Clergy housing allowance survives another challenge

The Seventh Circuit Court of Appeals recently dismissed another constitutional challenge to the clergy housing allowance.  The lawsuit by the Freedom From Religion Foundation argued that the clergy housing allowance violated the First Amendment.  The Court of Appeals held that the FFRF did not have standing because it had not been specifically injured.

The housing allowance allows a minister to exclude from taxable income the value of a parsonage provided by the church or a portion of compensation up to the least of actual housing expenses, the fair rental value of the home, or the amount designated.  It is a significant tax benefit limited to pastors, priests, imams, rabbis, and other religious leaders.

The U.S. District Court in Wisconsin agreed with the FFRF that the exclusion for certain cash compensation was unconstitutional, but stayed the enforcement of the decision pending appeal so that even ministers in Wisconsin could still claim the housing allowance.  The IRS appealed.

The Court of Appeals held that because FFRF had not specifically claimed the housing allowance and been denied, it had not been injured and therefore did not have “standing” to challenge the statute.  The court therefore avoided a decision on the constitutionality of the statute.

In deciding the case, the Court of Appeals gave instruction to FFRF on how to try again: claim the housing allowance for one of its leaders, have the IRS deny it, and then file suit.  If and when that happens, a court will again face the issue.  Until then, the housing allowance survives as an important tax benefit for ministers.