District Court Holds Ministerial Housing Allowance Tax Provision Unconstitutional

A district judge in the United States District Court for the Western District of Wisconsin held last week that the “ministerial housing allowance” provisions of the Internal Revenue Code (26 USC Sec. 107(2)) were an impermissible establishment of religion. (Order at Freedom From Religion Foundation here; coverage at ChristianityToday; Religion Clause Blog; SBC ERLC.

I don’t think the ruling will stand (as is), but it will take some time to clear things up. However, don’t misunderstand me. It is important.

Until now, defending the core of the “exemption” has not been problematic. The Ministerial Housing Allowance is bipartisan — it helps both Democrats and Republicans. And in the vast majority of cases, churches aren’t giving out enough money for their preachers to really abuse the system. The IRS challenged Rick Warren’s $80,000 grant in early 2002, but that’s hardly jaw-dropping, given the size and location of Saddleback Church.

But, the new ruling shows how our memory of shared culture and history is dimming. For the better part of 80 years, this kind of lawsuit was filed by cranks, or academics trying to change the way the First Amendment is understood. There was sufficient familiarity across society with the operation of religious ministries that many understood how the Allowance would, in practice, even the playing field or reduce government/religion entanglement. In 2013, the crank’s position is the same, but IRS is not used to defending income taxes exemptions generally, let alone as a way to avoid interference with religion.

So, it’s not surprising that the briefs in this case were filed at a time when the ‘institutional memory’ of the IRS about charity law was at an all time low. IRS officials and practitioners are now publicly admitting that the IRS’s oversight of charitable tax policy is hampered by the loss of senior Exempt Organizations employees. The “Tea Party” scandal of early 2013 apparently forced out an entire generation of senior employees in that division.

And, the ruling is highly unusual, in that the Court granted summary judgment to Plaintiff — when Plaintiff had not asked for it. Summary judgment applies to situations where there is no real disagreement about the facts. So here, the Treasury department filed for summary judgment, saying there was enough agreement that the case should be thrown out before trial, but the Plaintiff (the Freedom from Religion Foundation) did not. In most cases, it would be an unthinkable surprise for the lawyers involved to lose a sua sponte summary judgment.

I suspect, then, that this order is not the final say on this issue; the IRS and interested groups have been shaken out of their sleep. But it is time to start gathering the history for the explanations that no longer come to mind easily.

In the next few weeks, I’ll post some more about the history and application of the exemption. I don’t think it’s really a “special break” if you consider ministers like other secular occupations. If there’s anything special, it’s an attempt to avoid unnecessary burdens on (and entanglement with) religious congregations. The IRS might reasonably limit its use, or expand it to non-religious charities — but it is far from an establishment of religion.