Minister's Housing Allowance Again Declared Unconstitutional

October 7, 2017

The minister’s housing allowance provided by IRC § 107(2) has again been declared unconstitutional by the United States District Court for the Western District of Wisconsin. And this time it is likely that the United States Court of Appeals for the Seventh Circuit will rule on the merits of the challenge to this provision, rather than dismiss the case for lack of standing. The case is Gaylor  v. Mnuchin, No. 16-cv-215-bbc (W.D. Wisc. Oct. 6, 2017).

Prior Case

The case is the second bite at the apple for the Freedom from Religion Foundation (Foundation), which argues that the parsonage allowance is an unconstitutional establishment of religion in violation of U.S. Const. amend. I. In 2013, the same district judge, Barbara Crabb, ruled in favor of the plaintiffs and declared § 107(2) unconstitutional because it benefitted “religious persons and no one else.[i] The Seventh Circuit, however, vacated the decision on the ground that the plaintiffs did not have standing to sue.[ii] In the first case, the plaintiffs had not been denied a claimed exemption.


This round, however, the plaintiffs,members of and co-presidents of the secular Foundation, filed amended returns in which they designated a housing allowance as an exclusion of income and sought a partial refund of taxes they paid. For 2013, the IRS allowed the refund, without explanation (oops!). The plaintiffs tried again, this time for tax year 2012. Since they were wanting IRS to deny the exclusion so they could file this lawsuit, they left nothing to chance. They stated on their return that they were “not clergy” and that their “employer is not a church,” but that they believed “it is unfair that ministers can exclude housing while we cannot.” This time, IRS disallowed their claim, with the final IRS response coming two months after the plaintiffs filed this second lawsuit.

The plaintiffs’ lawsuit challenges the constitutionality of IRC § 107(2), which excludes from the gross income of a “minister of the gospel” a “rental allowance paid to him as part of his compensation.” Specifically, the plaintiffs allege that the provision discriminates against secular employees and violates both the establishment clause of the First Amendment and the equal protection component of the Fifth Amendment. The challenge brought by the plaintiffs to § 107(1), which excludes from a minister's gross income “the rental value of a home furnished to [the minister] as part of his compensation,” was dismissed for lack of standing.

District Court Says Unconstitutional

In this second lawsuit, the district court first found that the plaintiffs had standing to challenge IRC § 107(2) because they had asked for an exemption, which was denied. The court then ruled that § 107(2) 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.

The government (and several defendant intervenors) argued that the statute was an effort by Congress to treat ministers fairly and avoid religious entanglement, but the district court disagreed. The court agreed that the desire by Congress to alleviate financial hardship on taxpayers was a legitimate purpose. However, the court found that it was not a secular purpose because Congress eliminated the burden for a group of religious employees but maintained it for nearly everyone else. This discrimination, the court said, violates the establishment clause. The court quoted extensively from its 2013 opinion in making its decision.

The court also rejected the government’s contention that the secular justification for § 107(2) was for the “convenience of the employer.” The court noted that § 107(2) was unnecessary to accomplish that purpose because IRC § 119 and § 280A(c)(1) extended the “convenience of the employer” housing deduction to anyone who could meet the relevant requirements, including ministers. The found that it was not permissible for Congress to extend this doctrine through § 107(2) to only religious ministers in a way that eliminated any requirement to show that their housing was for the convenience of the employer. The court noted that § 107(2) applies to all ministers who receive a housing allowance, regardless whether the minister’s home is ever used for church purposes or whether the minister’s choice of home is restricted by the church in any way. The court also rejected the government’s argument that § 107(2) was about insuring equal treatment among all religions, rather than eliminating discrimination between ministers and secular employees. The court ruled that government may not eliminate a perceived disparity among religions by creating (or exacerbating) a disparity between religious persons and secular persons.

The court pointed out that an evangelist with a multimillion dollar home is entitled under § 107(2) to deduct the entire rental value of that home, even if it is not used for church purposes. The court concluded that the effect of § 107(2) is to provide financial assistance to one group of religious employees without any consideration to the secular employees who are similarly situated to ministers.

The court suggested that Congress could have accomplished its goals by allowing any of the following groups to exclude housing expenses from their gross income: (1) all taxpayers; (2) taxpayers with incomes less than a specified amount; (3) taxpayers who live in rental housing provided by the employer; (4) taxpayers whose employers impose housing-related requirements on them, such as living near the workplace, being on call or using the home for work-related purposes; or (5) taxpayers who work for nonprofit organizations, including churches. What Congress could not do, the court concluded, was single out religious persons for preferential treatment without a secular basis, which it has done.

The court thus entered summary judgment in favor of the plaintiffs and declared that § 107(2) 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. The court stopped short of issuing injunctive relief, asking parties to file supplemental materials regarding what additional remedies are appropriate. The court also asked the parties to address whether such relief should be stayed pending a potential appeal.

What Does This Mean?

It is likely that the court will ultimately enjoin the law, but stay the relief pending appeal to the Seventh Circuit. This time, the higher court will likely rule on the merits. For now, ministers may continue to claim the housing allowance.

But we’ll keep watching.


[i] Freedom from Religion Foundation, Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis. 2013).

[ii] Freedom from Religion Foundation, Inc. v. Lew, 773 F.3d 815 (7th Cir. 2014).


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