Court Rejects Atheists' Lawsuit Against Pastors' Tax-Free Housing Allowance

A woman walks out of the Internal Revenue Service building in New York on May 13, 2013.
A woman walks out of the Internal Revenue Service building in New York on May 13, 2013. | (Photo: Reuters/Shannon Stapleton)

An appeals court panel has rejected a Wisconsin-based atheist group's lawsuit against a law that gives clergy an exemption from paying income taxes on their housing allowance.

A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit ruled Thursday against the Freedom From Religion Foundation of Madison's lawsuit.

Reversing a lower court decision from last year, the panel unanimously concluded that FFRF "lacks standing to challenge" the housing allowance law.

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According to the panel, this lack of standing was apparent in that the FFRF had never officially asked for the exemption and thus had not been denied it.

"We therefore do not reach the issue of the constitutionality of the parsonage exemption," decided the Seventh Circuit panel.

"The plaintiffs here argue that they have standing because they were denied a benefit (a tax exemption for their employer-provided housing allowance) that is conditioned on religious affiliation," continued the panel.  ... "This argument fails, however, for a simple reason: the plaintiffs were never denied the parsonage exemption because they never asked for it. Without a request, there can be no denial."

"The judgment of the district court is vacated and the case remanded with the instructions to dismiss the complaint for want of justification."

In 2011, FFRF filed a lawsuit against the Internal Revenue Service over 26 U.S. Code § 107, a provision that allows for an exemption for a parsonage.

"In the case of a minister of the Gospel, gross income does not include … the rental value of a home furnished to him as part of his compensation," reads the U.S. Code § 107 section. "[Or] the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities."

Last November, U.S. District Judge Barbara Crabb of Wisconsin ruled in favor of the FFRF lawsuit, arguing that 26 U.S. Code § 107 gave "a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise."

Crabb argued that the defendants could not justify how paying taxes on a housing allowance is more burdensome for ministers than millions of others who must pay taxes on income used for housing expenses.

Regarding the Seventh Circuit panel's overruling of Crabb, FFRF Co-President Dan Barker stated Thursday that the issue was not resolved.

"We will continue to challenge this indefensible favoritism for religion in other forums until the issue cannot be circumvented," said Barker.

Family Research Council President Tony Perkins, whose organization oversees a pastors' network of about 40,000 clergy, said in a statement that he "welcomed" the decision.

"We commend the 7th Circuit for holding accountable a judge whose name became virtually synonymous with religious harassment when she tried to strike down the National Day of Prayer as unconstitutional four years ago," said Perkins. "What's more, the Supreme Court has already made it clear that these sorts of tax laws don't injur anyone, which is why Judge Crabb's decision ended the same way as her last attack on religion: in embarrassment."

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