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Friday, March 23, 2012

Zelinsky: The Constitutionality of the § 107 Parsonage Allowance

Edward A. Zelinsky (Cardozo), Do Religious Tax Exemptions Entangle in Violation of the Establishment Clause? The Constitutionality of the Parsonage Allowance Exclusion and the Religious Exemptions of the Individual Health Care Mandate and the FICA and Self-Employment Taxes:

In Freedom From Religion Foundation v. Geithner, the Freedom From Religion Foundation (FFRF) argues that § 107 and the income tax exclusion that section grants to “minister[s] of the gospel” for parsonage allowances violate the Establishment Clause of the First Amendment. This case has important implications for a new federal law mandating that individuals maintain “minimum essential” health care coverage for themselves and their dependents. That mandate contains two religious exemptions. One of these exemptions incorporates a pre-existing religious exemption from the federal self-employment tax. These sectarian exemptions raise the same First Amendment issues as does the Code’s exclusion from gross income of clerical housing allowances.

I ultimately find unpersuasive the indictment of § 107 as constitutionally entangling. For the same reasons, I also conclude that the religious exemptions of the Social Security taxes and of the individual health mandate pass First Amendment muster. In the modern world, extensive contact between tax systems and religious institutions is unavoidable. Whether religious entities and actors are taxed or exempted, there are inevitable tensions between the contemporary state and sectarian institutions and their personnel. Whether religious entities and actors are taxed or exempted, there are no disentangling alternatives, just imperfect trade-offs between different forms of entanglement.

Thus, § 107 and the exclusion from gross income it grants to clerical recipients of housing and parsonage allowances are constitutionally permitted, though not constitutionally required, responses to the problems of entanglement inherent in the relationship between modern government and religion. Similarly, the Code’s sectarian exemptions from the individual health care mandate and from the FICA and self-employment taxes are acceptable, though not obligatory, means under the First Amendment of managing the inevitable contacts and tensions between the contemporary state and the religious community.

However, as a matter of tax policy, the exclusion of § 107(2) for cash parsonage allowances stands on weaker ground than does the exclusion of § 107(1) for in-kind housing provided to “minister[s] of the gospel.” The taxation of such cash allowances, in contrast to the taxation of housing provided in-kind, does not involve problems of valuation or of taxpayer liquidity and is thus more practicable as a matter of tax policy.

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I disagree with Zelinsky on the constitutional issue as to IRC 107.

Without having to consider any religious issues, the Government would be able to tax the "minister's" dollar of income the same as the non-minister's dollar is taxed. Some "minister's" may even still qualify for a housing exclusion under IRC 119.

IRC 107 requires Government bureaucrats to pick and choose who qualifies as a "minister" and when the "minister's" dollar comes from a source religious enough for special tax free treatment (e.g., the public school basketball coach who is also a minister can't have tax free housing, but his counterpart "basketball minister" at a private school like Pepperdine University can have one). That's "excessive" entanglement.

Even if Zelinsky were correct regading entanglement, IRC 107 fails to meet the "secular legislative purpose" test and the "primary effect of advancing religion" test.

It's time for the Court to accept jurisdiction and rule on the constitutional merits of IRC 107.

Posted by: Robert Baty | Mar 26, 2012 2:17:01 PM

I liked Zelinsky's analysis that there is no way to avoid entanglement when dealing with taxes and religious organizations. Either you tax them which is entangling or you exempt them and you have the border problem.

The worst abuses of 107 could be fixed by putting a dollar limit on cash allowances.

Posted by: Peter Reilly | Mar 28, 2012 2:47:39 PM