Judge Declares Tax Exclusion For Clergy Housing Payments Unconstitutional

The Freedom From Religion Foundation has won a stunning victory in the United States District  Court For The Western District Of Wisconsin where Judge Barbara Crabb has ruled that a substantial tax benefit enjoyed by many thousands of clergy – ministers, priests, rabbis, imams and others – is unconstitutional.  Code Section 107(2) provides that the gross income of a "minister of the gospel" does not include:

the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The Christian terminology, lack of gender neutral language and brevity indicate that this has been part of the Code for a while.  The exclusion for in-kind housing for "ministers of the gospel" 107(1), which remains untouched by the decision, goes back to 1921.  The exclusion was extended to cash allowances in 1954.  In 2002, the limitation "to the extent such allowance does not exceed the fair rental value of the home …….." was added.

How Big Is This?

Judge Crabb's ruling will not solve the deficit.  According to the Joint Committee on Taxation Estimate of Federal Tax Expenditure the exclusion is worth about $700,000,000 per year.  The estimate is not broken down between in-kind, which remains intact, and cash, declared unconstitutional.  Over the decades, churches have moved away from owning parsonages to paying cash allowances, so I would hazard a guess that more of the lost revenue comes from the cash allowance.  We might be talking half a billion or so until we get into "dynamic scoring", since it is likely that there will be a resurgence in the popularity of providing housing in-kind.  One of the reasons that in-kind housing went out of favor was that ministers were missing out on the practically automatic wealth increase that came with home ownership.  Those were the days.

How Does Something Unconstitutional Stay Around For So Long?