Since 1954, churches have been allowed to assist their pastors and ministers with housing costs by providing a tax-exempt housing allowance. A recent ruling in a Wisconsin lawsuit is doing its best to reverse this 60-year precedent, subjecting America’s religious leaders to an increase of $800 million in taxes a year.
Currently under the U.S. Tax Code, ministers can exclude the rental value of a home “furnished to him as part of his compensation” or the rental allowance given to him by the church from his gross income when filing taxes.
But the Freedom From Religion Foundation (FFRF), an atheist advocacy group, sued the IRS, arguing that this statute unfairly benefits religious employees at the expense of secular employees.
In her ruling, district court judge Barbara Crabb found that churches do not face “significant government interference” when ministers are forced to pay taxes on this crucial benefit. She therefore ruled that the statute violates the Establishment Clause of the First Amendment (“Congress shall make no law respecting an establishment of religion…”) by providing unfair financial assistance to a religious group.
But here’s what Judge Crabb failed to acknowledge: The First Amendment also protects the free exercise of religion.
This is why the government has a long history of leaving churches alone in regard to taxes: so they can function independently from the government. Striking down this tax exemption opens the door for the government to interfere in church operations, which in turn violates the Free Exercise Clause of the First Amendment (“Congress shall make no law… prohibiting the free exercise [of religion].”).
There is a balance between the Establishment Clause and the Free Exercise Clause, and tax exemption provides a compromise that protects the free exercise of churches while preventing the government from financially supporting a religion. Tax exemption fills the space between the two clauses and accommodates religion by neither establishing nor inhibiting it.
Providing housing for ministers can be integral to a house of worship’s purpose. Rabbis must live within walking distance of the synagogue due to Sabbath restrictions. Muslim imams live close to their mosque so they can lead prayer five times every day. Catholic priests live together in a rectory so they can work and fellowship together.
FFRF flaunted in their press release that “just about every religious denomination in the country” was “bitterly fighting” against the ruling and its implications for their churches. But this merely proves that the housing allowance is vital across denominational lines, and burdening it violates the free exercise of religion for these churches.
The government must maintain its position of neutrality and let churches continue to provide this benefit without the financial burden and government interference of taxation.
Thankfully, while intimidating, this ruling will not take immediate effect, and will undoubtedly be appealed to the Seventh Circuit. To put the appeal in context: this same district court judge declared the National Day of Prayer unconstitutional, and that ruling was overturned by the Seventh Circuit. Furthermore, this is the second time in four years that this judge has struck down the minister’s housing allowance. Last time, the Seventh Circuit overturned her decision, on standing grounds.
Alliance Defending Freedom is monitoring the case and will be active in presenting legal arguments on appeal. We will be fighting to ensure that the rights of churches and pastors to be free from unnecessary government interference are protected.
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