Clergy Housing Allowance

Housing Allowance Under Scrutiny

Housing Allowance Deduction For Ministers Under Scrutiny

A federal judge in the U.S. District Court for the Western District of Wisconsin has recently ruled that the housing allowance tax exemption that ministers currently receive is unconstitutional.

The federal tax code provides that “ministers of the gospel” may exempt from income the amount paid to them for their housing. The Freedom from Religion Foundation (“FFRF”) filed the suit alleging that the housing allowance exemption violates the establishment clause of the First Amendment and the equal protection component of the Fifth Amendment. The group alleges that if tax-exempt religious groups are allowed such an exemption, non-religious tax-exempt groups, such as FFRF, should receive it as well.

U.S. District Court Judge Barbara Crabb ruled in favor of FFRF, finding that the 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.”  Judge Crabb did, however, stay the enforcement of its ruling pending an inevitable appeal.  The case has been appealed to the 7th Circuit Court of Appeals based in Chicago.

What makes this ruling so important is that the housing allowance exemption is not the only law that provides a benefit specifically to ministers or religious organizations. A ruling striking down the housing allowance exemption as an unconstitutional preference for religion could have far-reaching effects. With that said, currently the ruling has no immediate impact as a result of it being stayed. We will continue to monitor the appeals as well as any derivative effects of the ruling.