April 2016: Is the Minister Housing Allowance Going Away?

On April 6, 2016, (Case No. 16-CV-215, Western District of Wisconsin) the Freedom From Religion Foundation renewed the court challenge against the tax code § 107 Minister Housing Allowance. The housing allowance has been around for a long time, as one person said, “It has been in place since the Cold War.” 

(A copy of the lawsuit can be found by clicking here)

The tax code is short in the number of words but it bestows on the “ministers of the gospel” an annual tax break in a large number of dollars. The congressional Joint Committee on Taxation has reported that the exemption amounts to $700 million a year in lost revenue to the IRS.

Section 107(1) provides that if a church provides a home for a minister, the minister can live there tax free.  Section 107(2) provides that the church can pay a minister a “rental allowance” and the minister can use this amount to provide himself and his family a home, and the rental value will not be included in the minister taxable income.  (Section 107(2) was added in 1954).     

Several employees from the Freedom From Religion Foundation filed another lawsuit, stating that the housing allowance for ministers unconstitutionally violates the Establishment Clause of the First Amendment.   They stated that it provides a tax benefit exclusively to religious individuals.

The Freedom From Religion Foundation has previously had a case dismissed.  In November 2014, the 7th U.S. Circuit Court of Appeals threw out a case because  “the question of standing” -arguing that Barker and Gaylor hadn't yet sought a refund of their housing allowance from the IRS.

This time, the Freedom From Religion Foundation group has several employees who claimed a housing allowance, which the IRS denied. Now they have “injury,” because the employees pay more tax than a minister would pay. 

What do we know for sure?  Ministers will still be able to claim housing allowance for 2016 under the existing law.

The filing of this NEW case is only the first step.  This case might take several years before a final decision will be made.  The Federal District Court of the Western District will receive briefs and motions from the U.S. Government defending the law. The Western District will eventually make a decision.  After the decision is handed down, regardless of who wins, an appeal will be filed from one side or the other.  More motions and briefs will be filed then with the appellate court.  It could take several years, like the last case, before a final decision is made.      

All we can say right now is “Stay Tuned." We will provide updates as time goes on. 

If you have questions or need advice for addressing your own minister's allowance issues, contact us.