On Friday, November, 22, 2013, federal district court judge Barbara Crabb from the Western District of Wisconsin issued an order declaring the minister’s housing allowance in the IRS Code unconstitutional. The minister’s housing allowance is contained in section 107 of the Income Tax Code and allows ministers to exclude from gross income the value of housing. Hundreds of thousands of ministers across the country take advantage of the minister’s housing allowance and churches make the housing allowance a standard part of the compensation package for their pastors.
The Freedom From Religion Foundation filed a lawsuit claiming that the minister’s housing allowance violates the Establishment Clause of the First Amendment to the United States Constitution because, they argued, the housing allowance only benefits ministers of the gospel and does not include atheists who are not ministers. The Judge agreed and struck down the housing allowance as unconstitutional.
So what is the impact of this decision and what does it mean for the future of the minister’s housing allowance?
First, Judge Crabb stayed her ruling until after the conclusion of any appeals filed by the government. This means that the ruling has no immediate effect on ministers at this point. There will be no impact on the 2013 tax year for ministers and churches do not need to fear the consequences of the ruling at this point.
Additionally, the Judge’s ruling will almost certainly be appealed to the 7th Circuit Court of Appeals. Judge Crabb is the same judge who declared the National Day of Prayer unconstitutional. That ruling was overturned by the 7th Circuit. The same outcome is likely in the appeal of Judge Crabb’s ruling against the minister’s housing allowance. The ruling is suspect on a number of legal fronts, including the ability of the Freedom From Religion Foundation to even bring the lawsuit in the first place, and the power of the Judge to enter an injunction against a tax statute. These legal arguments will be raised on appeal and stand a good chance of resulting in the dismissal of this case.
Because the ruling has no immediate impact, there is no reason for pastors or churches to make any changes to their compensation packages or tax filings for this year. The best course of action right now is to simply wait on the outcome of the appeal. Alliance Defending Freedom is monitoring this case and will be active in presenting legal arguments to the 7th Circuit on Appeal. We will aggressively seek to uphold the constitutionality of the housing allowance and will keep you updated on the status of this case. There are strong arguments for why the minister’s housing allowance is constitutional and we will ensure that those arguments are adequately briefed on appeal.
Alliance Defending Freedom exists to protect the rights of churches and pastors. That includes the rights of churches and pastors to be free from unnecessary government taxation. If you or your church need legal assistance, contact us so our attorneys can review your case.