There are others who know more. I’ll link their stuff as I see it.
Basic facts:
The Freedom From Religion Foundation is suing over this question:
The question in this case is whether Congress may give a subset of religious employees an income tax exemption for which no one else qualifies. At issue is the constitutionality of 26 U.S.C. § 107(2), which excludes from the gross income of a “minister of the gospel” a “rental allowance paid to him as part of his compensation.”
The suit is aimed at the “cash” housing allowance. That is, those who receive part of their paycheck designated as “housing allowance.” The housing allowance received by those living in church-owned housing is not the object of the suit or the decision and will not be affected by it.
The FFRF had an earlier suit that won at the federal district level four years ago but was overturned at the federal appellate level on the basis of “standing.” The appeals court ruled against the FFRF because the plaintiffs were judged not to have suffered sufficient harm. In other words, the merit of the challenge wasn’t decided by the appeals court. The FFRF went back to the district court with the problem of standing solved and, essentially, filed the same challenge. The judge then, the Hon. Barbara Crabb heard and ruled for the FFRF in both cases.
From the Crabb decision:
I concluded that the provision violates the establishment clause because it provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise. On appeal, the Court of Appeals for the Seventh Circuit did not reach the merits of plaintiffs’ claims but instead vacated the judgment on the ground that plaintiffs did not have standing to sue.
Her ruling is the same as before.
I adhere to my earlier conclusion in Lew that §107(2) violates the establishment clause because it does not have a secular purpose or effect and because a reasonable observer would view the statute as an endorsement of religion.
Although defendants try to characterize § 107(2) as an effort by Congress to treat ministers fairly and avoid religious entanglement, the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees. Ministers receive a unique benefit under § 107(2); it is not, as defendants suggest, part of a larger effort by Congress to provide assistance to employees with special housing needs. A desire to alleviate financial hardship on taxpayers is a legitimate purpose, but it is not a secular purpose when Congress eliminates the burden for a group made up of solely religious employees but maintains it for nearly everyone else.
Part of the argument that the cash HA is legal is that even a minister who is not required to live in church housing is expected to use it for some church purposes, e.g., hosting members etc. The judge was not persuaded on this and I’m not seeing this as a very strong argument myself. If a minister uses his home for business purposes he has available to him the same tax provisions we generally call “home office.” The HA is much superior to this because the minister isn’t required to use his house for church purposes and can exclude all of his housing expenses.
The decision gets into the deep weeds and I’m not all that qualified to examine many of the arguments. Let me offer an editorial summary of the pros and cons.
- The HA is a great tax break, allowing the minister to exclude a significant amount of his or her income from income tax calculations. The average SBC senior pastor is at around $75,000 for their salary plus HA (or FRV of pastorium). I speculate that the pastor can exclude somewhere around a third of their income through the HA. I encourage my SBC colleagues to take as much of their pay as HA as legally allowed.
- Some highly paid pastors who live in expensive homes may exclude well into six figures. There’s no cap beyond the FRV of the home (or amount approved by the church, or amount actually spent by the minister). Pointing to the mega-compensated pastors as having this sweet tax break doesn’t help the rest of us.
- It’s tough to see the HA as an establishment of religion and a violation of the first amendment although the tax break is available only to clergy.
- Teachers, coaches, and other “clergy” employees also get the tax break. Some of these cases strain credibility of who is a minister. This doesn’t help the rest of us.
- Yeah, we pay social security taxes on the HA. That has nothing to do with the law on the cash housing allowance and is irrelevant except when ministers write that quarterly check to the IRS.
- The total cost to the US treasury of the HA is minimal but that isn’t the question here.
- If I have an honest conversation with a plumber or teacher in my congregation about the minister’s cash housing allowance, I have to admit that it’s a sweet tax break and, no, I can’t offer much of an cogent explanation as to why this is reserved exclusively for clergy and not plumbers or teachers.
I’d guess that the courts and congress, if necessary, will find a way to keep the HA but for now there’s a federal district court ruling that says it’s unconstitutional.
The last time the judge ruled this way, she was the object of not a small amount of venom from religious folks. Perhaps that can be avoided this time. She said in her decision,
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. 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.
As for now, nothing has changed on the ground. Keep saving those receipts for housing expenses.
There are various groups who will offer evaluations of this decision, including many Southern Baptist. We will see what they say.
My final word is that you can have my housing allowance when you pry my cold, dead hands off of it. [Seems like anything that has to do with guns gets more comments here so I’ll go with that flow.]
