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Housing allowance survives at appeals court

CHICAGO (BP) — A federal appeals court has overturned a decision striking down the 60-year-old ministerial housing allowance in an action cheered by Southern Baptist leaders.

The Seventh Circuit Court of Appeals in Chicago ruled today (Nov. 13) that an atheist organization lacked the legal right — known as “standing” — to challenge the portion of a 1954 law that permits clergy to exclude for federal income tax purposes a portion or all of their gross income as a housing allowance.

A three-judge panel did not rule on the allowance’s constitutionality but unanimously rejected a Wisconsin federal judge’s invalidation of the provision last November. The appeals court vacated the opinion by Barbara Crabb and instructed her to dismiss the lawsuit for lack of jurisdiction. Crabb had ruled the allowance violates the First Amendment’s prohibition on government establishment of religion. The Obama administration appealed her decision to the Seventh Circuit Court.

Russell D. Moore, president of the Southern Baptist Ethics & Religious Liberty Commission, affirmed the appeals court decision, telling Baptist Press that the “ministerial housing allowance is just and fair, and an equitable recognition of the unique employment situation of clergy.”

O.S. Hawkins, president of GuideStone Financial Resources, said of the decision, “This is indeed good news for ministers.

“Throughout the decades, there has been a recognition that the minister’s housing allowance is a vital benefit that is consistent with our Constitution,” Hawkins said in a written release from GuideStone, the SBC’s financial and health benefits entity. “We are thankful for the government’s defense of the housing allowance … and thankful to the appeals court for its decision in this matter.”

Hawkins added, “We are mindful that this might not be the last case of its type. Along with our ministry partners at the [ERLC] and our partners in the denominational benefits community, we will continue to remain vigilant to advocate on behalf of pastors.”

The Seventh Circuit panel, in its ruling, said it did not address the question of the housing allowance’s constitutionality because the Freedom From Religion Foundation (FFRF) and its co-plaintiffs did not qualify to bring the suit.

The plaintiffs say “they have standing because they were denied a benefit (a tax exemption for their employer-provided housing allowance) that is conditioned on religious affiliation,” Judge Joel Flaum wrote for the panel. “This argument fails, however, for a simple reason: the plaintiffs were never denied the parsonage exemption because they never asked for it. Without a request, there can be no denial. And absent any personal denial of a benefit, the plaintiffs’ claim amounts to nothing more than a generalized grievance about [the allowance’s] unconstitutionality, which does not support standing.”

The decision “is a great victory for separation of church and state,” said Luke Goodrich, deputy general counsel of the Becket Fund for Religious Liberty.

“For 60 years, the parsonage allowance has kept the Taxman from mucking around in complex religious questions,” Goodrich said in a written release. “Nobody wants the IRS taxing churches at the whim of atheists with no skin in the game.”

Southern Baptists were among numerous religious adherents especially interested in the case. The Ethics & Religious Liberty Commission and International Mission Board signed on to a friend-of-the-court brief filed by the Becket Fund with a diverse array of religious organizations in support of the housing allowance. GuideStone joined in a brief with other denominational benefit boards as part of the Church Alliance.

At its website, GuideStone describes the housing allowance as “the most important tax benefit available to ministers.” The allowance has been especially helpful to smaller congregations because their pastors or ministers — who typically receive lower salaries — benefit from part of their income being non-taxable.

Under the federal income tax system, some housing costs are primarily for “the convenience of the employer,” not the employee. As a result, such costs are not considered income. In addition to ministers, those who receive such benefits include members of the U.S. military, workers living overseas and employees of educational institutions.

A 2002 estimate offered by then-Rep. Jim Ramstad of Minnesota said the housing allowance would save ministers $2.3 billion in taxes during the following five years.

In issuing her decision last year, Crabb blocked enforcement of the ruling until the appeals process was complete.

Crabb’s decision came as no surprise. In 2010, she ruled that the National Day of Prayer violates the establishment clause. A three-judge panel of the Seventh Circuit unanimously struck down Crabb’s ruling the following year. The appeals court ruled in that case also that Freedom From Religion Foundation did not have standing to bring the lawsuit.

The case decided Nov. 13 is FFRF v. Lew. The FFRF, which is based in Madison, Wis., sued the IRS regarding the housing allowance. Jacob Lew is secretary of the Department of the Treasury.