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Court Holds That Parsonage Allowance Is Unconstitutional

12.11.13

Freedom from Religion Foundation, Inc. v. Lew, (DC WI 11/21/2013)

A U. S. District Court in Wisconsin has held that the Code Sec. 107(2) clergy housing (parsonage) allowance is unconstitutional.

Under section 107(2), a member of the clergy can exclude from gross income the rental allowance paid to him as compensation to the extent he uses it to rent or provide a home and to the extent the allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The parsonage allowance exclusion doesn't apply unless the housing is furnished as compensation for acting as a duly ordained, licensed, or commissioned member of the clergy.

Provision violates the establishment clause

The court addressed whether Code Sec. 107(2) violates the establishment clause. The court looked to the holding in Texas Monthly, Inc. v. Bullock, (Sup Ct 1989) to resolve that issue. In that case, the U. S. Supreme Court held that a state statute that exempted religious writings from sales tax was unconstitutional. Based on Texas Monthly, the court found that Code Sec. 107(2) violates the establishment clause. While the Freedom from Religion Foundation case involved an income tax and Texas Monthly involved a sales tax, the court said that the opinions in Texas Monthly placed no particular importance on the type of tax involved and the government did not provide any grounds for distinguishing the two tax types.

In rejecting other arguments, the court agreed with the plaintiffs that Code Sec. 107(2) does not have a secular purpose or effect and that a reasonable observer would view the rule as an endorsement of religion. It also enjoined the government from enforcing it but the injunction will not take effect until the conclusion of any appeals filed by the government or the expiration of the government's deadline for filing an appeal, whichever is later.

Finally the court said that if Congress believes that there are important secular reasons for granting the exemption in Code Sec. 107(2), it is free to rewrite the provision so that it includes ministers as part of a larger group of beneficiaries.