The 7th U S Circuit Court of Appeals has dismissed a lawsuit by the Freedom From Religion Foundation (FFRF) that challenged the constitutionality of the clergy housing allowance. The suit was originally brought in the District Court for the Western District of Wisconsin where Judge Barbara Crabb ruled that the tax break for ministers was unconstitutional. Her basis for the ruling was that the law benefited religious people and no one else. The decision, which would potentially eliminate the most important tax break for ministers, was stayed pending appeal.
The law allows ministers of the gospel to exclude income tax on amounts designated by the church as housing allowance. Self-employment taxes are payable on these amounts. In addition, ministers may “double dip,” as they are allowed to deduct mortgage interest and property taxes paid on this untaxed income on their Schedules A.
In reversing Judge Crabb’s decision the appeals court ruled 3-0 against the decision. The basis for this ruling was that the plaintiff lacked standing to bring suit on this matter. The court stated that the FFRF has only a general grievance against the rule and has not suffered a personal injury because of the law. The plaintiffs had not been denied the housing allowance because they never asked for it. Judge Crabb, in her ruling, stated that there was no legitimate purpose served by making the plaintiffs go through the effort of claiming the exemption, since they are not ministers of the gospel and would clearly have the claim denied.
It appears to be unlikely that the case will be appealed to the Supreme Court, or that the Supreme Court would hear such an appeal. However, the FFRF is likely to seek another approach to strike down this legislation. Annie Laurie Gaylor, co-president of FFRF stated that the foundation will continue to seek a way to bring down the housing allowance.
So the housing allowance survives for now. Stay tuned to see what the FFRF has up their sleeves next.
Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.
Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.
He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.
1 comment on “Appeals Court Upholds Clergy Housing Exemption”
Great decision by a wise court. Circuit court should have realized same thing. I wish the stupid atheists and other anti-religion groups would just go away and mind their own dam business and stop trying to obstruct religion. They aren’t being “harmed” in any way by religious practices, so just bug off and go away.
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