Thousands of possibly anxious ministers can sleep a bit easier tonight: a federal appeals court panel has tossed a lawsuit challenging a cherished clergy tax break.
While churches have been able to provide tax-free housing to clergy since the beginnings of the federal income tax 100 years ago, it was only in 1954 that Congress enacted a law granting tax exemption for a "parsonage exemption," where clergy could allocate part of their salary for either mortgage or rent payments and not pay taxes on that income.
The Freedom From Religion Foundation, a Wisconsin-based atheist-and-humanist group, challenged the exemption, and on Thursday, Nov. 13, had its case rejected after the IRS appealed a 2013 ruling by a federal judge in Madison, Wisconsin, allowing an FFRF lawsuit to proceed.
Judge Joel Flaum, writing for the appellate panel, said FFRF co-presidents Dan Barker and Annie Laurie Gaylor, plaintiffs in the case, "cannot establish standing to challenge such a provision without having personally claimed and been denied the exemption."
Flaum added, "The mere fact that the tax code conditions the availability of a tax exemption on religious affiliation does not give a plaintiff standing to challenge that provision of the code."
Asked why the FFRF leaders didn't apply for the so-called "parsonage exemption" and gain standing if the IRS had turned them down, Gaylor said the answer was simple.
"We're the opposite of ministers; we don't have a gospel," Gaylor told the Deseret News. "There's no way to apply. We don't qualify. The language in the IRS regulation is very specific."
FFRF leader Barker, whom Gaylor said is her husband, was once able to claim the allowance "when he was 'Reverend Barker,' a believer, and is now penalized as 'Mr. Barker,' serving as a freethought leader," the group said in a statement.
Groups supporting the exemption were pleased with the decision. "The ruling stops what could have been hundreds of millions of dollars of tax increases on clergy and other individuals with tax-exempt status for housing," according to an Adventist News Network report. The Seventh-day Adventist Church was among those filing an amicus brief in the case asking jurists to preserve the tax break.
Attorney Erik Stanley of the Alliance Defending Freedom said of the housing grant, "The allowance many churches provide to pastors is church money, not government money. It is constitutional and should continue to be respected and protected."
In a statement, Becket Fund attorney Luke Goodrich also criticized the FFRF case. "When a group of atheists tries to cajole the IRS into raising taxes on churches, it's bound to raise some eyebrows. The court was right to send them packing," he said.
For her part, Gaylor said the atheist group isn't going to concede: "You have not heard the last of it," she said of the FFRF appeal. "There are several options, but we're not ready to announce them yet. You'll be hearing from us."
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