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Challenges ruling that clergy tax-exempt housing allowance is unconstitutional
The Seventh-day Adventist Church joined an amicus brief filed today in a United States Federal Court of Appeals challenging a November ruling that the “parsonage exemption” is unconstitutional.
The Adventist Church joined in the “friend-of-the-court” brief to the 7th Circuit Court of Appeals in Chicago, said Todd McFarland, an associate general counsel for the Seventh-day Adventist Church headquarters.
The brief was led by Church Alliance, which is a coalition of more than 30 denominations that work together on common legislative and legal issues, primarily dealing with employee benefits, McFarland said.
The group is challenging a November ruling by a U.S. district judge that the clergy exemption for paying taxes on income designated for housing is unconstitutional.
Adventist Church leaders say that pastors may make a decent living wage on a "base pay" basis, but depending on where they live, their cost of living adjustments are usually drastically behind and not commensurate. The parsonage exclusion gives them the ability to deduct their housing expenses from their taxable income.
In her ruling, Judge Barbara Crabb said the parsonage exemption violated the Establishment Clause of the First Amendment, which prohibits Congress from making a law “respecting an establishment of religion.”
The parsonage exemption, Crabb said, benefits “religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”
In an interview, McFarland said the religious coalition doesn’t believe the exemption violates the Establishment Clause, noting that the tax code contains other similar exemptions.
“This exemption in fact serves to strengthen the separation between church and state by keeping the government out of church decisions, ecclesiastical matters, and treats all churches and religions the same,” McFarland said.
Other exemptions, McFarland said, include teachers and professors working for educational institutions, military personnel, employee lodging for the convenience of the employer, as well as certain tax-payers living abroad.
Judge Crabb’s November decision was the result of a suit brought by the Wisconsin-based Freedom From Religion Foundation, which advocates for the separation of church and state. The foundation sued the U.S. Treasury secretary and Internal Revenue Service commissioner over the exemption, which was passed by Congress in 1954. Section 107 of the Internal Revenue Code permits a “minister of the gospel” to designate some compensation as a housing allowance and exempt it from income tax.
Her ruling, which she said would not be enforced pending appeal, has the potential to dramatically impact how religious groups compensate their ministers. Many have long depended on the tax benefit for the compensation package for their clergy in the United States.
Adventist Church officials in North America said the parsonage allowance significantly helps pastors to be able to live and minister in the large urban centers where the most people live.
“Not having this benefit would drastically impact ministry, especially for the pastors living in these large people centers, which are high cost of living areas,” said Ivan Williams, director of the Ministerial Department for the Adventist Church’s North American Division.
McFarland, the denomination’s attorney, estimated the after-tax benefit to Adventist ministers is between 5 and 10 percent of their total compensation package.
McFarland said he didn’t think the matter was likely to end with the 7th Circuit’s decision.
“We anticipate this case to potentially end up in the U.S. Supreme Court,” he said. “Both sides have too much at stake and are too invested in this. Whoever loses is going to want to see it reviewed at a higher level.”
Ansel Oliver, Adventist News Network