CHICAGO, IL (May 7, 2014) — The Church Alliance, a coalition of chief executive officers of 38 denominational benefit programs including the Covenant’s, has filed an amicus curiae—friend of the court—brief seeking to overturn a decision by a circuit court judge last year that declared clergy housing allowances to be unconstitutional.
The brief was filed last month in the Seventh U.S. Circuit Court of Appeals (Chicago). To read the brief, click here.
Under the exemption provided under Section 107(2) of the Internal Revenue Code of 1986, ministers do not have to pay federal taxes on housing allowances that are set by an employing church. The exemption can be applied to house expenses and cannot exceed the fair rental value of the property. The exemption applies to ministers, priests, rabbis, imams, and other clergy.
Western District Court of Wisconsin judge Barbara Crabb ruled the exemption unconstitutional 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.” To read the ruling, click here.
The U.S. government is appealing the decision. In its amicus brief, the Church Alliance “adds a perspective not included in the government’s brief, focusing on the jurisprudential history of permitted legislative accommodations of religion,” according to a press release issued by the group.
The Church Alliance argues that the code is in keeping with a parsonage exclusion and that the code also “excludes employer-provided housing from employees’ income in numerous secular circumstances.”
Crabb ordered the IRS and Department of the Treasury to not enforce her decision to give time for appeals, but she wrote that the ruling “shall take effect at the conclusion of any appeals . . . or the expiration of the deadline for filing an appeal, whichever is later.”
If the Seventh Circuit, which previously overturned a ruling by Crabb that declared the National Day of Prayer unconstitutional, upholds her current decision, the ruling would apply only to clergy in Wisconsin, Indiana, and Illinois. Any Supreme Court decision would apply throughout the country.
In a Covenant News Service story published after the ruling, Elliott Johnson, controller for the Covenant, said congregations and ministers should continue to designate housing allowances but also consider the financial impact if the Supreme Court upholds the ruling and Congress does not come up with a legislative relief.
Johnson said taking away the exemption could significantly reduce income for active ministers and pensioners. He added that many pastors have made major financial decisions such as purchasing a home based on the housing allowance.
Tax law related to ministers can be confusing and some tax law negatively affects clergy. For example, even if ministers are employees of a church or other religious institution, they are considered self-employed for Social Security. Therefore, ministers pay the entire 15.3 percent self-employment tax on gross earnings. Most employers split the Social Security and Medicare tax rate so that each pays 7.65 percent.
The alliance includes mainline Protestant denominations, two branches of Judaism, and Catholic dioceses, schools, and institutions. The programs provide retirement and health benefits to more than one million clergy, lay workers, and their family members.