A federal district court judge in Wisconsin, as expected, has entered a final order declaring the minister’s housing allowance unconstitutional. The Dec. 13 order, however, has been stayed for 180 days after all appeals are exhausted, meaning it currently does not have any impact.
Observers expect the government to appeal the order by Judge Barbara Crabb of the Western District of Wisconsin, who issued her ruling on Oct. 6 following a 2013 ruling she issued that was overturned.
The minister’s housing allowance exclusion, allows churches to designate part of eligible ministers’ income as a tax-free housing allowance. Thus, as codified as part of a 1954 law, the housing allowance permits “ministers of the [g]ospel” to exclude for federal income tax purposes a portion or all of their gross income as a housing allowance. The Internal Revenue Service (IRS) has interpreted the law broadly to include religious workers of various faiths as “ministers of the [g]ospel.”
The 2013 ruling by Crabb, an appointee from President Jimmy Carter’s administration, was overturned in 2014 by the Seventh Circuit Court of Appeals in Chicago. Both cases were brought by the Wisconsin-based Freedom From Religion Foundation. In the 2013 case, the Seventh Circuit ruled that the plaintiffs did not have standing to bring the case.
This case is different, according to the Church Alliance, a coalition of large and historic denominational pension boards. This time, the alliance noted, the plaintiffs were granted a housing allowance by the foundation, “paid income taxes on the housing allowance, sought a refund of those taxes paid and arguably have been denied tax refunds by the IRS.”
The challenge specifically applies to the cash housing allowance; the part of the tax law that provides for tax-free use of a parsonage or other church-owned home is not impacted.
O.S. Hawkins, president of GuideStone Financial Resources, said the Southern Baptist entity, which is part of the Church Alliance, has “monitored these challenges closely and will be prepared to provide amicus briefs at the appropriate time.”
“We believe the housing allowance law as it currently exists removes government-imposed favor and allows churches to determine whether a church-owned home or providing a cash allowance is the best way for a church to provide for its minister’s needs,” Hawkins said. “We look forward to advocating on behalf of all pastors along with other denominational pension boards and with our Southern Baptist partners.”
GuideStone has advised ministers to consult its annual tax guide, available at GuideStone.org/taxguide, and its housing allowance information, available at GuideStone.org/housingallowance, to ensure they are properly documenting any housing allowance and reporting it appropriately on their income tax returns.
At the time of Crabb’s ruling in October, Hawkins said, “We continue to live and minister in a world that is increasingly hostile to religious life as compared to the world in which many of us grew up. Rather than discouraging us, we seek to continue to serve as an advocate for hundreds of thousands of pastors and other ministers we have the privilege to serve.”
Russell Moore, president of the SBC’s Ethics & Religious Liberty Commission, told Baptist Press that the housing allowance is neutral, applying to all religions. Removing it, Moore said, “would disproportionately harm clergy in small congregations across the country.”
(EDITOR’S NOTE – Roy Hayhurst is director of denominational and public relations services for GuideStone Financial Resources of the Southern Baptist Convention. Baptist Press senior editor Art Toalston contributed to this story.)