edged sword. The same decree (and reasoning, ultimately) that allows for ministerial housing allowances has been used to justify mandatory purchase of health insurance.

 

[fredtgreco]

This is potentially significant. I wonder if it may be gaining steam because this ministerial allowance exemption also increases the possibility of ACA subsidies for ministers.

I think the greater danger is in Congress repealing the law. In one sense, this is not a "religious" exemption, as much as it is an "employment" exemption, and so I would argue this case along the lines Ben has given (other employment that gives similar exemptions). You do not get the exemption because you are a Christian, but because of an employment class. One thing I do not know, and maybe Vic does, is whether a rabbi or imam gets a similar exemption.

 

[KMK]

One thing I do not know, and maybe Vic does, is whether a rabbi or imam gets a similar exemption.

According to this article, they do. Judge Declares Tax Exclusion For Clergy Housing Payments Unconstitutional - Forbes

This is also from the article:

What the Freedom From Religion Foundation did to get standing was to starting paying some of their officers housing allowances. Since the officers were clearly not ministers that gave them and FFRF standing. The argument got a little bizarre as the government in order to kill the case argued that perhaps the FFRF officers might qualify for the exemption.

 

[arapahoepark]

One of the things I dislike about the US system is just how many of your laws are decided by your courts and not by your congress.

I understand the reasoning behind it - but most of what I read from your courts is worse than what I read from your congress.

And your congress isn't the best.

It wasn't intended for the courts especially the supreme one to legislate from the bench. They gave themselves this power in Marbury v. Madison.
As for our Congress, if they aren't passing anything that's a good sign rather than one majority in power passing all they can in two years.

 

[VictorBravo]

One thing I do not know, and maybe Vic does, is whether a rabbi or imam gets a similar exemption.

Yes. A tax court case from the 60s said a Jewish cantor was a "minister of the gospel" for this tax purpose:

SALKOV v. COMMISSIONER | Leagle.com

 

[DMcFadden]

Part of the logic (as I understand it, Victor would know for sure) was that this was related to the parsonage situation in many churches. If two pastors made the same income and one received a house (tax free) in addition to his paycheck, the taxes would be inequitable. This was seen as a way of equalizing the situation.

Ministers typically pay self-employment taxes at 15.3%. "Employees" have 7.65% withheld from their paychecks; the employer adds another 7.65% in order to equal the rate of the self-employment tax). Their compensatory factor for paying double on social security/Medicare is being able to having their housing excluded from federal taxes on their housing (cf. military allowances) but not on their social security.

In other words, if you "make" $50,000 but $20,000 is counted as housing, you would pay 15.3% of $50,000 to social security, but only pay taxes on your "income" of $30,000. Of course other deductions would bring that number down in computing the AGI.

If the housing exemption disappears, it would probably put ministers in the situation where their church had to deduct 7.65% of the pastor's salary and match it with their own 7.65%. The practical impact would be to increase the cost of ministry staff by 7.65% x total ministerial salaries.

Sounds to me like an effort to punish churches and help make America safe FROM religion.

The ACA connection is REAL. I know pastors who, because of their housing allowances, will qualify for subsidies under Obamacare. Clearly, this is an unintended (but real) consequence of the law.

Victor, would need to happen for this to become a national standard? How soon might it take place?

 

[VictorBravo]

Victor, would need to happen for this to become a national standard? How soon might it take place?

It's an interesting question, Dennis. I'd have to research the latest case law to have a better feel, but off the cuff, here are the possible outcomes:

Treasury appeals and requests a stay on the ruling. This is typical. If that happens, there is no immediate effect anywhere. I'm, not sure if Treasury will appeal because that is an executive decision (President decides, ultimately).

No appeal, law is only effective in this Federal Court's jurisdiction. It becomes "persuasive authority" in other jurisdictions, but other lawsuits would have to be filed. It might take a few years for it to become a trend in other jurisdictions.

Also, the IRS, under Treasury guidance, might decide to not enforce the effect of the decision under its discretionary powers. (Meaning that it will not demand the housing allowance be put on tax returns as income.) This opens them up to direct challenge under some sort of Mandamus proceedings (Mandamus: asking the court to force a governmental agency to do its job). That will take a few years to sort out.

Finally, Congress might amend the statute to render it all moot. If Congress eliminates the allowance, end of story. If Congress expands the allowance to include atheist "similarly situated" persons in the housing allowance exemption, the appeal is rendered moot too.

My guess is that, short term, the government will appeal, ask for a stay on the ruling, and push Congress to amend. It all unwinds over 2-6 years.

 

[Contra_Mundum]

How does this impact pastors and churches today? What, if anything, happens as tax-year 2013 oozes to an end in less than 40 days? Does the current law stand? Does it stand everywhere outside of western Wisconsin federal district, until this judge's ruling has a ripple effect? How long until we know? Is there an injunction holding the ruling, pending appeal?

Lots of questions.

edit--I think Vic addressed some of them. I guess we're not likely to see much change immediately... and probably, there would end up being clashing precedents before everything came to an end.

 

[fredtgreco]

How does this impact pastors and churches today? What, if anything, happens as tax-year 2013 oozes to an end in less than 40 days? Does the current law stand? Does it stand everywhere outside of western Wisconsin federal district, until this judge's ruling has a ripple effect? How long until we know? Is there an injunction holding the ruling, pending appeal?

Lots of questions.

This has absolutely no immediate effect outside of the district in which it was decided.

 

[Contra_Mundum]

Right Fred, I amended my post above which I was posting while Vic was answering.



I have this idea: that the State ultimately thinks of preachers as potential rivals for influencing the minds of a considerable number of the populace. Preachers are generally closer (more directly linked) to the people than agents of the State. Only mass-media has more immediate (and constant) access to their minds, but at a cost of impersonality. So, I suppose the State's actors believe it has a vested interest in hiring the good-will of as many of those lesser influence-peddlers in the pulpits as it can. I say this, even though the legislation/rules pertaining may have brought it about as a blind consequence.

I think this allowance has ended up being a significant piece of the State's larger interest in quelling all forms of dissent. As with all largesse and privilege (much in evidence in the tax code, among other instruments) those who experience the advantage end up with a vested interest in preserving it. It is more-likely a generic preacher will encourage docility and submission to many things that are objective outrages, if the present system exempts them in subtle ways.

Compare to the open attacks on pastors in many present and former communist countries (and other totalitarian regimes). Local leaders especially are a threat to control from above. If the organization cannot be thoroughly destroyed, it can be reduced, and its staff replaces with reliable yes-men. Since the USA has never had a State church (federal), the pervasive religious nature of the populace has been attacked in other, less overt ways. The FFRF, in this case, are probably considered radically unpleasant to the State's primary interests in this case. The lackluster defense may best be explained by the State's desire to prevent this case from establishing any kind of precedent, and it will quietly disappear in a summary reversal.

 

[bookslover]

One of the things I dislike about the US system is just how many of your laws are decided by your courts and not by your congress.

I understand the reasoning behind it - but most of what I read from your courts is worse than what I read from your congress.

And your congress isn't the best.

Seeing as how your MSPs just endorsed same-sex marriage for Scotland, I guess your system has as many problems as ours! LOL

 

[SRoper]

Part of the logic (as I understand it, Victor would know for sure) was that this was related to the parsonage situation in many churches. If two pastors made the same income and one received a house (tax free) in addition to his paycheck, the taxes would be inequitable. This was seen as a way of equalizing the situation.

I always assumed this was the rationale. Likewise, the reason some members of the military get a housing allowance is precisely because the others are provided with base housing.

 

[SolaScriptura]

Likewise, the reason some members of the military get a housing allowance is precisely because the others are provided with base housing.

Actually, we all "get" the housing allowance. If you choose to live on the base then they housing allowance is "paid" in its entirety to the government housing administrator for that base.

 

[Shawn Mathis]

Here's the FRC's response and legal understanding of the matter.

 

[R. Scott Clark]

Here is some background, the legislative history with links to the decision and coverage.

Freedom From Religion Foundation v Lew: What Now? | The Heidelblog

 

[SRoper]

Likewise, the reason some members of the military get a housing allowance is precisely because the others are provided with base housing.

Actually, we all "get" the housing allowance. If you choose to live on the base then they housing allowance is "paid" in its entirety to the government housing administrator for that base.

Thanks for the correction. Obviously we've never lived in base housing.

 

[BJClark]

Fred,

Per this article, it applies to all faiths..

http://www.nytimes.com/2006/10/11/business/11religious.html?_r=0

"But for tens of thousands of ministers — and their financial advisers — Pastor Warren will also be remembered as their champion in a fight over the most valuable tax break available to ordained clergy members of all faiths: an exemption from federal taxes for most of the money they spend on housing, which typically represents roughly a third of their compensation. Pastor Warren argued that the tax break is essential to poorly paid clergy members who serve society."

Here is another article--this one has a history of the law starting on about page 3

http://www.jlaw.com/Articles/WomenParsonage.pdf

 

[BJClark]

SRoper;

Actually, we all "get" the housing allowance. If you choose to live on the base then they housing allowance is "paid" in its entirety to the government housing administrator for that base.

Even when one lives in the 'barracks' or 'dorms' on base that is considered their housing allowance, now if they have rooms available on base in the barracks/dorms, and they are single and choose NOT to live on base then they do not get the additional funding for the housing allowance--IF there are no rooms available for them in the barracks/dorms, even if they are single, they can get the housing allowance.

There are also College campuses that provide housing for their Professors and other school employees as part of their pay, and they too get the tax exemption..can you imagine the uproar if we took that to court, based on their employment (many of these professors pushing their secular humanism religion to students) were required to start paying taxes on their homes as well. (My sister was a Research Librarian at Iowa State for awhile, and part of her compensation was her housing)


Here was a case in Conn. re: Housing for Faculty.

http://cga.ct.gov/2009/rpt/2009-R-0428.htm