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Federal Judge: Housing Tax Break for Clergy Violates Establishment Clause

Churches and religious organizations get some perks when it comes to paying taxes. In fact, 501(c)(3) organizations can be tax exempt, if they follow certain rules. And members of the clergy can get certain tax breaks as well. Or at least they could before a recent federal court ruling in Wisconsin.

The "parsonage allowance" allowed a pastor or "minister of the gospel" to exclude mortgages, utility bills, and other housing-related expenses from gross income on their tax returns. But last week U.S. District Judge Barbara Crabb ruled the allowance "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." The only question is what the IRS and members of the clergy will do now.

Freedom From Taxes

The Freedom From Religion Foundation (FFRF), a nonprofit organization dedicated to the separation of church and state, claimed the tax break discriminates against secular employees in violation of the First Amendment's establishment clause and the equal protection component of the Fifth Amendment.

"Although defendants try to characterize § 107(2) as an effort by Congress to treat ministers fairly and avoid religious entanglement," Judge Crabb explained, "the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees." Such a preference, especially based on religious affiliation or employment, is unconstitutional according to her ruling. "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."

Religion-Free Remedy?

While the ruling could mean $1 billion in new taxes, the court declined to rule on a remedy, instead asking the parties to file supplemental briefs regarding which remedies might be appropriate."I am reluctant to make a definitive determination regarding the appropriate remedy," Judge Crabb wrote, "because none of the parties developed an argument in favor of a refund, a particular injunction or both or otherwise developed an argument regarding what the court should do in the event that it concludes that § 107(2) is unconstitutional."

Until then, the IRS and the clergy will remain in legal limbo, or purgatory if you prefer.

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