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

Circuit Hears Debate on Clergy Housing Tax Break

It turns out that taxes are not certain -- particularly when it comes to religion.

Judge Barbara Crabb made that point in Gaylor v. Mnuchin, when she said a tax break for the clergy is unconstitutional. Now the U.S. Seventh Circuit Court of Appeals is deciding whether she was right.

The Seventh Circuit did not agree with her when they vacated her decision the first time. This time, the appellants are proceeding on faith that the panel will give them a break.

Tax Break

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 Establishment Clause. The appeals court vacated her decision because the plaintiff did not have standing.

The foundation reorganized, obtained standing, and renewed the challenge. 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)."

Tax Bite

The Internal Revenue Service joined the clergy who intervened in the appeal. Associate Attorney General Jesse Panuccio argued that the housing exemption is necessary to avoid government entanglement in religious affairs.

Attorneys for the clergy said eliminating the housing exemption threatens churches nationwide with about $1 billion in new taxes. Outside the courtroom, Pastor Chris Butler reported to his parishioners.

"Today I asked the court to protect our ability to serve our South Side Chicago community -- our youth, our single mothers, our homeless, our addicted, our lost, and all those who seek a church family," he said in a statement. "I hope the court will keep letting religious leaders like me not only preach from the pulpit, but live among the people we serve."

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