The Board of Pensions received word during its Board of Directors meeting last month, prompting muffled cheers and widespread relief. The clergy housing allowance had been ruled constitutional.
On March 15, 2019, in Gaylor v. Mnuchin, a three-judge panel of the 7th U.S. Circuit Court of Appeals unanimously ruled that excluding a housing allowance from a minister’s taxable income does not violate the establishment clause of the First Amendment.
The decision overturned a 2017 federal district court ruling that Section 107(2) of the Internal Revenue Code, which provides the exclusion, is unconstitutional because it was a unique benefit for ministers. The appellate court disagreed, finding that section 107(2) has a secular purpose, putting ministers on an equal footing with certain secular employees receiving employer-provided housing. Section 107(1), the exclusion for tax-free in-kind housing, such as a manse, was not at issue in the case.
The latest decision found that the housing allowance “has a secular legislative purpose, its principal effect is neither to endorse nor to inhibit religion.” It was also ruled historically significant. The U.S. Supreme Court has indicated that the establishment clause must be interpreted “by reference to historical practices” — and Congress has provided federal tax exemptions for religious organizations for more than 200 years.
“Had this benefit been eliminated, ministers would have faced a substantial and unfair tax burden,” said the Reverend Frank Clark Spencer, President of the Board of Pensions. “Since our country was founded, Congress has acknowledged that the First Amendment may necessitate a different regulatory approach when addressing the unique roles of our churches and faith leaders. This ruling validates that.”
Rev. Spencer, in expressing gratitude for the decision, said that the Board was “also grateful for the opportunity to be part of the Church Alliance, which provided a united front in protecting this critical benefit.”
The Church Alliance is a coalition of the chief executive officers of 38 church benefits programs, covering mainline Protestant denominations, two branches of Judaism, Catholic dioceses, and related schools and institutions. Rev. Spencer represents the Presbyterian Church (U.S.A.) on the steering committee of the Church Alliance, and Board of Pensions Counsel Jean Hemphill serves on the Church Alliance Core Lawyer Working Group.
More than one million clergy, active and retired church workers, and their families benefit from the work of the Church Alliance — including the 65,000 individuals served by the Benefits Plan.
“The Church Alliance follows legislative, regulatory, and judicial matters that are important to us,” Rev. Spencer said. “We’re known on Capitol Hill. We speak with members of Congress and staff at federal agencies. And, as we did in this case, we file amicus briefs in cases that matter to our members.”
The Freedom From Religion Foundation filed the legal challenge to the housing allowance. This was not the group’s first such challenge, and it could petition for a rehearing by the full 7th Circuit or even by the U.S. Supreme Court. However, the chances for success in either scenario are considered low.
“This unanimous ruling should ease the concerns of our Presbyterian ministers and retired ministers, at least for the near future,” Rev. Spencer said.