Written by Emily Mullins
In a case that could have wide-ranging financial impact for United Church of Christ ministers and their employers, a federal district court in Wisconsin has declared a law that allows ministers to receive tax-exempt housing allowances as part of their compensation unconstitutional.
Under the law, passed by Congress in 1954, ministers don't pay income taxes on compensation that is designated as part of a housing allowance.
The Nov. 21 ruling in the case of Freedom from Religion Foundation v. Geithner, states that the law violates the First Amendment because it "provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise." The court stayed the ruling until all appeals are complete or until the time for filing an appeal has expired.
"It is important to note that the decision will not take effect until the appeals process is complete," said Donald Clark, UCC general counsel. "The UCC's Office of General Counsel will continue to monitor the case and advise the settings of the church depending on the outcome."
The law was challenged by leaders of Freedom From Religion Foundation, an atheist organization whose leaders do not receive a tax-exempt housing allowance. The defendants argued that the law is necessary to alleviate discrimination against religions who cannot afford to provide their clergy with a house and instead pay a housing allowance. The law allowing religions to provide ministers with a tax-free house was enacted in 1921 as a response to a law allowing secular employers to provide an employer-owned house to an employee tax-free so long as the employee was required to accept it as a condition of his or her job.
The court rejected this argument, stating that the secular employer-provided housing law was never expanded to include a tax-free housing allowance for secular employees, and any purpose of assisting disadvantaged churches and ministers is prohibited by the Establishment Clause. The ruling does not affect the law allowing ministers to exclude the rental value of homes provided to them by their employers from their taxable income, which the plaintiffs did not have standing to challenge.
The tax exemption applies to an estimated 44,000 ministers, priests, rabbis, imams and other religious leaders. If the ruling stands, some clergy members could experience an estimated 5- to 10-percent cut in take-home pay.
"This ruling, if upheld, will have a major effect on the way that many denominations structure compensation packages for clergy," said Heather Kimmel, associate general counsel for the UCC.