The Minister's Housing Allowance Back Under Attack

By Raul Rivera

You might not be aware, but the Freedom From Religion Foundation is once again challenging the minister’s housing allowance. This coming just two-years after their last attack on the constitutionality of the housing allowance.

From the case two-years ago, the federal government asked the court to dismiss the lawsuit on the basis that the plaintiffs lacked “standing” to continue their claim in federal court.

Thankfully, that’s exactly what the court did, but not before giving the Freedom From Religion Foundation some advice, which has helped rejuvenate their fight once more.

    • What kind of advice did the court give the Freedom From Religion Foundation that day?
    • How might that advice help the Freedom From Religion Foundation with their new case?
    • What can we expect moving forward?
  • And, what might this mean for you and your housing allowance?

These are all questions that will be addressed in this post.

A quick look at the previous case

In their previous case, the Freedom From Religion Foundation (FFRF) filed a lawsuit claiming that “federal income tax exemptions received by ‘ministers of the gospel’...violate the Establishment Clause of the First Amendment.”

In short, the Establishment Clause prohibits the government from establishing an official “state-sponsored” religion, and it prevents the government from taking actions that favor one religion over another. This clause also prohibits the government from preferring religion over non-religion, or non-religion over religion.

This is still the basis of their current lawsuit challenging the minister’s housing allowance.

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In 2014, the appeals court reversed the federal district courts decision because the plaintiffs (FFRF) had no “standing”. In other words, the FFRF was unable to show that they had suffered some direct “injury” as a result of a particular law.

Because of this, the federal appeals court dismissed the initial ruling that deemed the minister’s housing allowance unconstitutional.

However, the court went on to suggest that they may have “standing” were they to pay income taxes on a designated housing allowance, claim a refund from the IRS, and then sue if the IRS rejected or failed to act upon their claims.

What the FFRF did

Apparently the FFRF took what the court said to heart and acted upon their advice; which brings us to today.

Along with the FFRF, there are three individual plaintiffs: Annie Laurie Gaylor and Dan Barker (co-presidents of FFRF), and Ian Gaylor, as executor of the estate of Anne Nicol Gaylor, who was president emerita of FFRF.

These individuals claim that they each received housing allowances designated by the FFRF Executive Council.

Each individual further claims that they included the amount of their designated housing allowances as part of their reported income for the tax years in which the allowance was received, and accordingly, paid taxes on the designated amount.

Each individual then filed amended tax returns, and sought a refund of the income taxes paid on the amounts of their designated housing allowances.

They further claim that, on July 9, 2015, the IRS denied the refunds sought by Annie Laurie Gaylor and Dan Barker, and the IRS has not allowed the refund sought by Anne Nicol Gaylor.

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The case as it stands today

In April of this year, the FFRF filed a lawsuit claiming that the minister’s housing allowance, as described in section 107 of the Internal Revenue Code, “violates the Establishment Clause of the First Amendment to the Constitution of the United States by providing preferential and discriminatory tax benefits to ministers of the gospel.”

Most recently, in its defense of this provision in the tax code, the federal government stated that the “plaintiffs do not have standing to challenge §107(1), and that claim should be dismissed for lack of subject matter jurisdiction.” However, the United States does not contest the plaintiffs’ standing to sue under §107(2).

So, what does this mean?

  1. Well, the federal government is saying that the FFRF does not have a standing to challenge the housing allowance as it pertains to a parsonage provided to a minister (§107(1)).
  2. However, the FFRF does have standing to move forward with its case against the minister’s housing allowance as it pertains the portion of income a minister receives to rent or provide a home.

What to expect moving forward

It is important to note that if the district court rules the minister’s housing allowance unconstitutional, then that ruling will only be effective in those particular states. (This case is taking place in the Seventh Circuit so it would initially pertain to Illinois, Indiana, and Wisconsin.)

In this instance, the federal government will most likely ask for a “stay” while they appeal to the Seventh Circuit Court of Appeals. With a “stay” in place, it means that you will still be able to claim your housing allowance exemption for the time being.

Should the appeals court not overturn the ruling in that instance, then the federal government will most likely ask for another “stay” while they wait for Congress to amend the tax code, thus becoming effective for all ministers across the country.

What ministers should do now

As a minister, if you rent or own your home, then the outcome of this case will have bigger implications on you and your housing allowance.

It will most likely take some time before we see any kind of potential impact from this case since it will be challenged until it runs it course. However, that is not an excuse for you to idly sit by and wait for something to happen.

Now is the time for every minister to do two things:

  1. You need to make sure that you are properly designating your housing allowance. Most churches and ministers do not fully understand it and can get in tax trouble because of it.
  2. Ministers need to get properly educated on what it means to apply for self-employment tax exemption. This exemption is not being challenged, and in my opinion, many ministers qualify for this exemption but do not realize it.

If you have any questions pertaining to the benefits afforded to ministers, give us a call at 877-494-4655 and we’ll be glad to help.

Finally, and above all, pray with the mindset that regardless of the final outcome, our God is still in charge of our lives and we will overcome. After all, we are His church and the gates of hell shall not prevail against us.

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