Housing allowance defended in appeals court
A three-judge panel of the Seventh Circuit Court of Appeals in Chicago heard oral arguments regarding a 2017 opinion that invalidated the allowance as an unconstitutional violation of the First Amendment clause that prohibits government establishment of religion. The Trump administration and Becket Fund for Religious Liberty urged the panel to reverse federal judge Barbara Crabb's ruling, while the Freedom From Religion Foundation (FFRF) contended her decision should be upheld. Crabb's opinion marked the second time in four years she had nullified the allowance.
The Seventh Circuit panel, which overruled Crabb's original opinion in 2014, will decide on a section of a 1954 law that permits churches to designate part of eligible ministers' income as a housing allowance, enabling "ministers of the gospel" to exclude for federal income tax purposes a portion or all of their gross income. The IRS has interpreted "ministers of the gospel" to include leaders of other religious faiths.
The lawsuit does not affect the part of the law that enables tax-free use of a parsonage or other home owned by a church or other religious body.
Southern Baptist leaders explained the constitutionality and logic of the ministerial housing allowance in the wake of the oral arguments.
O.S. Hawkins, president of GuideStone Financial Resources, said in a news release, "We believe that the housing allowance law as it currently stands removes government from being involved in decisions best left up to churches. How a church chooses to provide for its pastor's needs, whether through a church-owned home or through a cash housing allowance, should be left up to the church with no government favor shown for one option over another."
Russell Moore, president of the Ethics & Religious Liberty Commission (ERLC), said the housing allowance "is an important part of American life."
"While some complain that it represents an establishment of religion or partiality towards a select few, the reverse is actually true," Moore said in written comments for Baptist Press. "This law is not a government endorsement of religion, but the fulfillment of the Constitutional guarantee that the state cannot treat a person differently because of their religious exercise. Without it, clergy in small congregations of all sorts would be penalized and harmed."
GuideStone and the ERLC signed onto a friend-of-the-court brief filed in April that asked the Seventh Circuit to reverse Crabb's opinion.
In the Oct. 24 oral arguments, Justice Department lawyer Jesse Panuccio defended the housing allowance as constitutional, arguing that it satisfies the requirements of Lemon v. Kurtzman, a 1971 U.S. Supreme Court decision that articulated a three-prong test for determining whether a legislative act violates the establishment clause. He also argued the provision is constitutional under Town of Greece v. Galloway, a 2013 Supreme Court decision regarding prayers before the opening of a legislative session that suggested establishment clause challenges must be viewed by reference to historical practices and understandings.
Becket lawyer Luke Goodrich, representing several churches and ministers that intervened in the case, told the panel that tax exemptions regarding ministers' housing predate the founding of the United States.
Richard Bolton, a lawyer representing the FFRF, argued the cash housing allowance is unconstitutional because it essentially provides a tax benefit for ministers that is not available to other taxpayers. The co-presidents of the foundation had sought to avoid paying income taxes on housing allowances provided to them by the foundation but were denied by the IRS.
Federal law also permits housing allowances for certain employees, including members of the U.S. military, workers living overseas and employees of educational institutions.
Harold R. Loftin Jr., GuideStone's chief legal officer, said the lawyers for the government and Becket offered compelling evidence for maintaining the allowance.
"Both history and precedent point to the fact that the cash housing allowance for ministers is a reasonable benefit that does not violate the Establishment Clause, nor does it unfairly benefit churches," said Loftin, who attended the oral arguments.
Larry Hansen, a lawyer with Locke Lord LLP, also witnessed the arguments and said, "Attorneys for the government and the intervenors made a convincing argument that the cash housing allowance for ministers is constitutional because it is part of a wider scheme that provides tax-free housing benefits to various classes of individuals."
Lord Locke LLP was the principal co-author of the friend-of-the-court brief for the Church Alliance that GuideStone and the ERLC joined in. GuideStone -- the SBC's health and financial benefits entity -- is a member of the Church Alliance, a broad coalition of denominational pension programs that cover ministers who qualify for the housing allowance.
GuideStone and the ERLC also opposed Crabb's 2013 decision striking down the housing allowance.
The Seventh Circuit Court overturned Crabb's earlier ruling, finding the FFRF -- a Wisconsin-based atheist organization that brought the lawsuit -- lacked the legal right, known as "standing," to challenge the allowance.
This time, changes in the facts of the case may give Crabb's decision more hope of surviving the Seventh Circuit. The FFRF argued in its latest challenge the IRS violated the Constitution by rejecting its leaders' efforts to claim the ministerial housing allowance. FFRF has met the Seventh Circuit's prerequisites to gain legal standing, Crabb said in her 2017 opinion.
In December, Crabb issued a stay postponing enforcement of her opinion until after the appeals process is concluded.
The panel of judges who heard the Oct. 24 oral arguments consisted of William Bauer, Daniel Manion and Michael Brennan.
The case is Gaylor v. Mnuchin.
No date has been set for a decision from the Seventh Circuit panel.