Updated Oct. 10, 3:40 p.m.
A district judge decided Oct. 6 that an income tax exemption for clergy housing is unconstitutional because it favors religious employees over similarly situated secular employees.
“Under current law,” U.S. District Judge Barbara Crabb wrote in the ruling, “that type of provision violates the establishment clause.”
This is the second time Crabb, who serves the United States District Court for the Western District of Wisconsin, has ruled against the tax break for ministers. The first came in 2013, but was overturned the following year in appeals court.
The parsonage exclusion, enacted in 1954, allows ministers to exempt payments designated as housing allowance from their taxable income. It saves clergy an estimated $800 million annually, according to Christianity Today.
“This ruling is a sad development that represents a needless challenge to hard-working pastors devoted to serving their communities,” Russell Moore, president of the Ethics & Religious Liberty Commission, said in a press release.
“More still, this ruling is wrong: the housing allowance is in no sense the government establishing religion. The allowance is neutral, applies indiscriminately to all religions and removing it would disproportionately harm clergy in small congregations across the country. We will continue to fight to protect the housing allowance, because we believe clergy are essential for flourishing, vibrant communities.”
Annie Gaylor and Dan Barker, married co-presidents of an atheist group, Freedom From Religion Foundation, filed a legal complaint after the Internal Revenue Service (IRS) denied their attempt to claim a housing allowance as an exclusion on an income tax return.
The IRS argued the housing exemption applies to “ministers of the gospel,” a historically Christian phrase the agency interprets to include clergy of other faiths. Gaylor and Barker are not clergy and not employed by a church, according to letters cited in the ruling.
The case is known as Gaylor v. Mnuchin.
O.S. Hawkins, president of GuideStone Financial Resources, said “The housing allowance, far from being a government endorsement of religion, as Judge Crabb contends, actually removes government from the equation. Were it not for the housing allowance, the government would be imposing a tax on religious employers and their employees that is not imposed on non-religious employers.”
GuideStone has monitored this case and its predecessor, said Hawkins in a press release, and will file a friend-of-the-court brief on appeal with a coalition of similar organizations.