Judge Strikes Down Clergy Tax-Free Housing Money

A federal judge has struck down a law that gives clergy tax-free housing allowances in a decision that could have far-reaching financial ramifications for religious leaders across the U.S.

In her decision Friday, U.S. District Judge Barbara Crabb in Wisconsin wrote that the exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise,” the Wisconsin State Journal reported.

Agudath of Israel of America greeted the news with “ great dismay.”

“It is a stunning reversal of long-standing practice and good public policy,” the organization said in statement.

“In our opinion, Judge Crabb erred in her decision, as we firmly believe that the housing allowance for members of the clergy falls squarely within acceptable First Amendment parameters,” Agudath Israel said.

The Madison-based Freedom From Religion Foundation filed the lawsuit against U.S. Treasury Secretary Jacob Lew and acting IRS commissioner Daniel Werfel. Under the law, passed by Congress in 1954, ministers don’t pay income taxes on compensation that is designated part of a housing allowance. The Freedom From Religion Foundation says a clergy member could use the untaxed income to purchase a home, and then deduct interest paid on the mortgage and property taxes.

Said Annie Laurie Gaylor, co-president, “A church could pay a minister $50,000 but designate $20,000 of it a housing allowance so only $30,000 would be taxed as salary.”

In her ruling, Crabb referenced a 2002 statement by then-Rep. Jim Ramstad of Minnesota that the exemption would save clergy members $2.3 billion in taxes from 2002-2007. Crabb said the magnitude of the benefit only underscores what’s wrong with the law.

Crabb said defendants didn’t identify a reason a requirement on ministers to pay taxes on a housing allowance is more burdensome for them than for the many millions of others who must pay taxes on income used for housing expenses.

Agudath Israel said that they expect the Administration to appeal this decision and urged it to “defend the ‘parsonage exemption’ with vigor.’

“Agudath Israel intends to closely monitor developments in this important case and to let our views be known in court and on Capitol Hill,” the Agudah statement concluded.

This article appeared in print on page 1 of the November 27th, 2013 edition of Hamodia.