Churches and ministers reeled with the bad news last November, 2013 that federal judge Barbara Crabb ruled unconstitutional the 60-year-old clergy housing tax exemption. The lawsuit, filed by the Freedom From Religion Foundation, claimed violation of the separation of church and state. However, the ruling will not take effect until all appeals are exhausted.
Fortunately, the ruling may never have an impact for an estimated 44,000 ministers, priests, rabbis, imams and others. On September 9th, the Seventh Circuit Court of Appeals in Chicago heard appeals and focused on the legal standing of the suit. It is uncertain when the court will issue an opinion, but impressions from the proceedings indicate that the judges will either dismiss the case or uphold the constitutionality of the housing allowance. Arguers for the constitutionality of the allowance include multiple religious organizations and the Becket Fund for Religious Liberty.
Currently, the law states that clergy can exclude a portion or all of their gross income as a housing allowance. Such an allowance is particularly helpful for smaller congregations who tend to pay lower salaries to ministers. Having a portion of income tax-free makes more income available for living expenses.
Questions raised by the lawsuit appeal include: Can an atheist group litigate a religious group tax treatment? Are ministers and non-ministers treated equally? Is there equal treatment of religious denominations? In actuality, the housing allowance for ministers represents only a small percentage of housing allowances in the tax code for both secular and religious employees.
The housing allowance for ministers has a significant impact on many churches. Salmon Sims Thomas will continue to monitor the situation and keep clients apprised of developments regarding legal decisions.