Some Lucky U.S. Clergy Have Been Getting Tax-Free Housing for YearsS

A federal court in Wisconsin* ruled last Friday that the First Amendment invalidates a 1921 section of the US tax code that allowed religious leaders to get tax-free payments to cover their living expenses, separate from their salaries. Oh wait, you didn't realize religious leaders get their living expenses paid tax-free?

Well, until Friday, they certainly were allowed to receive that benefit. US law since 1921 had permitted "a minister of the gospel" to receive a cash allowance from "his" ministry for rent or a mortgage payment, plus utilities and furnishings—an allowance that wouldn't be counted as part of the minister's taxable income.

That practice was ripe for abuse; megapastor Rick Warren, for example, battled the IRS in 2002 to keep his annual housing allowance deduction... all $70,000 of it. The law likely costs Uncle Sam "half a billion" or so in lost tax revenue each year, according to Peter J. Reilly, a tax CPA and a blogger at Forbes.

But more importantly, according to US District Court Judge Barbara Crabb, the so-called "parsonage exemption" violates the establishment clause of the First Amendment. "[I]f the government were free to grant discriminatory tax exemptions in favor of religion, then it would be free to impose discriminatory taxes against religion as well," she wrote.

Well, okay, but if it was that unconstitutional, how did it hang around for nearly a century? Because no one with adequate standing had challenged the law until last year. That's when the Freedom From Religion Foundation, a national nonprofit for the rights of "freethinkers," started paying their officers a housing allowance, then sued the federal government, saying the parsonage exemption meant clergy could get a tax break that FFRF's officers couldn't.

Perversely, at one point the federal government argued that the FFRF still didn't have standing to challenge the tax break, because they were eligible for it—that is, this tax benefit for "ministers of the gospel" applied to atheists, too.

The judge didn't buy that, but Reilly says there are already atheist groups getting the break: "Maybe it will come up on appeal." God willing!

[Clergy file into Cathedral Basilica of the Sacred Heart, Saturday, Sept. 22, 2012, in Newark, N.J. for a consecration ceremony. Photo credit: AP]

*This post was updated to reflect the correct location of Crabb's US District Court.