Gaylor, et al., v. Mnuchin, 16-cv-215-BBC (W.D. Wis.) October 6, 2017.

The federal district court in Wisconsin has declared unconstitutional, as a violation of the Establishment Clause,  provision of the federal tax code which permits ministers (and other professional religious persons) to exclude from gross income money received as a housing allowance. The code provision, 26 U.S.C. Section 107(2), has a correlate in 26 U.S.C. Section 107(1), which excludes from gross income the fair value of church-provided housing. The church-provided parsonage exclusion was not before the court in its recent opinion.

This ruling offered the court an opportunity to affirm its earlier opinion, which was vacated on appeal to the Seventh Circuit because plaintiffs lacked standing to pursue the case, an impediment no longer present.

None of the arguments advanced by the United States or the intervening ministers impressed the court.  The court noted that its earlier opinion was grounded in the standard to be applied to discern Establishment Clause violations enumerated in Lemon v. Kurtzman, 403 U.S. 602 (1971), which in the court’s view has been re-calibrated to find establishment clause violations where the government has as its purpose an endorsement of religion and where the statute in issue actively conveys endorsement.

The court further refined that standard by looking to another Supreme Court case which declared unconstitutional an exemption provided religious publishers from a state sales tax.  

Where the sales tax exemption for religious publications had no secular purpose and conferred a benefit to religions without relieving a burden on free exercise, that measure violated the Establishment Clause.  Texas Monthly v. Bullock, 489 U.S. 1 (1989).

The housing allowance provided to religious ministers falls within the ”benefit provided without burden relieved” balance found offensive in the Texas sales tax case, the court held.  That some employees may qualify for exemption where they are required to live in employer-furnished housing for the employer’s convenience is of no moment on this point, the court found.  The “convenience of the employer” income exclusion is available to clergy, but the statute in issue here makes no demand for justification and is in fact without limits as to any housing location.  The allowance may be used as a minister sees fit, to live anywhere without reference to the demands of the ministry or any use of a residence for church purposes.  It may be used to purchase housing.

The allowance cannot be seen as a religious accommodation where the imposition of a general tax, which is what would occur in the absence of the exmt pion, does not burden free exercise.  Jimmy Swaggart Ministries v. Bd. of Equalization of California, 493 U.S. 378 (1990); Walz v. Commissioner, 397 U.S. 664 (1971).

The federal district court in Wisconsin declined to consider entanglement, finding it unnecessary because the court had found no secular purpose in the statute.  The legislative history indicated a Congressional desire to provide aid to ministries. Divorcing the allowance from any requirement of employer convenience created a religious preference.  This is true, the court observed, notwithstanding any argument that the provision was meant to balance the scales where poorer churches were not able to purchase parsonages.

While entanglement was not decided previously, there the court observed that the government does get involved in making determinations about religions in analyzing the availability of tax exemptions.  In the current opinion, the court dismissed the notion that entanglement would ensue were ministries required to adhere to the “convenience of the employer” standard, because any regulatory compliance would be neither greater nor lesser than that afforded secular taxpayers.  

Alleviating hardship to underpaid ministers does not justify the creation of a tax exemptions, where others are similarly situated without any exemption and where the housing allowance exemption is available no matter whether a minister is rich or poor.  

Although tax exemptions for religious groups are permissible if they alleviate substantial government interference with religious entities’ missions, this standard cannot be met by requiring ministers to pay generally applicable taxes just as others do.  

Neither can “historic” justification suffice to save the current exemption, the court found, as there is a marked difference between practices observed by the framers of the constitution and the proponents of the Internal Revenue Code of 1954.  

The court noted the government’s argument that its decision would have widespread impact, and stated that the court would confine itself to the case at hand.  

The court declared 26 U.S.C. Section 107(2) unconstitutional as a violation of the Establishment Clause, invited briefing on the issue of remedies, and stayed all remedies pending entry of judgment.  

Gaylor v. Mnuchin (W.D. Wis., 2017)



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