Parsonage Exemption Ruled Unconstitutional

-Submitted by David Drumm (Nal), Guest Blogger

The “parsonage exemption” is found in 26 U.S. Code § 107 and states that a “minister of the gospel” does not have to include in his gross income, either the rental value of a home furnished to him or the rental allowance paid to him. Judge Barbara Crabb of the U.S. District Court for the Western District of Wisconsin has held that the “parsonage exemption” is unconstitutional. Crabb wrote in the decision that the tax exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”

The suit was brought by the Freedom From Religion Foundation (FFRF) on behalf of plaintiffs Annie Laurie Gaylor and Dan Barker, both officers at FFRF. The defendants in the case were the Secretary of the Treasury and the (acting) Commissioner for the IRS.

This case is interesting from a “standing” point of view. In order for a plaintiff to have standing to bring suit in federal court, it must be shown:

1) An injury has been suffered in fact,

2) The injury is due to the defendants’ conduct, and

3) The relief sought in the complaint would address the injury.

To address 1), the clever scamps at FFRF started paying the two plaintiffs housing allowances. The injury suffered would be their non-entitlement to the exemption to the tax break, and the injury is certainly due to defendant’s conduct.

The government argued that the plaintiffs did not actually file a claim with the IRS and until that claim is denied, the plaintiffs have not suffered an injury. The Court found:

… that there is no plausible argument that the individual plaintiffs could qualify for an exemption as “ministers of the gospel,” so it would serve no legitimate purpose to require plaintiffs to claim the exemption and wait for the inevitable denial of the claim.

Bullet point 3) is where the Catch-22 comes into play. Even if the Court was to render a favorable decision and declare the exemption unconstitutional, the plaintiffs still could not receive the exemption and their injury would not be redressed.

However, the Court noted that “a discriminatory tax exemption may be redressed by eliminating the exemption for everyone.” In Heckler v. Mathews (1984), J. Brennan wrote in the opinion for a unanimous Supreme Court:

Consistent with Justice Brandeis’ explanation of the appropriate relief for a denial of equal treatment, we have often recognized that the victims of a discriminatory government program may be remedied by an end to preferential treatment for others.

Crabb also wrote:

Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility.

It has been estimated that the “parsonage exemption” has cost the government $2.3 billion over a five year period. Plaintiff Gaylor observed: “When you’re dealing with some of these mega-church pastors with huge mansions, they can be paid an enormous amount in housing allowances.”

The judge stayed the implementation of the ruling during the appeal process.

H/T: Mano Singham, Peter J. Reilly, Doug Erickson, Jerry A. Coyne.

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