Legal battle continues over religious leader housing tax break

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The future of the "parsonage allowance exclusion" is in the hands of the courts. (RNS/Creative Commons)

A federal court heard oral arguments this week on whether a longstanding housing tax break for clergy called a "parsonage allowance exclusion" is constitutional, setting the stage for a clash over competing claims of religious privilege and religious discrimination.

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The Seventh Circuit Court of Appeals heard oral arguments on the case Oct. 24 as lawyers made pitches for and against an IRS provision that allows "ministers of the gospel" to exclude the cost of their housing when filing their taxes.

It's the latest chapter in the legal battle over the housing allowance, which dates back to the 1920s and originally applied only to clergy who lived in homes owned by churches or other religious groups. It was later applied to clergy who receive a cash allowance for their house.

Since 2002, the allowance has been capped at the fair rental value of the housing in question.

The Freedom from Religion Foundation filed suit over the housing allowance in 2011. The nonprofit organization claims the tax code allows clergy to take the tax break but excludes leaders of other nonprofits. That, the FFRF argues, is unconstitutional.

Wisconsin U.S. District Judge Barbara Crabb ruled in favor of the FFRF in 2013. The decision was overturned in 2014 when a higher court threw out the case on a technicality, arguing FFRF did not have standing because Gaylor its leaders had not filed a tax return that included a housing allowance or a claim for a refund after payment.

According to Christianity Today, where Sommerville is an editorial advisor for a publication on church-related legal matters, 81 percent of full-time senior pastors in the U.S. receive a housing allowance.


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