District Court: § 107 Housing Allowance For 'Ministers Of The Gospel' Violates The Establishment Clause

Gaylor v. Mnuchin, No. 16-cv-215 (W.D. WI Oct. 6, 2017):

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.” (Although the phrase “minister of the gospel” appears on its face to be limited to Christian ministers, the Internal Revenue Service has interpreted the phrase liberally to encompass certain religious leaders of other faiths as well. ...

As to the merits, I will deny defendants’ motions for summary judgment and grant summary judgment in plaintiffs’ favor. 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.

Under my view of the current law, that type of discriminatory treatment violates the establishment clause. This conclusion makes it unnecessary to consider plaintiffs’ alternative argument that § 107(2) violates the equal protection component of the Fifth Amendment.

Conclusion
Having considered all of the arguments advanced by defendants, I am not persuaded either that it was an error to conclude in Lew that § 107(2) is unconstitutional or that any new facts or law support a different conclusion. Defendants’ stated concerns about treating religions equally and avoiding entanglement do not find any support in the facts or the law. Thus, any reasonable observer would conclude that the purpose and effect of § 107(2) is to provide financial assistance to one group of religious employees without any consideration to the secular employees who are similarly situated to ministers. Under current law, that type of provision violates the establishment clause.

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 I have discussed throughout this opinion, Congress could have enacted a number of alternative exemptions without running afoul of the First Amendment. For example, Congress could have accomplished a similar goal by allowing any of the following groups to exclude housing expenses from their gross income: (1) all taxpayers; (2) taxpayers with incomes less than a specified amount; (3) taxpayers who live in rental housing provided by the employer; (4) taxpayers whose employers impose housing-related requirements on them, such as living near the workplace, being on call or using the home for work-related purposes; or (5) taxpayers who work for nonprofit organizations, including churches. Or some of these categories could be combined. One commentator has suggested that § 107 be amended to apply to taxpayers who work for tax exempt organizations under § 501(c)(3) and are on call at all times. Ellen P. Aprill, Parsonage and Tax Policy: Rethinking the Exclusion, 96 Tax Notes 1243 (Aug. 26, 2002).

Of course, these suggestions are not exhaustive. Congress retains wide discretion in adopting tax laws that further its legitimate policies. What Congress may not do is single out religious persons for preferential treatment without a secular basis for doing so, as it has done in § 107(2).

• Peter J. Reilly (Forbes), Clergy Housing Tax Break Ruled Unconstitutional — Again

Prior TaxProf Blog coverage:

• Clergy Ask Court To Reject Atheist Lawsuit Against § 107 Housing Allowances For 'Ministers Of The Gospel' (Dec. 18, 2016)
• Atheists Try Again To Strike § 107 Housing Allowance for 'Ministers of the Gospel' (Apr. 10, 2016)
• 7th Circuit Rejects Constitutional Challenge to § 107 Housing Allowance for 'Ministers of the Gospel' on Standing Grounds (Nov. 13, 2014)
• District Court Dismisses Atheists' Challenge to Tax Benefits for Churches and Clergy (May 22, 2014)
• Edward A. Zelinsky (Cardozo), The First Amendment and the Parsonage Allowance, 142 Tax Notes 413 (2014) (Jan. 30, 2014)
• DOJ Appeals Invalidation of § 107 Housing Allowance for 'Ministers of the Gospel' (Jan. 26, 2014)
• District Court: § 107 Housing Allowance for 'Ministers of the Gospel' Violates the Establishment Clause (Nov. 24, 2013)
• Edward Zelinsky (Cardozo), The Constitutionality of the § 107 Parsonage Allowance (Mar. 23, 2012)
• District Court Allows 1st Amendment Challenge to § 107 Parsonage Allowance to Proceed to Trial (May 24, 2010)
• John Dorocak (Western State), The Income Tax Exclusion of the Housing Allowance for Ministers of the Gospel Per I.R.C. § 107: First Amendment Establishment of Religion or Free Exercise Thereof -- Where Should the Warren Court Have Gone?, 54 S.D. L. Rev. 233 (2009) (June 20, 2009)