A federal appeals court, overturning a lower court’s ruling, said Friday that a law which gives tax-free housing allowances to clergy does not provide an unconstitutional benefit to organized religion.
The unanimous ruling by a three-judge panel of the 7th U.S. Circuit Court of Appeals, based in Chicago, overturns a 2017 ruling by U.S. District Judge Barbara Crabb in Madison, who had found the law to be unconstitutional. The appeals court was ruling on a challenge to the law brought by the Madison-based Freedom From Religion Foundation, which first filed suit over the exemption in 2011.
The case that the Seventh Circuit ruled on Friday was FFRF’s second challenge to the law, filed in 2016.
“FFRF claims (the law) renders unto God that which is Caesar’s,” wrote Judge Michael Brennan, an appointee of President Donald Trump. “But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: Neither commanded by the former, nor proscribed by the latter.”
After the 16th Amendment authorized federal tax collections in 1913, clergy were initially taxed on the fair rental value of parsonages used as living quarters. But in 1954, after some piecemeal changes to the law over time, Congress enacted a law that exempts from clergy income the rental value of a home furnished as part of compensation and rental allowances paid to clergy to be used for housing.
In October 2017, Crabb ruled that the clergy housing tax exemption provides an unconstitutional benefit to religious persons and nobody else, in violation of the Constitution. She had also struck down the law in 2013, but as in the present case, her ruling was reversed by the 7th Circuit.
FFRF co-president Annie Laurie Gaylor said the organization knew that the favorable ruling it received from Crabb was doomed when the government’s appeal was assigned the particular panel at the 7th Circuit.
“We expected to lose because it was the luck of the draw,” Gaylor said. “We drew three conservative judges. We were hoping there would be one dissent.”
Gaylor called the law “a boondoggle, a handout from the government for churches and clergy.” A silver lining, she said, was that “the panel, while ‘blessing’ the clergy housing allowance, makes it clear that the government is not obliged to offer clergy this benefit. Congress had the right to pass the law, but that means Congress also has the right to repeal it.”
Gaylor said FFRF was considering whether to ask for a rehearing of the case by the entire 7th Circuit.
In its first trip to the 7th Circuit, FFRF was told that it did not have standing to sue. In this case, following instructions provided by the court, Gaylor and her husband, Dan Barker, claimed tax refunds for their housing allowances, only to have them rejected by the Internal Revenue Service. This time, the U.S. Treasury Department did not challenge their standing to sue.
But applying a three-part test for evaluating the constitutionality of government action, set in a 1971 U.S. Supreme Court decision, the appeals court agreed that the law has three secular purposes, that it neither enhances nor inhibits religion, and that it does not foster an excessive government entanglement with religion.
The court also found that for more than two centuries, the government has implemented various tax exemptions for religious organizations.