You may know that American ministers have some tax advantages under the law: they often get a housing allowance from their church, and that allowance, in contrast to non-ministers who get such perks, is free from taxes. Here’s the stipulation from the Internal Revenue Service code:
A licensed, commissioned, or ordained minister may be able to exclude from income the fair rental value of a home (a parsonage) or a housing allowance provided as compensation for ministerial services performed as an employee. A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded can’t be more than reasonable compensation for the minister’s services.
A minister who receives a housing allowance may exclude the allowance from gross income to the extent it’s used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, repairs, and other expenses directly relating to providing a home. The amount excluded can’t be more than the reasonable compensation for the minister’s services.
This exemption—the tax-free housing allowance can also be used by ministers for stuff like home repairs, cable television fees, towels, bedding home decor, and computers—costs the government an estimated $700 million per year in taxes, and is used widely. As Christianity Today reports (and they’re pissed off!):
CT previously examined whether pastors’ homes are really that different from everyone else’s. According to the 2018 Compensation Handbook for Church Staff, 81 percent of fulltime senior pastors receive a housing allowance, while 11 percent receive a parsonage allowance. For fulltime solo pastors, 67 percent receive a housing allowance, while 27 percent receive a parsonage allowance; among part-time solo pastors, 59 percent receive a housing allowance, while 10 percent receive a parsonage allowance.
This is a blatantly unconstitutional provision because it gives religious people a tax advantage not shared by nonbelievers. In other words, it privileges religion—a violation of the First Amendment.
On that basis, in 2013 the Freedom from Religion Foundation (FFRF) sued the government in the Federal District Court in Wisconsin—and won! (You can see the court’s ruling here.) But the government appealed, and the appeals court overruled the lower court on the grounds that the plaintiffs—the FFRF and its co-Presidents Annie Laurie Gaylor and Dan Barker—didn’t have “standing” to sue. In other words, they couldn’t prove they’d been injured by the policy, which is necessary to bring a lawsuit.
But the FFRF is tenacious. As GOP USA notes,
The foundation then had two employees who got housing allowances try to claim the exemption on their tax forms, and when the IRS denied them, the foundation re-filed the lawsuit.
Annie Laurie Gaylor, co-president of the Freedom From Religion Foundation, said they followed exactly what the 7th Circuit said they would need to do to have standing in order to bring the lawsuit.
“I think they are going to have a hard time saying we don’t have standing,” she said. “They’re going to have to look at the merits.”
The Alexandria News explains more:
In November 2014, the Seventh U.S. Circuit Court of Appeals threw out that victory—not on the merits but on the question of standing—arguing that [FFRF Co-Presidents] Barker and Gaylor had not yet sought a refund of their housing allowance from the IRS. Accordingly, they sought them and when denied, went back to court.
FFRF, a national state/church watchdog based in Madison, Wisconsin, renewed its historic challenge of the housing allowance in April 2016. Sued are Steve Mnuchin, U.S. Secretary of the Treasury, and John Koskinen, IRS Commissioner. The case also had religious intervenors as defendants.
Plaintiffs are FFRF Co-Presidents Dan Barker and Annie Laurie Gaylor, and Ian Gaylor, representing the estate of President Emerita Anne Nicol Gaylor, whose retirement was paid in part as a housing allowance.
The new ruling, by the same judge in the same Wisconsin court, was issued on October 6, and it’s another victory for the FFRF. Click on the screenshot below to see the ruling:

The take-home message:

Here are some quotes from Judge Barbara Crabb’s ruling as reported by the News:
“Although defendants try to characterize § 107(2) as an effort by Congress to treat ministers fairly and avoid religious entanglement, the plain language of the statute, its legislative history and its operation in practice all demonstrate a preference for ministers over secular employees,” writes Crabb, for the Western District of Wisconsin.
“As I noted in the earlier lawsuit,” Crabb writes, “there is no reasonable interpretation of the statute under which the phrase minister of the gospel could be construed to include employees of an organization whose purpose is to keep religion out of the public square.”
Any reasonable observer would conclude that the purpose and effect of the statute is to provide financial assistance to one group of religious employees without any consideration to the secular employees who are similarly situated to ministers, Crabb noted. “Under current law, that type of provision violates the establishment clause,” she adds.
“In reaching this conclusion, I do not mean to imply that any particular minister is undeserving of the exemption or does not have a financial need for one. The important point is that many equally deserving secular employees (as well as other kinds of religious employees) could benefit from the exemption as well, but they must satisfy much more demanding requirements despite the lack of justification for the difference in treatment.”
Crabb also discusses financial benefits to even wealthy ministers: “”Thus, an evangelist with a multimillion dollar home is entitled under § 107(2) to deduct the entire rental value of that home, even if it is not used for church purposes. (“Joel Osteen lives in a $10.5 million home and is entitled to exclude the fair rental value of that home so long as he spends that money on the home and his church allocates that amount to housing.”).”
You can also find this on page 4 of the ruling:
Ministers receive a unique benefit under § 107(2); it is not, as defendants suggest, part of a larger effort by Congress to provide assistance to employees with special housing needs. A desire to alleviate financial hardship on taxpayers is a legitimate purpose, but it is not a secular purpose when Congress eliminates the burden for a group made up of solely religious employees but maintains it for nearly everyone else.
Judge Crabb suggests some fixes for the law, but none of those involve favoring religion:
As I have discussed throughout this opinion, Congress could have enacted a number of alternative exemptions without running afoul of the First Amendment. For example, Congress could have accomplished a similar goal by allowing any of the following groups to exclude housing expenses from their gross income: (1) all taxpayers; (2) taxpayers with incomes less than a specified amount; (3) taxpayers who live in rental housing provided by 43 Case: 3:16-cv-00215-bbc Document #: 87 Filed: 10/06/17 Page 43 of 47 the employer; (4) taxpayers whose employers impose housing-related requirements on them, such as living near the workplace, being on call or using the home for work-related purposes; or (5) taxpayers who work for nonprofit organizations, including churches. Or some of these categories could be combined.
Make no mistake about it: this is a big victory, and churches are complaining loudly. Cry me a river! Some churches are whining that they may have to close without such advantages, but that’s too damn bad: they are entitled to no such tax privileges under U.S. law. If they can’t keep their enterprise going without taking advantage of illegal provisions, they shouldn’t be open.
The government will of course appeal, but now that the plaintiffs have standing, I can’t see on what grounds they could lose. This is clearly favoritism of religion. But of course the Supreme Court, where this might ultimately land, is deeply conservative, and might suss out some wonky rationale. If it does, that will be a serious erosion of the Constitution they’re supposed to follow.
Congrats to Annie Laurie, Dan, and the FFRF for this victory.
h/t: Woody