U. S. District Judge Barbara Crabb issued a ruling on October 6 declaring the ministerial housing allowance to be unconstitutional. This was the second time that she has issued such a ruling, the first coming in 2013. The lawsuit was brought by the Freedom from Religion Foundation (FFRF) challenging that excluding the housing allowance from taxable income is unfairly biased toward religious leaders.
Judge Crabb ruled in part that the housing allowance exemption “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.” This is the same conclusion she reached in 2013 but was overruled by the Seventh Circuit Court of Appeals on the grounds that FFRF lacked standing to sue since no one affiliated with that foundation had ever filed for a housing allowance exemption from the IRS. During the intervening years at least two employees of FFRF have done just that. Therefore, Judge Crabb essentially invoked her previous ruling since she believed that the FFRF now had standing to bring the lawsuit.
The law in question is 26 U.S. Code § 107, which reads:
In the case of a minister of the gospel, gross income does not include—
(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
Of particular importance is the second paragraph which allows ministers to exclude a portion of their income that is used to provide for a home when a church does not provide a parsonage. Prior to 1954, ministers could only exclude from taxable income the fair rental value of a parsonage provided by the church. The Internal Revenue Service code was amended by Congress in 1954 to allow the same exemption for ministers who provided their own housing.
Judge Crabb believes this is an unfair benefit for ministers that does not also apply to non-ministerial employees. She writes, “Ministers receive a unique benefit under § 107 (2); it is not, as defendants suggest, part of a larger effort by Congress to provide assistance to employees with special housing needs. 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.”
Much of the defendants’ case is built upon the idea that ministers have a unique challenge for housing because they are expected to live in the general vicinity of their churches and be on call at all hours of the day. Similar housing allowance deductions are given to federal employees working overseas and members of the military. Judge Crabb rejected this argument in her decision.
Another element of the defendants’ case addresses the ecclesial differences among denominations. Not all denominations have a practice of providing parsonages, and some do not provide them for theological reasons. Joe Carter offers a good summary of this distinction as he writes, “The parsonage exemption, for instance, provides a preference for institutional churches whose ecclesiastical properties are owned by a central governing body (e.g., Roman Catholic). Smaller, independent, local churches often have less money to provide a parsonage. It also presents a bias in favor of wealthy, established churches over younger congregations and church startups. Many church plants that can’t afford a church building would be unable to afford to buy a parsonage.”
The similar case from 2013 was ultimately overturned by the Seventh Circuit Court of Appeals, but a similar outcome may not happen this time. The case will undoubtedly be appealed to the same appellate court, but the issue of standing will not be in play this time. In an interview with Baptist Press, Mississippi College law professor Matt Steffey states that the precedent of interpretation of the establishment clause by the Supreme Court may bind lower courts to decide in the same way that Judge Crabb did. This could lead to a showdown at the nation’s highest court.
Why should we care about the future of the ministerial housing allowance? First, many ordained ministers depend upon this tax benefit to make ends meet. When churches are unable to provide adequate income, this tax deduction may make it possible for ministers to stay at a church. In fact, many churches include a housing allowance as part of an overall compensation package.
Second, the focus on the ministerial housing allowance is likely the first step in a larger plan to remove even more significant tax benefits that churches receive. The next set of lawsuits may attempt to overturn property tax exemptions for churches. If churches were not able to claim property tax exemptions, many would have to close their doors rather than pay large tax bills for commercial property.
Third, there is a growing trend to view churches as value-neutral institutions for a community. However, churches have been viewed historically as providing great value to communities. They often meet the needs of the sick and poor without placing a burden upon tax payers. They are organizers for community service to benefit their neighborhoods and cities. They provide a moral foundation for their members that often make them better citizens of the community. Viewing churches as value-neutral is shortchanging the role of churches.
As this case progresses through the appeals process, we may see significant changes for ministers and churches.
 Joe Carter, “Explainer: Why clergy get tax-free housing,” Ethics & Religious Liberty Commission, October 12, 2017.
 David Roach, “Clergy housing allowance struck down again,” Baptist Press, October 9, 2017.