November 25, 2013

Court Holds That Tax Code's Parsonage Allowance Violates Establishment Clause

In Freedom From Religion Foundation, Inc. v. Lew(WD WI, Nov. 22, 2013), a Wisconsin federal district court held unconstitutional Internal Revenue Code Sec. 107(2) that excludes from gross income a minister's parsonage allowance. The court held that the exclusion "violates the establishment clause under the [U.S. Supreme Court's] holding in Texas Monthly, Inc. v. Bullock... because 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."
Religion Clause blog  link

On Thursday, U.S. District Judge Barbara B. Crabb for the Western District of Wisconsin issued a strong, 43-page decision declaring unconstitutional the 1954 “parish exemption” that allows “a minister of the gospel” to not pay income tax on a specific portion of their compensation. About her decision Crabb wrote: “Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility. It is important to remember that the establishment clause protects the religious and nonreligious alike.” The decision could have far-reaching financial ramifications for pastors, who currently can use the untaxed income to pay rental housing costs or the costs of homeownership, including mortgage payments and property taxes.