Case: Freedom From Religion Foundation v. Lew

November 13, 2014—Federal Court Rules on Housing Allowance

On November 13, 2014, the U.S. Court of Appeals for the Seventh Circuit reached a decision in the case Freedom from Religion Foundation (FFRF) v. Lew, which involved a challenge by an atheist group to the constitutionality of the clergy housing allowance exclusion under Section 107(2) of the Internal Revenue Code of 1986 (Code). The case was on appeal from the U.S. District Court for the Western District of Wisconsin, which held that Code §107(2) is unconstitutional. The Court of Appeals reversed the decision of the District Court, holding that the plaintiffs did not have standing to sue because they had not asked the Internal Revenue Service (IRS) to exclude the housing allowance that its directors received from taxation. Accordingly, the Court of Appeals remanded the case to the District Court with instructions to dismiss. Because the case was dismissed due to lack of standing, the Court of Appeals noted: “We therefore do not reach the issue of the constitutionality of the parsonage exemption.” A copy of the opinion can be found here.

The Church Alliance played a supporting role in defending the clergy housing allowance, having filed an amicus curiae brief with the Court of Appeals. A copy of the Church Alliance brief is linked below.

Background on Clergy Housing Exclusion and FFRF v. Lew

Code §107(2), commonly called “clergy housing exclusion” or “clergy housing allowance,” excludes from income taxation cash compensation provided to “ministers of the gospel” (clergy) toward the cost of their housing. This section of the Code essentially excludes the value of clergy-owned (or rented) housing from income taxation. It is related to Code §107(1) which excludes from a minister’s taxable income the value of church-provided housing (commonly called a parsonage, vicarage or manse).

The FFRF brought suit in the Western District of Wisconsin alleging that the clergy housing allowance under Code §107(2) is unconstitutional. The District Court ruled in FFRF’s favor, holding that §107(2) is unconstitutional because it violates the Establishment Clause of the First Amendment to the U.S. Constitution. Under the Establishment Clause, “Congress shall make no law respecting an establishment of religion…”. The government appealed the decision to the U.S. Court of Appeals for the Seventh Circuit.

The Church Alliance filed an amicus curiae brief, which added a perspective not duplicated in the government’s brief, focusing on the jurisprudential history of permitted legislative accommodations of religion. The brief argued that Code §107(2) is a constitutionally permitted accommodation of religion when viewed in the context of Code §107(1), the parsonage exclusion, and Code §119, which excludes employer-provided housing from employees’ incomes in numerous secular circumstances. The Church Alliance has a substantial interest in the validity of Code §107(2) because of the immediate impact on compensation and housing of active clergy in the benefit plans of its member denominations, and also because of the indirect impact on retirement benefits.

Additional Amici

Numerous other churches, associations or conventions of churches, and other religious organizations with religious leaders eligible for the clergy housing exclusion under Code §107(2) were additional signers of the brief, supporting the filing of the Church Alliance’s brief and the positions advocated in it. They included the United States Conference of Catholic Bishops, Central Conference of American Rabbis, General Council on Finance and Administration of The United Methodist Church, Moravian Church, Rabbinical Assembly, Salvation Army, Union for Reform Judaism, United Synagogue of Conservative Judaism, and Wisconsin Council of Churches, among others. The full list of additional signers can be found on pages 1-3 of the Church Alliance Brief.