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Federal judge strikes down tax-free housing for clergy

The United Methodist Church provided this house valued at $327,000 for Bishop John Hopkins. Hopkins said the home, near Canton, Ohio, allows him to host visiting guests of the conference. For use with RNS-CLERGY-HOUSING, transmitted May 16, 2007. Religion News Service photo by Chris Stephens/The Plain Dealer of Cleveland

MADISON, Wis. (AP) — A federal judge in Wisconsin has struck down as unconstitutional a law that gives clergy tax-free housing allowances, in a ruling that could have far-reaching ramifications for religious leaders who have fought for years to keep the substantial financial benefit.

Under the federal law passed in 1954, a “minister of the gospel” doesn’t pay income taxes on compensation that is designated part of a housing allowance. The Freedom From Religion Foundation, based in Madison, argued that the law discriminates against secular employees.

The benefit saves clergy, including non-Christian religious leaders, $800 million a year in taxes, according to the latest estimate from the congressional Joint Committee on Taxation.

Under the law, housing allowances paid as part of clergy salary can be subtracted from their taxable income. The Freedom From Religion Foundation argued that a clergy member can use the untaxed income to purchase a home, and then, in a practice known as “double dipping,” deduct interest paid on the mortgage and property taxes.

U.S. District Judge Barbara Crabb ruled Friday (Oct. 6) 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.

U.S. Department of Justice spokeswoman Lauren Ehrsam declined to comment Monday. The Justice Department was defending Treasury Department Secretary Steve Mnuchin and Internal Revenue Service Commissioner John Koskinen, who were named in the lawsuit.

Annie Laurie Gaylor, co-president of the Freedom From Religion Foundation, heralded the victory and said she was confident it would survive challenges on appeal.

“It’s a huge ruling,” Gaylor said. “The last one created shockwaves and this one should really be creating them. … I think everybody knows we’re right, they just don’t like changing the law.”

While Crabb ruled the law unconstitutional, she deferred taking action on granting relief, which could include an injunction to block the granting of the tax benefit. Crabb ordered both sides to make arguments by Oct. 30 on what remedies would be appropriate.

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  • The LGBTEVIL will continue to attack all people of any faith until this society collapses, as it is written.

  • About time…the better approach is for Congress to remove this unfair parsonage housing tax write-off or expand it to all non-profits, not just religious congregations. Also add a “Joel Olsteen” upper limit to the tax break. This exemption is bizarre in that the bigger the house or allowance a church provides…the more the pastor can write off. Which leads to ministers in huge mansions.

    Note that many pastors work hard for low pay and if their congregations want to help them with housing — that’s fine. However, the original purpose for this housing write-off in the 1950’s was so ministers could help fight “communist wickedness”…a reason not exactly pertinent today…although there is always Atheists, Muslims and other undesirables — that some congregations think are wicked!

  • Well this is going to be challenged big time. Religious leaders/faiths are not going to sit back and allow this to happen, especially the catholic church. This will cut deeply those groups, religious orders, and will cause some already living on the edge (like catholic sisters) to collapse. It will be interesting to see how this all plays out.

  • Of course, blame it on gay people that the hyper religious don’t get even more tax subsidies than they do already.

    Antigay hatred is a sickness. But there is Good News! You can be cured of it.

  • Oh c’mon Ben, you can afford to spot me $50K for spending money. I’m a societal good!

    (Besides, I’m doing you a bargain. Black Lives Matter says you owe me $100K in reparations, so I’m cuttin’ 50 percent off, just outta the goodness of my ecclesiastical heart!!)

  • As a legal strategy, the FFRF’s effort is both logical and cunning, but there’s still a long way to go from the barn door to the farmhouse. Whether the exemption stands is less important than the fact that people will still pursue the ministry regardless of the legal outcome. God is quite capable of providing for his servants, even to the extent that they may have to supplement their incomes through private labor. Paul was not too proud to labor as a tentmaker even as he disseminated the Gospel.

  • I get it. But why should your religious leader receive a break that the head of any other not-for-profit — your local food bank for example, –doesn’t get. Those people make low wages, or don’t get jobs in the first place.

    Let’s not mix things together that may be entirely different matters. Do nuns pay any taxes at all if their income is so low? And a not-for-profit church or convent doesn’t pay taxes — like any other not-for-profit. This is about individual taxes.

  • I’m not an lgbt person, in fact, I’m a church member who thinks this don’t-have-to-pay-taxes-on-your-home -if you are clergy thing — doesn’t make any sense. Never has. So does this mean “no day is a bad day for hate” in your mind?

  • Uh, I think the rationale had something to do with the fact that clergy were considered to be at the mercy of their denominations, and therefore, like military personnel and a handful of other occupations — their housing was a job related matter. Methodists, for example, moved people every 2 years. This is no longer the case, and the rationale (slim as it has always been) doesn’t work anymore.

  • Most religious, except priests, do not make much money themselves. Often times they make as much as those at food banks. Not that all priest make enough money to live themselves, they do have some support they can access through their dioceses. Women religious are very vulnerable in that they have never been paid fairly often times being paid a few dollars as teachers in catholic schools. They also did not have SS taken out and found themselves without any income when older. They do a lot of free services. Then there is the fact that most catholic women’s religious orders have 95% over retirement (75) and a few who work helps would not cover everyone. Some have been able to put money through sale of convents and property to obtain stocks and bonds, but when you are dying out that might not last. I understand the logic of taxing housing, it will nevertheless be devastating to many.

  • The majority of ministers are not making that much money. They serve smaller congregations and often have no health insurance or pension. They need this tax deduction to get by.

  • Every time someone comments against the evil force, the pat response is hater, hater, hater. What are you all? Third graders? What do you think the freedom from religion folks are out for? Cookies and icecream? It will come to pass that the LGBT will be proven to be the hater of mankind. This does not mean that there are not millions of good and decent gay people that have rights; it does mean that an evil force is manipulating even your thoughts. If you think the gay movement is in or even the head of your church because they want to help you, you will be gravely disappointed.

  • If they are living in church property, this might not affect them. But I still cannot regard employees of religious institutions as any more deserving than those who work in not for profits assisting victims of sex trafficking, for example. We simply can’t make a case in the United States for it. And yes, I know this might hurt religious institutions. On the up side, maybe it would be good to remind them that the government is not their defender, protector and benefactor.

  • It has something to do with how blithely you throw together LGBT and “evil.” I can barely make sense of what you’ve written, but it doesn’t seem worth the time to pour over a rant. You are deathly afraid of gay people, that’s clear. And you don’t seem to realize we are talking about real people that the rest of us know.

  • A large number of Americans are not making that much money. Many of them get no health insurance or pension. Why do ministers get this perk to “get by” while other cannot simply because they don’t have a divinity “degree?”

  • Cypress, I’m merely responding with regard to ministers. I agree that this should be looked at for others as well.

  • The other aspect is that churches used to provide ministers with a home to live in, usually called a parsonage. Not many churches do that now.

  • It would really help if this report would point out that, at least for me, I might’ve gotten a break in INCOME taxes, but I paid the full 15% form SE taxes on the “fair rental value” of the parsonage. Not to mention utilities, etc. Imagine having to pay an extra 15% for your housing? Income taxes were never a problem ’cause income could be offset by all sorts of deductions, but that FICA stuff was brutal. And quite frankly, where many clergy get in trouble with taxes.

  • And quite frankly, the shared ignorance of the comments is combined with outright hatred, and it’s a toxic combo.

  • That’s a good point. As far as I’m concerned, if a church exists it should be self supporting. A congregation should expect to pay their ministers and other emploa living wage, including health insurance. It is not the job of the rest of the taxpayers to fund their group.

  • Cypress, I agree. However, churches are dependent on donations, rather than sales. Many people come to church and do not contribute–or are not able to contribute. The church serves everyone, regardless. I think it would behoove the public to focus on the big corporations and the rich, like our President, who have tax loopholes and tax breaks that keep them from paying their fair share, if they pay anything at all.

  • That may be true, but Congress never put an upper limit on this…so Joel Olsteen, Creflo Dollar and many others have twisted this original modest idea into something that was never intended…A huge giveaway to dubious rich preachers. The small town parsonage is paying the price for the hucksters.

  • There are far more of them than there are mega church ministers. As I mentioned to Cypress, there is far more to be collected from the corporations and the rich, like our President, who have loopholes and tax breaks that keep them from paying their fair share, if they pay anything at all.

  • Please enlighten me.

    Are you saying that you have to pay 15% taxes on the amount that is considered the fair rental value of the parsonage. If the fair rental value of the parsonage is considered $2,000, you pay $300? If you don’t live in the parsonage but get an extra $2,000 to pay for housing, you pay 15% rather than your full income tax rate, what ever that may be. A secular person would have to pay the full $2,000 for housing and they don’t get employer sponsored housing? It seems to me you are getting a good deal, if this is the case.

    I have to pay my utilities.

    Any self-employed person pays full FICA. You are not alone. Why do you think you deserve special treatment? It seems to me you put yourself first. That is not following Jesus.

    You see ignorance and hatred. I see frustration at clergy who receive special benefits.

  • You are an example of why there should be no tax preference given to the religious. In my following Jesus’ teachings, your position is evil.

  • You are not a good example as a person of faith. And, yes, you are preaching hate. If you consider yourself to be a Christian, you might want to read a red letter bible. Meditate on Jesus’ words.

  • There is none good but one and that is God; irrespective of what color the ink is. God has made a list and checked it more than twice and the list stands as the Word of God. God is still the Judge, I did not judge in my comment, it is you that perceive it to be a judgement. You judge outright and who made you a judge. If God gave me a job to do, who are you to find fault with His judgement but one who is in danger of God’s judgement. Christianity is the tail that wags the dog and the LGBT is the tail that wags the dog as well. Listen to the Word, he says to get understanding. I am a dog but I have no part in the tale.

  • Also, many congregations had a residence next to the church, therefore the cleric and his family was on call 24 /7. In those days the marginal tax rates for low paid pastors meant many never even used the itemized tax deduction.

    On the other hand, these types of rulings only encourage more votes for the right wingers.

  • so what, they are still getting a benefit that no other tax payers get. they are not that special. it is a job, like any other and they deserve no benefits that I or any other person can’t get.

  • who cares! that is their problem not the rest of us. why should my tax dollars subsidize their salaries or their church’s bottom line?

  • that is the problem for the church to solve, not the taxpayer. they pay no taxes, why should my tax dollars bail them out? I don’t want to support their or any other religion. if I did, I’d put it in the plate.

  • How are your/mine tax dollars bailing them out? They pay income taxes on wages earned. However the housing allowance is not a religious allowance either. It is a perk found in many secular areas as well.

  • Matthew 22:36-40 New International Version (NIV)
    36 “Teacher, which is the greatest commandment in the Law?”
    37 Jesus replied: “‘Love the Lord your God with all your heart and with all your soul and with all your mind.’[a] 38 This is the first and greatest commandment. 39 And the second is like it: ‘Love your neighbor as yourself.’[b] 40 All the Law and the Prophets hang on these two commandments.”

    ALL the Law and the Prophets hang on these two commandments.

    If you don’t live these words, you are not following Jesus.

  • exactly, if this hinders my ability to reach others w/the Gospel, you won’t have to take it from me. I’ll give it up. In fact, I already have.

  • What this article doesn’t mention is that clergy are employees of churches who are considered to be self-employed by the federal government. This means that they also pay the full amount of their own FICA by themselves each year – on their entire income, including their housing. Most people’s employers pay half of this. Not paying income tax on housing offsets this and causes most ordinary clergy to “break even” at tax time. Obviously, this is an easy thing to abuse when you get into the area of million-dollar homes being counted as a “housing allowance”, but many, many clergy in the US are in small, mainline, rural or urban congregations and make about as much as your average teacher or social worker. If this ruling goes through, it will cripple ordinary clergy households. Although I would be as glad as anyone to see the Joel Olsteens of the world pay their fair share of taxes, we need to reform ALL the clergy tax laws, not just take away what looks like an unfair “benefit” without looking at the full reason that it is there.

  • Clergy are considered self-employed by the federal government and pay the full amount of their own FICA each year. The housing allowance, for most ordinary clergy, merely offsets this added tax burden (employers usually pay 50% of this). I’m all for reforming clergy tax laws (because obviously, claiming million-dollar homes as “housing” is an abuse of what was meant to help ordinary clergy “break even” at tax time), but we need to look at all of the tax code and not just take away a “benefit” without considering the full reason it is there.

  • The problem is that clergy are considered by state law to be employees of the churches, and considered self-employed by the federal government. For all practical purposes, they are employees of the churches they serve, with a fixed salary that cannot be expanded by, say, growing one’s business, as a self-employed person could do. The whole way we do clergy taxes in this country is archaic and doesn’t work, but we need to reform the entire clergy tax code, not just this one part, or we will harm struggling clergy families and congregations without solving the actual problem.

  • Either clergy should be employees of the churches or they should be self-employed.

    With that said, you didn’t answer my questions.

  • Actually, some United Methodist bishops have turned back the clock, stupidly shortening what they think is an average duration of a pastorate to five years, essentially ignoring denominational requirements for consultation with pastors and churches, and thus moving pastors on shorter notice. Also, many churches, especially smaller churches, do still have a parsonage next door to the church. The rationale was (similar to the military analogy above) partly that housing location was a requirement of the employer without employee choice, and that, among other things, it would be unfair to make clergy pay income taxes on fair rental value in areas where they could not afford to buy or rent housing, e.g. the Napa Valley.

  • Actually, many churches do still provide a parsonage, especially smaller churches and/or churches in high cost areas, e.g. Napa Valley, where clergy could never afford to buy, rent, or find available housing period. Some church-provided homes, especially in small towns, United Methodist, Episcopal, are even next door to the churches, although those are sometimes rented to provide a housing allowance.

  • I am a pastor and, before I became a pastor, I owned my own home. Then, when I started pastoring, I had to move where the church was located. This made me sell my home and live somewhere else. Now, I could have bought a home there, but, since the ministry is considered “itinerant” moving every few years, as the Lord may lead, I would NEVER own my home anyway. Since the first few years of a mortgage usually puts you behind, never getting ahead of equity, you would lose if you stayed somewhere for a few years. That’s why churches might be able to provide a parsonage. I may live in parsonages for many years, but they are never my property. They belong to the churches. Then, one day, I get sick and die. Where is my wife going to go? The church will allow her to live in the parsonage for a while, but, they will need the house for the next pastor. Living in a church house can cause some problems in the long run, but, to properly help a church in it’s ministry, That’s one of the reason that I own some property in my home state of Florida where I can use in the future. It doesn’t have a place to live on yet, but I could get a mobile home or, at least, a tent to have a piece of property. One of the reason’s that pastors have a break on their housing is that we are itinerant, sort of like a military person.

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