Sec 107 - exemption for minister housing - unconsitutional

[Famspear]

....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.....

I can confirm that. My grandfather was a Methodist minister in the Deep South many years ago, and several members of my family (I'm talking four or five great-grand uncles, etc.) were Methodist or Baptist ministers in the South back in the early 1900s. I can tell you that NONE of them ever made a lot of money preaching the Gospel. At least one of them was a circuit rider, if I recall correctly from family history materials I've read.

I remember being told by my father that during the Great Depression, my grandfather was often paid "in kind" by members of the congregation -- i.e., this member paid him with potatoes, that member with some rice, etc., another with some tomatoes -- whatever each church member had readily available from his own farm or back yard garden.

[Kestrel]

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.

I want to reiterate the language in the 1913 act where it grouped religious institutions with the other major instutitional classes providing a recognized benefit to society, when it provided tax exemptions for:

"any State or municipal corporation or incorporated religious society, college, or other public institution..."

As of late the objections to governmental accomodation of churches seems to be coming from the ongoing secularization of society in general. More and more we are hearing legal arguments, such as those in the instant case, that churches provide a proselytizing message only, no real societal benefit, and only serve to impede individual freedoms.

This is only reinforced by the proliferation of governmental assistance programs. Whereas in 1913 the destitute turned to a church for assistance, now they turn to the local welfare office. You used to go to a soup kitchen where you got a meal and a sermon. Now you go get an EBT card, guilt-free. Hence our courts have been significantly more accomodating to Establishment Clause challenges.

[operabuff]

The difficulty with litigation of this sort is that it is hard to achieve standing to sue regarding the constitutionality of a tax provision without bringing a refund action. Usually either the Anti Injunction Act (section 7421) or the tax exception to the Declaratory Judgment Act or both, preclude any sort of relief to a plaintiff seeking to claim that a tax provision is unconstitutional.

(The Supreme Court had to find a way around the AIA in order to reach the constitutionality of the Affordable Care Act in National Foundation of Independent Businesses v. Sebelius. One of the oddities of the ruling is that the court had to find that 7421 was not applicable because the individual mandate sanction was a penalty and not a tax, but then find that it was a valid exercise of Congress's taxing power. A very small needle to thread.)

The constitutionality of the parsonage allowance was famously raised in Warren v. Commissioner. There the Tax Court addressed the size of the allowance claimed by the taxpayer. The Tax Court held for the taxpayer and the IRS appealed to the Ninth Circuit. After the appellate panel heard oral argument, they had questions concerning the constitutionality of the statute and requested an amicus curiae brief from Erwin Chemerinsky, a noted constitutional scholar. (Neither party raised constitutionality, so the court's action was sua sponte.) Chemerinsky's brief concluded that the statute was unconstitutional. In the meantime, Congress amended section 107 with the express purpose of mooting the Warren case. Because the underlying tax issue was resolved by the statutory change (although not the constitutional question) the government and Warren filed a stipulated dismissal with the Ninth Circuit. Chemerinsky sought leave to intervene, but was denied because of lack of standing. Warren v. Commissioner, 302 F.3d 1012 (9th Cir. 2002).

You can read Chemerinsky's views on the constitutionality of the statute here:

http://scholarship.law.duke.edu/cgi/vie ... cholarship

(Chemerinsky is now the dean of the law school at UC Irvine)

[jcolvin2]

The DOJ has authorized an appeal:

http://www.forbes.com/sites/peterjreill ... nce-appeal

[jcolvin2]

Court of Appeals determines that FFRF did not have standing:

http://media.ca7.uscourts.gov/cgi-bin/r ... 452972:S:0

[operabuff]

It's interesting that a provision that probably has no better than a 50% chance of surviving a constitutional challenge can't be easily tested in the courts. The language of the statute is pretty plainly unconstitutional, seemingly applying to Christian ministers only - "minister of the gospel." But the Treasury Department takes a broader view in its regulations. I'd guess that rabbis are allowed to take advantage, even though they're obviously not ministers of the gospel.

I wonder about other less mainstream faiths.

[jcolvin2]

The language of the statute is pretty plainly unconstitutional, seemingly applying to Christian ministers only - "minister of the gospel." But the Treasury Department takes a broader view in its regulations. I'd guess that rabbis are allowed to take advantage, even though they're obviously not ministers of the gospel.

I wonder about other less mainstream faiths.

I suspect most - if not all - religions (mainstream or otherwise) offer some form of "good news" for their adherents.

[Famspear]

I don't know of any cases where the Internal Revenue Service would have argued that section 107 is limited to ministers of the Christian faith and, obviously, that kind of restriction would not pass constitutional muster.

At any rate, there is some dicta in an old Tax Court case:

By definition a "minister" is one who is authorized to administer the sacraments, preach, and conduct services of worship. And "gospel" means glad tidings or a message, teaching, doctrine, or course of action having certain efficacy or validity. "Gospel," when used with a capital G, generally means the teachings of the Christian church as originally preached by Jesus Christ and his apostles or a narrative of Christ's life and teachings as exemplified by any of the first four books of the New Testament. Although "minister of the gospel" is phrased in Christian terms, we are satisfied that Congress did not intend to exclude those persons who are the equivalent of "ministers" in other religions. Nomenclature alone is not determinative.

--from Salkov v. Commissioner, 46 T.C. 190 (1966).

To digress a bit: In Salkov, the issue was whether Abraham Salkov, a cantor in a Jewish congregation, was a "minister" for purposes of section 107. The IRS argued that because Salkov was not the rabbi, he could not be a "minister".

The Tax Court rejected the IRS argument:

Respondent [the Commissioner of Internal Revenue] maintains that Cantor Salkov is not a "minister of the gospel" because he does not perform the one function reserved to the rabbi, the only ordained minister of the Jewish religion, namely, deciding questions of Jewish law. Consequently, the respondent presses the point that the rabbi, and not the cantor, is the only Jewish equivalent of a "minister." In a technical sense the petitioner is not an "ordained" minister. He does not claim that he, like the rabbi, has the right to judge, decide, and authoritatively teach Jewish law. Ordination has a restricted meaning in the Jewish faith. It is simply the testimony of a recognized religious authority that the rabbi ordained is worthy of being invested with the mantle of Jewish legal authority. A cantor does not have the authority to sit on any Jewish court dealing with problems of divorce or real estate. Even though the rabbinate possesses the sole authority over Jewish law, we fail to see what difference this makes in determining whether the cantor is a minister. Authoritative interpretation of religious law is not a primary, much less essential, element of the ministry. Rabbis have long been regarded as ministers, not because they interpret Jewish law but because they perform for their congregations the same sacerdotal functions that are performed by their equivalents in non-Jewish religions. The fact that Judaism assigns this work to two classes of professionally trained and qualified men will not be used by this Court to deny the benefits of section 107 to one (the cantor) merely because other religions have merged such duties into a single group.....

[Cpt Banjo]

On October 6, 2017, Judge Crabb ruled once again that Section 107(2) is unconstitutional. The plaintiffs solved the standing issue by having their employer give them a housing allowance the value of which they initially reported on their tax returns. They then filed amended returns claiming an exclusion for the allowance. Curiously, the IRS allowed a refund for one of the years in question but disallowed the claim for a different year, after which the plaintiffs filed suit.

An interesting phase of the decision related to the remedy that the court should grant. The plaintiffs pleaded in the alternative for (a) enjoining the enforcement of Section 107(2), (b) granting plaintiffs a refund and issuing an injunction requiring the IRS to extend the benefits of 107(b)'s exclusion to everyone, or (c) declaring 107(1) unconstitutional as well.
The court asked the parties to file supplemental briefs on the remedy issue, and on December 12, 2017 the court issued an order in which it noted that the parties had agreed that 107(2)'s exclusion should not be expanded and that Section 107(1) should not be invalidated. It denied the plaintiff's request for a refund due to the invalidity of Section 107(2) and noted that the parties had agreed that any injunction should be stayed until after the case went through appeals. The court finally determined to stay the injunction until 180 days after the final resolution of all appeals.

https://www.leagle.com/decision/infdco20171006zb43#
https://ffrf.org/images/1DOCKET095_OPINONANDORDER.pdf

[Arthur Rubin]

Any news? A cleric asked me about a parsonage deduction, rather than an exclusion. (This was for 2018 taxes, so I don't feel a sense of urgency.)

[Cpt Banjo]

Any news? A cleric asked me about a parsonage deduction, rather than an exclusion. (This was for 2018 taxes, so I don't feel a sense of urgency.)

Various groups are gearing up to file amicus briefs in the appeal to the Seventh Circuit. See, e.g., https://www.christianitytoday.com/news/ ... t-adf.html

The parsonage provision is an exclusion, not a deduction.

[Arthur Rubin]

Any news? A cleric asked me about a parsonage deduction, rather than an exclusion. (This was for 2018 taxes, so I don't feel a sense of urgency.)

Various groups are gearing up to file amicus briefs in the appeal to the Seventh Circuit. See, e.g., https://www.christianitytoday.com/news/ ... t-adf.html

The parsonage provision is an exclusion, not a deduction.

Per regulations, (although placed oddly), retired "clergy" receiving a 1099-R can exclude residence costs even if the "employer" doesn't mention it. It can be taken as an exclusion from taxable income if the 1099R specifies "taxable income not determined", or a negative miscellaneous income item, otherwise.

[Number Six]

What's fair in terms of ministerial salary, housing, and other benefits of the job? In this case you have legal debates on Constitutionality.

A local Episcopal church hired a minister after going through several other replacements for their long term rector. This one was billed as the Queen's vicar, which is not exceptional as she has many. Long story short after a year of so some of the members started digging into his history which apparently was not up to what he had claimed. The local bishop decided to stand with the rector, while the vestry and many regular members were against him. He won't leave, so you have a long legal conflict with lawyers on both sides.

[Cpt Banjo]

On March 15 the 7th Circuit reversed the District Court and upheld the validity of Section 107(2). See http://media.ca7.uscourts.gov/cgi-bin/r ... 309033:S:0

There is one howler in the opinion: "Before 1913, Congress could not constitutionally tax housing provided to ministers as part of their income. See Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895) (invalidating a state income tax)."

Er, not quite. There was no constitutional issue in taxing ministers' housing because Pollock invalidated only taxes on investment income and didn't overturn the portion of U.S. v. Springer, 102 U.S. 586 (1881) upholding taxes on compensation. In addition, Pollock involved the federal income tax, not a state one. Someone's clerk did some very sloppy research.

[Famspear]

On March 15 the 7th Circuit reversed the District Court and upheld the validity of Section 107(2). See http://media.ca7.uscourts.gov/cgi-bin/r ... 309033:S:0

There is one howler in the opinion: "Before 1913, Congress could not constitutionally tax housing provided to ministers as part of their income. See Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895) (invalidating a state income tax)."

Er, not quite. There was no constitutional issue in taxing ministers' housing because Pollock invalidated only taxes on investment income and didn't overturn the portion of U.S. v. Springer, 102 U.S. 586 (1881) upholding taxes on compensation. In addition, Pollock involved the federal income tax, not a state one. Someone's clerk did some very sloppy research.

Yikes! That's pretty bad.

[NYGman]

FYI -https://www.law360.com/tax-authority/fe ... es/1169398

An atheist group that lost its challenges to a tax exemption for clergy members’ housing allowances at the Seventh Circuit will not seek review by the U.S. Supreme Court.

The Freedom From Religion Foundation, a nonprofit that advocates for the separation of church and state, intentionally let its Thursday deadline pass, saying that in light of the Supreme Court’s composition, it did not believe the court would rule in its favor.

“After 'counting heads,' we concluded that any decision from the current court would put the kibosh on challenging the housing allowance for several generations,” the foundation said in a statement. “By ending our challenge at this time, the Freedom From Religion Foundation is making it possible for another challenge to be taken in the future, and we hope to be part of that.”