Housing allowance defense joined by ERLC & GuideStone

By Tom Strode, Washington bureau chief for Baptist Press on October 11, 2017

NASHVILLE (BP) -- The Southern Baptist Convention's religious freedom entity will maintain its effort to preserve the ministerial housing allowance because pastors are crucial "for flourishing, vibrant communities," Russell Moore said Tuesday (Oct. 10).

The Ethics & Religious Liberty Commission (ERLC) stands alongside GuideStone Financial Resources -- the SBC's health and financial benefits entity -- in opposing an Oct. 6 federal court decision that invalidated the housing allowance, said Moore, the ERLC's president. In the opinion, Judge Barbara Crabb of the Western District of Wisconsin ruled the allowance an unconstitutional violation of the First Amendment clause that prohibits a government establishment of religion -- the second time she has done so in four years.

Moore described the opinion as "a sad development that represents a needless challenge to hard-working pastors devoted to serving their communities."

"More still, this ruling is wrong: the housing allowance is in no sense the government establishing religion," Moore said in a written release. "The allowance is neutral, applies indiscriminately to all religions and removing it would disproportionately harm clergy in small congregations across the country."

GuideStone President O.S. Hawkins also took issue with the basis of the opinion in an Oct. 9 statement.

"The housing allowance, far from being a government endorsement of religion, as Judge Crabb contends, actually removes government from the equation," Hawkins said in written comments. "Were it not for the housing allowance, the government would be imposing a tax on religious employers and their employees that is not imposed on non-religious employers."

GuideStone has been monitoring the case -- as well as previous related cases -- and will attempt to file a friend-of-the-court brief as part of a coalition of denominational benefit boards, Hawkins said.

GuideStone and the ERLC also were united in opposing Crabb's 2013 decision striking down the housing allowance. The entities issued a joint news release to protest her ruling at that time, then signed on to separate friend-of-the-court briefs urging the Seventh Circuit Court of Appeals in Chicago to reverse the decision.

The Seventh Circuit Court overturned Crabb's ruling in 2014, finding the atheist organization that brought the lawsuit lacked the legal right -- known as "standing" -- to challenge the allowance.

GuideStone had joined in a brief by the Church Alliance, a coalition of church benefit programs, while the ERLC -- as well as the International Mission Board -- signed on to a brief with a diverse group of religious organizations.

At issue is a portion of a 1954 law that permits "ministers of the gospel" to exclude for federal income tax purposes a portion or all of their gross income as a housing allowance. Their church or church-related employer must designate the amount.

This time, changes in the facts of the case may enable Crabb's decision to gain a favorable verdict from the Seventh Circuit, some legal observers believe. The Freedom From Religion Foundation (FFRF) -- which also sued in the 2013 case -- argued in its challenge that the Internal Revenue Service 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 opinion. 

The appeals court may uphold Crabb's latest opinion because she appears "bound by existing law to decide the case this way," Mississippi College law professor Matt Steffey told Baptist Press. "The way the U.S. Supreme Court has interpreted" the establishment clause to disallow the preference of religion over non-religion "dictates to a lower court, which must follow the existing Supreme Court precedent to arrive at this decision."

Michael and Jonathan Whitehead -- a Southern Baptist father-son legal team in Kansas City, Mo. -- expressed optimism about a Seventh Circuit ruling to affirm the housing allowance.

"A pastor's house is a place of ministry and hospitality," Jonathan Whitehead said in written comments for BP. "When a church designates funds to be used at that place of ministry, it shouldn't be subject to additional income tax."

Congress has taken account of the special burdens that a rule taxing housing expenses could place on churches and their pastors, he said. "We believe the Seventh Circuit will understand these concerns and will not require the IRS to tax church expenses.

"Ministers and ministries have entered into compensation agreements, home purchases and retirement plans, in reliance upon this [IRS] code section," Whitehead told BP. "Courts are loath to disregard or upset significant and substantial reliance interests by millions of Americans who have based their plans on this longstanding tax law."

In a written commentary on Crabb's ruling, the Whiteheads said ministers "should monitor the developments in this case, but need not panic or abruptly change their practice regarding housing allowance. Churches should continue to designate in 2017 housing allowance amounts to be paid to qualified ministers in 2018."

GuideStone advised ministers to consult the entity's annual tax guide, available at GuideStone.org/taxguide, and its housing allowance information, available at GuideStone.org/housingallowance, to ensure they are properly documenting housing allowance and reporting it appropriately on their income tax returns.

Crabb refused to include the parsonage provision in her decision, the Whiteheads said. 

Under the federal income tax system, some housing costs are primarily for "the convenience of the employer," not the employee. As a result, such costs are not considered income. In addition to ministers, those who receive such benefits include members of the U.S. military, workers living overseas and employees of educational institutions.

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