Housing Allowance Information

November 7, 2017

 

You may be aware there was a recent (October 6th) court ruling that affects clergy housing allowances, following challenges in previous years. From Dr. Louis Barbarin, executive director of MMBB, I requested a “plain language” interpretation to share with you. Dr. Barbarin’s response, based on MMBB’s house counsel follows. (The bolded sections are mine, for emphasis of what I consider to be the main points of interest.)


On October 6, 2017, in Annie Laurie Gaylor, Dan Barker et al; and Freedom from Religion Foundation v. Steve Mnuchin et al, Judge Barbara Crabb of the Federal District Court of the Western District of Wisconsin, issued a declaratory judgment (which determines the rights of parties without ordering enforcement) and held that the Internal Revenue Code Section 107(2), the cash clergy housing allowance exclusion, is unconstitutional. The Court ruled that the housing allowance violates the Establishment Clause of the First Amendment “because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.” Currently, IRC Section 107(1), the parsonage allowance, is not being challenged.

The Court suspended the enforcement of the ruling until October 30, 2017 so that the parties can file supplemental briefs as to whether additional remedies are appropriate and whether relief should be delayed pending an appeal to the Seventh Circuit Court of Appeals.

The defendants will most likely appeal to the Seventh Circuit Court of Appeals.  If the Seventh Circuit affirms the lower court’s decision, Judge Crabb’s ruling would only apply to pastors in Wisconsin, Illinois and Indiana. There will also be intervenors (non-parties that join ongoing litigation) represented by the Beckett Fund (a religious legal aid organization), who have stated that they will appeal the decision of the district court. Furthermore, there will probably be various amicus briefs (non-litigants or friends of the court) filed in the Seventh Circuit, in support of the government.

In the event that Judge Crabb does not postpone the effect of the ruling in order to provide time for the appeals process, then the intervenors or government may request a postponement or stay by the Seventh Circuit. The standing issue (legal right to bring a lawsuit) may be reviewed by the Seventh Circuit, however it is probable that the Court will decide on the merits of the case. The practical effect of any ruling will be delayed until the appeals are exhausted and this could take several yearsIf this case goes to the Supreme Court and the Freedom From Religion Foundation wins again, this ruling would become binding on all states. Please note that, in order to maintain consistency in tax administration, the IRS has the discretion on whether to follow a ruling by the appeals court.

* * * * * *

I personally do not expect legal challenges to the clergy housing allowance, and possibly also to the parsonage allowance, to end. Some of us further along in life may depart this earth having enjoyed the tax benefits of the clergy housing allowance throughout our entire career and retired life. However, I do not think our younger clergy will enjoy that same benefit throughout their lifetime. I think we would all do well to prepare ourselves (and our churches) for this eventuality, at least mentally, if not also from a financial perspective.

For questions regarding how you would personally be affected, please consult MMBB staff (mmbb.org) or your tax/financial advisors.