Court (Again) Rules Clergy Housing Allowance Exclusion Unconstitutional – Appeal Likely

In what seems to be a never-ending battle, a federal district court judge has once again ruled that the clergy housing allowance exclusion in federal income tax law is unconstitutional.  The decision was issued on Friday, October 6, 2017.

Here’s a very brief synopsis of the situation:

  • For years, the atheist group Freedom from Religion Foundation has been challenging the constitutionality of the clergy housing exclusion by filing federal lawsuits.
  • In all previous cases, the courts have thrown out FFRF’s claims after determining that the atheist group did not have “standing” to challenge the law.  The courts’ reasoning in such dismissals was that the group had not been damaged by the law – because FFRF’s leaders had not claimed and been denied (by the IRS) a housing allowance exclusion.
  • In this iteration of the battle, before bringing the current lawsuit, FFRF leaders did claim a housing allowance exclusion on their returns and the IRS at least partially denied the claim for the exclusion.
  • At issue in the current case is only the exclusion for the clergy housing allowance – not the exclusion for clergy living in employer-provided housing (e.g., a parsonage).
  • The same judge (Barbara Crabb) that ruled the exclusion to be unconstitutional in the current case previously ruled the same way (in 2013), only to have the case subsequently dismissed by the appeals court (based on standing).  In her previous ruling, she “stayed” (deferred) the enforcement of her decision while the appeal was pending.  It is largely expected that she will do the same in the current case, and that her decision will be appealed.
  • If the appeals court concludes that the plaintiffs in this case do have standing, the appeals court could rule on the actual underlying issue of whether the clergy housing exclusion is constitutional.  Some believe the issue could make its way to the U.S. Supreme Court.

In the event that the clergy housing allowance exclusion is ultimately (after all appeals) ruled unconstitutional, the economic impact on clergy and their employers across the country would be significant.

This publication is for general informational and educational purposes only, and does not constitute legal, accounting, tax, financial, or other professional advice. It is not a substitute for professional advice. For permission to reprint, please contact us.  © 2024 Batts Morrison Wales & Lee, P.A.  All rights reserved.
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