Atheist Activists' Big Legal Win Against the IRS Could Spell Major Trouble for Clergy Salaries

Atheist activists scored a major victory Friday when a judge ruled that a long-standing tax break for American clergy is unconstitutional.

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Many secular advocates have argued over the years that neither tax benefits nor "preferential" nonprofit status should be afforded to religious groups. District Court Judge Barbara Crabb in Wisconsin gave credence to this view with her ruling last week that provisions in Internal Revenue Code Section 107 are unconstitutional, reported Forbes contributor Peter J. Reilly.

This portion of the tax code says that "a minister of the gospel" -- pastors, rabbis, imams and others -- does not have to include in gross income the rental value of a home given to him or her as part of compensation.

The code also specifies that a rental allowance paid to the individual as part of compensation does not need to be counted toward gross income.

The allowance and subsequent write-off can also be used to pay for taxes, home improvements and other related expenses without penalty.

In her ruling, Crabb decided in favor of the Freedom From Religion Foundation, a group that advocates for the separation of church and state. She found that the parsonage exemption, as the pastoral housing regulation has been called, violates the First Amendment's establishment clause.

Crabb found no secular purpose for the tax relief and said that the provision "provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise," Religion News Service reported.

The defendants in the case were U.S. Treasury Secretary Jack Lew and Acting IRS Commissioner Daniel Werfel.

It's likely that the ruling will be appealed to the Seventh Circuit, but if that court allows it to stand, then a precedent against the parsonage exemption would be in place in Wisconsin, Indiana and Illinois.

If adopted more widely, Crabb's ruling could have wide sweeping implications for tens of thousands of clergy who currently benefit from current IRS code -- mainly leading to a notable decrease in their income. Religion News Service reported the ruling would possibly lead to a 5 to 10 percent cut in faith leaders' take-home pay.

The judge has stayed the ruling until appeals have been exhausted, so Wisconsin faith leaders are currently unaffected.

One of the main sources of contention surrounding the debate is the idea that there is a profound cost for the clergy benefit -- $700 million according to the Joint Committee on Taxation Estimate of Federal Tax Expenditure. Some argue that the cost far outweighs the benefits.

Others, however, note that it is universal and doesn't discriminate and that people of all faiths are able to take advantage of it. Additionally, supporters argue that pastoral incomes are many times very low.

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Freedom From Religion Foundation co-presidents Annie Laurie Gaylor and Dan Barker praised Crabb's ruling in a statement Friday.

"May we say hallelujah! This decision agrees with us that Congress may not reward ministers for fighting a ‘godless and anti-religious’ movement by letting them pay less income tax," they said. "The rest of us should not pay more because clergy pay less."

While the Freedom From Religion Foundation is celebrating victory, the battle is nowhere near over. The Ethics & Religious Liberty Commission and GuideStone Financial Resources are vowing to fight back and appeal the decision.

"The clergy housing allowance isn’t a government establishment of religion, but just the reverse. The allowance is neutral to all religions," said Russell D. Moore, president of the Ethics and Religious Liberty Commission of the Southern Baptist Convention. "Without it, clergy in small congregations of all sorts would be penalized and harmed."

TheBlaze first covered the Freedom From Religion Foundation's parsonage exemption legal challenge in September 2011. In August, TheBlaze's Fred Lucas reported that Gaylor and Barker, who are married, hit a road bump in their case against the government when the Department of Justice noted that, as atheists, they too are eligible for the housing tax exemption because they essentially function as a religion.

This complicated the Freedom From Religion Foundation's federal lawsuit, first filed in 2009, after the foundation board voted to give Gaylor and Barker a housing allowance of $15,000 per year.

The couple said they didn’t qualify for the same tax exemption as clergy so the foundation sued the federal government. But when the government complied and said they do qualify, the husband and wife nonprofit duo continued their fight against the provision.

In a separate case, the Freedom From Religion Foundation is suing to stop what it sees as the IRS's “preferential treatment of churches.”

The FFRF claims that churches are given special treatment when it comes to applying for and holding on to tax-exempt status. While churches are purportedly exempt from paying “expensive application fees” and filling out annual tax forms, non-religious groups must fill out the “onerous annual Form 990."

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