Paul L. Caron

Sunday, October 28, 2018

7th Circuit Hears Oral Argument In Appeal Of District Court Ruling That § 107 Housing Allowance For 'Ministers Of The Gospel' Violates The Establishment Clause

Wall Street Journal, Religious Groups, Atheists Clash Over Tax-Free Housing for Clergy:

A lawyer for religious groups on Wednesday defended in federal court a 64-year-old tax break that grants priests, rabbis and imams tax-free housing allowances—costing the Treasury of hundreds of millions of dollars a year.

A district judge in Wisconsin last year sided with a group that backs the separation of church and state, ruling that the law discriminates against other taxpayers and violates the Constitution “because a reasonable observer would view the statute as an endorsement of religion.”

On Wednesday, the two sides argued the case before the Seventh Circuit Court of Appeals in Chicago.

At stake is section 107(2) of the Internal Revenue Code, passed by Congress in 1954, allowing a “minister of the gospel” to exclude from his gross income the “rental allowance paid to him as part of his compensation.” The law has been interpreted to include rabbis, imams and other religious figures.

The tax break, commonly called the parsonage exemption, reduces federal revenue by $700 million a year, according to estimates from Congress’s Joint Committee on Taxation. ...

Some tax-law experts have also said the tax break for clergy is unconstitutional. Prof. Adam Chodorow of Arizona State University said the tax exclusion has received little pushback because of how costly it is to litigate a public-interest lawsuit.

Prof. Chodorow, who argued in court on Wednesday, said the benefit has been stretched to faculty at religiously affiliated schools. “I don’t think that the parsonage exemption is bankrupting America, but it’s money we could be using for other important purposes,” he said.

Prior TaxProf Blog coverage:

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Well, of the 14 current judges on the COA, you've got 12 (R) appointments. We'll see how this goes.

Posted by: Tom N. | Oct 28, 2018 12:15:52 PM

If this exclusion disappeared from the law, I wonder if the fisc would really gain $700 million? Many benefiting now from Sec. 107 might still end up qualifying for income exclusion under Sec. 119 dealing with meals and lodging furnished for the convenience of the employer.

Posted by: Joseph W. Mooney III | Oct 29, 2018 9:31:44 AM