Sec 107 - exemption for minister housing - unconsitutional

[jcolvin2]

Freedom From Religion Foundation v. Lew (W.D. Wisc. November 21, 2013)

http://ffrf.org/images/FFRF%20v%20Geith ... auto,0,792

[Kestrel]

... it is clear from the face of the statute that plaintiffs are excluded from an exemption granted to others.

Can't the same conclusion be reached about nearly every other tax exemption? Some benefit, others don't. Some get to combine their income and expenses. Some get to claim depreciation at a higher rate. Some get tax credits. Others don't.

That's not a flaw in the tax code. That's a feature. That's how congress encourages and discourages targeted types of economic activity. (And that's how congressmen buy votes.)

It doesn't seem fair, but "fair" is an idealistic impossibility.

ETA: Our military personnel also get a tax-free housing allowance. In the interests of "equal treatment under the law" should that allowance be taxed too? Don't answer too quickly. These so-called preferentially treated folks are putting their lives on the line to keep our nation safe.

[rogfulton]

ETA: Our military personnel also get a tax-free housing allowance. In the interests of "equal treatment under the law" should that allowance be taxed too? Don't answer too quickly. These so-called preferentially treated folks are putting their lives on the line to keep our nation safe.

The military personnel who receive the housing allowance get it regardless of religious affiliation, not because of it.

Sounds like apples and oranges to me.

[LaVidaRoja]

Also, military receives "an allowance" -- a SET amount. 107 allows for an exclusion without concern as to the dollar amount. Clearly, apples and oranges

[AndyK]

Major "oops."

One of the original purposes of tx exemptions for religious (and assorted other non-profits) was tht they were performing a quasi-governmental service.

This decision upsets the entire can of worms.

Future follow-up will be interesting, to say the least.

[Kestrel]

The military personnel who receive the housing allowance get it regardless of religious affiliation, not because of it.

Sounds like apples and oranges to me.

Military get the allowance. Policemen and firemen don't. Yet both perform similar roles protecting public safety. Both put their lives on the line every day for society's benefit. Should the policemen and firemen sue?

Also, military receives "an allowance" -- a SET amount. 107 allows for an exclusion without concern as to the dollar amount. Clearly, apples and oranges

It's not a set amount for military. It varies with marital/minor child status and rank. Clearly not "equal treatment." Should the enlisted men sue? Should the unmarried and childless sue?

My whole point is that the tax law is loaded with instances of unequal treatment under the law which everyone accepts without objection... except for this one.

[wserra]

My whole point is that the tax law is loaded with instances of unequal treatment under the law which everyone accepts without objection... except for this one.

With all due respect, it seems to me that the objection is easily explained: where the basis for the unequal treatment is religion, it violates the Establishment Clause.

[Kestrel]

With all due respect, it seems to me that the objection is easily explained: where the basis for the unequal treatment is religion, it violates the Establishment Clause.

District Judge Barbara Crabb was certainly insistent with that line of reasoning. Yet in reading her decision it appears that Judge Crabb had a predetermined agenda when making her ruling, including granting summary judgment to the plaintiff on the court's own (her own) motion. Although the plaintiffs were not lacking in competent legal counsel, the fact that she did not wait nor instruct the plaintiffs to make the motion speaks to her bias.

She made a similar ruling in favor of the Freedom From Religion Foundation five years ago when she declared the National Day of Prayer to be unconstitutional. That ruling was subsequently dismissed by the Seventh Circuit Court of Appeals, which declared the plaintiffs lacked standing to bring suit.

It would seem the decision in this new case is Judge Crabb's attempt to help the Freedom From Religion Foundation get past that obstacle. We'll just have to see how this plays out.

[wserra]

Yet in reading her decision it appears that Judge Crabb had a predetermined agenda when making her ruling, including granting summary judgment to the plaintiff on the court's own (her own) motion.

(1) Whether or not a judge has a "predetermined agenda", the merits of her ruling will stand or fall independent of it. We've discussed this point before.

(2) Judges - especially federal judges - frequently act sua sponte. We've repeatedly noted that on this board. See the "Redeeming Lawful Money" thread for many examples. All it means is that the particular judge thinks the point clear enough not to require briefing. [Note to self: Very funny vignette from WS' courtroom oeuvre, also involving the Establishment Clause, to be told over a beer.] Such a belief does not constitute an "agenda", predetermined [JackNicholson]("Is there another kind?")[/JackNicholson] or not.

She made a similar ruling in favor of the Freedom From Religion Foundation five years ago when she declared the National Day of Prayer to be unconstitutional. That ruling was subsequently dismissed by the Seventh Circuit Court of Appeals, which declared the plaintiffs lacked standing to bring suit.

True. In the same thread I linked to above, we discussed the efforts the FFRF made to build a factual record to distinguish such cases. You may disagree as to whether they succeeded, but it's a little cavalier to dismiss Crabb's ruling that they did as evidence of an "agenda". There is substantial reason, for example, to conclude that Brown v. Board showed evidence of an "agenda", should yours be the appropriate definition.

[The Observer]

You know, guys, I am seeing this conversation as starting to violate the policy here on Quatloos religious/political ban in topics. I see the line being crossed in terms of the word "agenda" being inserted into the conversation. And "agenda" has overtones that have nothing to do with the legal ramifications and evidence established in this case.

If you can limit the conversation to discussing the legalities of this ruling, great. If not, then please refrain from responding merely because you disagree or agree with the ruling because of personal beliefs.

[Kestrel]

Thank you. I don't disagree that her ruling will stand on its own upon appeal.

Is it permitted to ask about the history of Section 107? I'd like to know when and why it was created in the first place. Is it a product of 1950's era attitudes supporting churches as the primary benefactors of the poor, in the days before the Great Society programs?

[Famspear]

....Is it permitted to ask about the history of Section 107? I'd like to know when and why it was created in the first place. Is it a product of 1950's era attitudes supporting churches as the primary benefactors of the poor, in the days before the Great Society programs?

It goes back at least as far as the 1939 Code. Section 22(b)(6) of the 1939 Internal Revenue Code provided an exclusion for:

(6) MINISTERS.—The rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation...

That corresponds to section 107(1) of the 1954/1986 Code (the current Code).

I note in passing that the ruling in the case cited at the beginning of this thread really applies only to section 107(2), which provides the exclusion for the rental ALLOWANCE PAID to a minister as part of his compensation.

By contrast, section 22(b)(6) of the 1939 Code and section 107(1) of the current Code apply only to the value of a HOME (e.g., a parsonage) furnished to the minister "in kind," as part of his compensation.

I have not checked to see whether there are statutes prior to 1939 that would be analogous to section 22(b)(6) of the 1939 Code.

EDIT: I did a quick check, and I didn't see anything in the Revenue Act of 1916. I haven't checked the 1913 Act. It might take a while to dig through the rest of the statutes enacted between 1916 and 1939.....

[Famspear]

More background...... The original 1954 code provided:

....In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or

(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home.

In 2002, section 107 of the Code (which had earlier been re-named the "1986" Code) was amended by the Clergy Housing Allowance Clarification Act (Public Law No. 107-181) to read as follows:

....In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or

(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

That's the current wording.

[rogfulton]

The military personnel who receive the housing allowance get it regardless of religious affiliation, not because of it.

Sounds like apples and oranges to me.

Military get the allowance. Policemen and firemen don't. Yet both perform similar roles protecting public safety. Both put their lives on the line every day for society's benefit. Should the policemen and firemen sue?

Also, military receives "an allowance" -- a SET amount. 107 allows for an exclusion without concern as to the dollar amount. Clearly, apples and oranges

It's not a set amount for military. It varies with marital/minor child status and rank. Clearly not "equal treatment." Should the enlisted men sue? Should the unmarried and childless sue?

My whole point is that the tax law is loaded with instances of unequal treatment under the law which everyone accepts without objection... except for this one.

Still arguing apples and oranges.

Whether the military allowance varies is beside the point - the allowance is not given on the basis of religious affiliation or lack thereof.

[Kestrel]

So that gives us the When: 1939 or earlier, possibly in a statute enacted during the Depression.

I'm still looking for Why the exemption was granted for ministerial housing. Where I'm trying to go with this is to gain insight into what justified the exemption originally, despite the Establishment clause, and consequently have an understanding of whether those justifying conditions still exist today in a material fashion.

Regarding When, I saw provisions in the 1913 act relating tax to exemptions for "any State or municipal corporation or incorporated religious society, college, or other public institution..." So churches were favored institutions in 1913 but I didn't see ministers or housing specifically mentioned therein. I also note that the 1913 code allowed personal exemptions which were so high that only a small fraction of the population was liable for the tax.

Hence the practical application of the 1913 and 1916 acts made the idea of a ministerial housing exemption essentially moot. Most ministers didn't owe tax in the first place. The situation after the creation of the New Deal relief programs was quite different. A much broader tax base was needed to fund the government in 1939. More people taxed meant that more provisions were created granting exemptions.

[Famspear]

I found this in a footnote of a U.S. Tax Court opinion:

Par. (1) of sec. 107 originated in the Revenue Act of 1921 without any explanation of the phrase "minister of the gospel." See sec. 213(b) (11) of the Revenue Act of 1921, 42 Stat. 239. Par. (2) of sec. 107 was added in the Internal Revenue Code of 1954 to clarify the discrepancy between rental allowances paid by congregations and residences actually furnished them. H. Rept. No. 1337, to accompany H.R. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., p. 15 (1954); S. Rept. No. 1622, to accompany H.R. 8300 (Pub. L. No. 591) 83d Cong., 2d Sess., p. 16 (1954). Except for a brief and uninformative discussion during hearings on the Revenue Act of 1934, no reference or explanation has been made with regard to the phrase. See Confidential Hearings of the Senate Finance Committee on the Revenue Act of 1934, pp. 30-31.

--Footnote 3 of Colbert v. Commissioner, 61 T.C. 449 (1974).

[Kestrel]

I found this in a footnote of a U.S. Tax Court opinion:

--Footnote 3 of Colbert v. Commissioner, 61 T.C. 449 (1974).

Mmmm. Not what I hoped for, but not unexpected.

Something happened in 1920-21 that nobody thought to make public, other than the result.

Thank you for researching it.

[AndyK]

Hypothetical:

Housing subsidies / physical housing provided to most employees constitutes a form of income.

Members of the clergy don't get paid a lot (ignoring some blatant anomalies)

The value of the residence COULD force the clergy person to pay (with real dollars) taxes on imputed dollars; thereby leaving him/her less to live on.

Congress looked at this situation as an inequity imposed on religious figures and attempted to rectify it.

The vast majority of this country adheres to some religion. Thus, they view the tax benefit as a benefit to them since they don't have to increase the compensation of the clergy.

[Arthur Rubin]

Hypothetical:

Housing subsidies / physical housing provided to most employees constitutes a form of income.

Actually, not necessarily for clergy. If they are required as a condition of employment to live in a specific building near the church, it's exempt. But you may have the reasoning correct.

[The Observer]

Members of the clergy don't get paid a lot (ignoring some blatant anomalies)

And the history of this is quite plain in rural areas in the Midwest and the South. Most Christian churches in these areas during the 19th and 20th centuries (and even today) had small congegrations and their income base was equally small. Their ability to pay a pastor/minister a "living wage" was a challenge; in fact some churches had to rely on a "circuit-rider" system and shared a pastor to be able to provide some sort of reasonable income. Wealthier congregations could build and provide a parsonage for the minister, again these were not luxurious accomodations, but provided an incentive to keep a pastor in the community on a full-time basis.
And as these buildings got older and more expensive to keep up or replace, churches found it less expensive to just provide the pastor an expense amount and let the clergy decide where they wanted to live and what they wanted to pay for.

As times have changed and areas "grew" up, the amount of compensation would have grown to put the pastor into a situation where the tax laws of the 20th century would made him or her liable. Most likely, it came to the attention of legislators from these rural areas that pastors were suddenly incurring tax liabilities that they could not afford nor expected to incur. It was most likely that Sec. 107 came about to deal with this unforseen and perhaps unintended result. To expect that anyone during the period of 20's through 50's to be concerned that Sec 107 might run afoul of the Establishment Clause is unrealistic, given the focus during that era.

But of course, it hasn't helped in those few situations where those pastors have accepted or contrived to receive exorbitant amounts of compensation that seem to violate the sprit/intent of Sec. 107. That does not help the small churches in the rural areas today that have a membership of less than a hundred people and have to scrape and pinch to provide some sort of housing for their pastor. And if Sec. 107 indeed is rule unconstitutional at the appellate level, those churches are going to lose pastors and will have to close.