District Court strikes down clergy housing exclusion

A federal district court (Gaylor, DC-Wisc., October 6, 2017) has struck down the clergy housing exclusion, finding that the tax preference violates the Establishment Clause of the First Amendment. According to the court, the exclusion “does not have a secular purpose or effect and a reasonable observer would view the statute as an endorsement of religion.”

Comment.  This case impacts both active and retired clergy as well. Although technically limited at this time to taxpayers living within the jurisdiction of the district court in Wisconsin, it may not prove to be the outlier predicted by some experts. Religious personnel and their congregations should be aware of its potential impact in the future.


Under Internal Revenue Code Sec. 107, Rental Value of Parsonages, “ in the case of a minister of the gospel [clergy], gross income does not include the rental value of a home furnished to him as part of his compensation; or the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.”

A special interest group challenged the clergy housing exclusion. The organization characterized a portion of salaries paid to several employees as a housing allowance. The individuals claimed the housing allowance as an exclusion of income and sought a partial refund.

Court’s analysis

The court looked to Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989). That case involved a state sales tax exemption for “periodicals published or distributed by a religious faith and that consist wholly of writings promulgating the teaching of the faith and books that consist wholly of writings sacred to a religious faith.” The court found that a plurality of the Supreme Court had held that the exemption did not have a secular purpose or effect and conveyed a message of religious endorsement.

The court also looked to the convenience of the employer doctrine. Generally, certain benefits may be excluded from taxation if the benefit serves the employer’s convenience. The court found that the clergy housing exclusion has eliminated any requirement on the part of recipients to show that their choice of housing actually is for the convenience of the employer.

According to the court, the plain language of the statute, its legislative history and its operation in practice all showed a preference for ministers over secular employees. A desire to alleviate financial hardship on taxpayers is a legitimate purpose, but it is not a secular purpose when Congress eliminates the burden for a group made up of solely religious employees but maintains it for nearly everyone else.” This discriminatory treatment, the court concluded, violated the Establishment Clause.