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Court Victory: Pastors Can Keep Housing Allowance

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The housing allowance for church ministers, which represents an estimated tax savings of $700 million yearly, is safe—for now. Last Friday, the Seventh Circuit Court of Appeals ruled that the allowance doesn’t violate the First Amendment’s Establishment Clause. The unanimous ruling by a three-judge panel in Chicago overturned a district court ruling in Wisconsin.

The clergy allowance, in place since 1954, is for leaders of all religious faiths, according to Internal Revenue Service interpretation. Clergy are exempt from paying taxes on congregation-supplied housing or on the part of their salary designated for housing costs. Federal law also permits a housing allowance for employees such as military members and overseas workers.

In Friday’s ruling, Judge Michael Brennan wrote that the so-called parsonage allowance doesn’t “advance religion on behalf of the government” but allows “churches to advance religion, which is their very purpose.” He added that the tax exemption doesn’t “connote sponsorship, financial support and active involvement of the [government] in religious activity.”

Housing Allowance Ruling Lauded as Victory for Religious Freedom 

Groups that champion religious liberty praised Friday’s ruling. “The power to tax is the power to destroy, and so refusing to tax a minister’s housing expenses is simply the best way to ensure the free exercise of religion and prevent the excessive entanglement of government with religion,” said Erik Stanley with Alliance Defending Freedom.

Russell Moore, president of the Ethics & Religious Liberty Commission of the Southern Baptist Convention, said, “I’m thankful to see sanity prevail in this ruling.” Calling it a victory, he said, “It’s in no one’s interest for the government to penalize clergy in small congregations faithfully serving their communities.”

Striking down the allowance, said attorney Luke Goodrich, “would devastate small, low-income houses of worship in our neediest neighborhoods and would cause needless conflict between church and state.” This ruling represents “not special treatment” but “equal treatment,” he added.

Atheist Groups May Continue the Fight 

The Freedom From Religion Foundation, which had won its challenge at the district level, was unhappy with the Circuit Court ruling—and is deciding whether to appeal to the U.S. Supreme Court. The parsonage allowance is “an injustice not just to us, but to taxpayers who have to pay more than their share, because clergy pay less,” says Annie Laurie Gaylor, FFRF co-president. She adds that it’s “so clearly a handout to churches and clergy, and it so clearly shows preferential treatment and discriminating in favor of ministers.”

Although the latest ruling is a relief to churches and clergy, CPA Michael Batts says the possibility of future action means “we’re not quite to the point in the story where we can say ‘and they all lived happily ever after.’” Despite the possibility of an appeal, for now “the pressure is off of church budgets,” says CPA and attorney Frank Sommerville.

About 81 percent of full-time senior pastors in the United States receive a housing allowance, and the typical church spends about 9 percent of its total budget on housing compensation.