The United States Court of Appeals for the Seventh Circuit heard oral arguments on Tuesday regarding the constitutionality of the parsonage exemption for clergy. The case Freedom From Religion Foundation v. Lew is before the Seventh Circuit after Judge Barbara Crabb of the Western District of Wisconsin found in November 2013 that Section 107(2) of the Internal Revenue Code (IRC) – which allows a “minister of the gospel” to exclude a housing allowance from his or her gross income – violated the Establishment Clause of the First Amendment. The federal government appealed Judge Crabb’s ruling in January of this year.
The case before the Seventh Circuit focuses on two issues: 1) whether the plaintiffs have standing to challenge the Section 107(2) of the IRC, and 2) whether Section 107(2) of the IRC is unconstitutional. At oral argument, the Court appeared to challenge both parties’ positions on standing. Relying on Supreme Court precedent, the government asserted that the plaintiffs did not have standing because they had never asked for and therefore had never been denied the parsonage exemption. Indeed, in an attempt to meet the standing requirements, the Freedom From Religion Foundation (“FFRF”) provided some of its past and present board members with housing allowances, yet these individuals never actually declared those allowances as a parsonage exemptions on their tax returns. The Court, however, expressed some skepticism that plaintiffs should be required to engage in a futile attempt to claim the parsonage exemption when the plain language of Section 107(2) precluded them from the benefit. However, when plaintiffs’ counsel attempted to construe the government’s standing argument as akin to an “exhaustion of remedies” requirement, the Court pushed back and cited the bedrock principle that taxpayers can only litigate their own tax issues and not anyone else’s.
The plaintiffs seemingly were at odds with the Court regarding the discrimination within organized religion that could result if the Court struck down the parsonage exemption contained in Section 107(2) while leaving Section 107(1) intact. Section 107(1) provides an exemption for ministers who live in a physical, church-provided parsonage, while Section 107(2) provides an exemption for ministers who receive a cash parsonage allowance. Thus, if the plaintiffs were to prevail, religions with a tradition of providing a physical parsonage to their clergy would continue to be able to provide a tax benefit to their ministers while those religions who provide a cash allowance for housing would no longer be able to provide their ministers with a similar tax exemption. Congress passed Section 107(2) in the 1950s for the very purpose of ending such discrimination among organized religions. Through its questions posed to plaintiffs’ counsel, the Court seemed to express reluctance about returning to the pre-1950s reality that favored one religion over another.
An audio recording of the entire 36-minute oral argument can be found here.