Court Rules to ‘Vacate’ Clergy Housing Allowance Case

“We have good news to share!” said an update from Brethren Benefit Trust (BBT) about a court case that had the potential to seriously affect the tax status of clergy housing allowances. The 7th Circuit Court of Appeals has ruled that the clergy housing allowance case brought by the Freedom From Religion Foundation, Inc. is to be vacated (eliminated) and remanded (sent back) to the US District Court for the Western District of Wisconsin with instructions to dismiss the case. The court ruled that the plaintiffs have no standing to bring a complaint.

The case would have affected ministers in three states–Wisconsin, Illinois, and Indiana–but could have set precedent for the rest of the nation.

“While we celebrate the good news of the 7th Circuit Court’s ruling to dismiss the case brought by the Freedom From Religion Foundation, Inc., we do want to emphasize that the ruling to dismiss was based on the procedural ground of standing,” said a statement from Scott W. Douglas, BBT director of Employee Benefits.

The following excerpt from the court’s decision summarizes this point:

“The plaintiffs here argue that they have standing because they were denied a benefit (a tax exemption for their employer-provided housing allowance) that is conditioned on religious affiliation. This argument fails, however, for a simple reason: the plaintiffs were never denied the parsonage exemption because they never asked for it. Without a request, there can be no denial. And absent any personal denial of a benefit, the plaintiffs’ claim amounts to nothing more than a generalized grievance about § 107(2)’s unconstitutionality, which does not support standing.”

Douglas added, “We will continue to monitor this situation and keep you informed as long as there is a possibility that the FFRF will continue to bring legal challenges to the clergy housing allowance.”

An amicus curiae brief in the case had been filed by the Church Alliance–a coalition of the chief executive officers of 38 denominational benefit programs including BBT. Church of the Brethren general secretary Stan Noffsinger and associate general secretary Mary Jo Flory-Steury, who is executive of the denomination’s Ministry Office, had signed on in support of the brief. BBT president Nevin Dulabaum is the denomination’s representative on the Church Alliance.

The name of the case is Freedom From Religion Foundation, Inc., et al. v. Jacob Lew, et al. (FFRF v. Lew). The US government had appealed a decision by Judge Barbara Crabb, US District Court for the Western District of Wisconsin (November 2013), that Code §107(2) is unconstitutional. Code §107(2), commonly called “clergy housing exclusion” or “clergy housing allowance,” excludes from income taxation the cash compensation provided to “ministers of the gospel” (clergy) toward the cost of their housing.

This section of the IRS code essentially excludes the value of clergy-owned 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 Church Alliance brief focused on the jurisprudential history of permitted legislative accommodations of religion arguing 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.

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