U.S. Seventh Circuit - The FindLaw 7th Circuit Court of Appeals Opinion Summaries Blog

Judge Says Tax Break for Clergy Unconstitutional

Judge Barbara Crabb is the kind to say, 'I told you so.'

In 2013, she said a tax break for clergy housing was unconstitutional. Four years and one appeal later, she said it again.

In a 47-page decision designed to withstand another appeal, the federal judge basically said, "Didn't you hear me the first time?"

Parson's Allowance

Under 26 U.S.C. Section 107(2), clergy may exclude from their income compensation they receive for rental payments, utilities and other housing-related expenses. The law has been around since 1954, and it applies to a "minister of the gospel."

The Freedom from Religion Foundation challenged the law in 2013, and Crabb said it violated the First Amendment. The U.S. Seventh Circuit Court of Appeals vacated her decision, however, because the plaintiff did not have standing.

The foundation reorganized to obtain standing and renewed the challenge. In Gaylor v. Mnuchin, Crabb repeated her reasoning from the first time she struck down the law.

"Congress retains wide discretion in adopting tax laws that further its legitimate policies," she said. "What Congress may not do is single out religious persons for preferential treatment without a secular basis for doing so, as it has done in §107(2)."

"I" Told You So

Crabb, who writes in the first person, dug deep into religious tax exemption history to conclude that Congress impermissibly favored religion in the legislation. Among other quotes, she found a jewel from Congressman Peter Mack, Jr. in the record:

"Certainly, in these times when we are being threatened by a godless and anti-religious world movement we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this," Mack said. "Certainly this is not too much to do for these people who are caring for our spiritual welfare."

Crabb also told Congress how it could remedy the disparate tax treatment. Give everybody the tax break, she suggested.

Peter Reilly, writing for Forbes after Crabb ruled the first time, said the last time the parsonage exclusion was challenged legally, Congress responded by amending the IRS code. That mooted the case.

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