“Play Between the Joints” and Tax Theory: Reflections on Seventh Circuit’s Clergy Housing Allowance Ruling

On March 15, 2019, the Seventh Circuit issued its Gaylor v. Mnuchin ruling, upholding the clergy housing allowance’s constitutionality.  This decision astutely recognizes that the fundamental questions in this case fall in a jurisprudentially gray area, or within the “play in the joints” between the First Amendment’s Free Exercise and Establishment clauses.  Between these two foundational pillars of our liberal democracy, the Court’s constitutional interpretation rightly respects the independence of institutions for a free society, particularly as applied to the clergy housing allowance.  Such deference further implicates the interplay between tax subsidy theory and religion. 

Seventh Circuit: Clergy Housing Allowance Is Constitutional

Section 107(2) of the Tax Code allows ministers who rent or own their own homes to receive an annual housing allowance from their employing church—and not pay federal income taxes on the designated amounts. The provision was adopted by Congress in 1954 after clergy from a variety of faith traditions indicated there was unequal tax treatment for those who were not provided a parsonage from their employing house of worship. In 2017, a federal district judge in Wisconsin ruled in favor of the leaders of the Freedom From Religion Foundation (FFRF) who argued the housing allowance exclusively benefits ministers, violating the Establishment Clause of the First Amendment. On Friday afternoon, the US Court of Appeals for the Seventh Circuit in Chicago reversed this decision.

Loving Thy Neighbor: Tax-Compliant Benevolence

Does your house of worship financially help those in need?  Commonly known as “benevolence,” this charitable assistance arises from age-old religious concepts and carries significant modern-day tax compliance implications.  Not only should such religious organizations maintain benevolence policies, but they also need to follow through with related communications, financial controls, and other safeguards.

Pages