By Sam Brunson
On Friday, the Western District of Wisconsin ruled (again) on the constitutionality of the section 107(2) rental allowance for “ministers of the gospel.”[fn1] The litigation between the Freedom From Religion Foundation and the IRS has been going on for a long time—I first blogged about it in 2013—so I’m not going to spend a lot of space here discussing the specifics of the case. If you want to look at what’s been going on, you can check out this post and the posts I’ve linked to in it.[fn2] Long story short, this is the second time the court has ruled the rental allowance is unconstitutional. The first time, the Seventh Circuit reversed on the grounds that the plaintiffs had never tried to claim a tax-free rental allowance, so they had no standing. This time, they did claim a refund, which the IRS refused, the court found standing, and, in a well-written and extremely persuasive opinion, it again found section 107(2) unconstitutional.
Although the court declared that section 107(2) violated the Establishment Clause, it didn’t order a remedy. The opinion explains that in the first round, all of the parties assumed that the only relief available was to declare the provision unconstitutional and enjoin its enforcement. This time, though, the Freedom From Religion Foundation suggests that there may be two other remedies available. The first is to refund a portion of plaintiffs’ taxes and order the IRS to “extend benefits under the statute to those excluded.” The second is to declare section 107(1) (that is, the in-kind provision of tax-free housing to “ministers of the gospel”) also unconstitutional.
The court is understandably skeptical that either one is appropriate, but does not want to discount them out of hand, so it has ordered supplementary briefing by the parties; that briefing will be complete by November 8. In the meantime, a couple thoughts:
First, while I think section 107(1) is also probably unconstitutional, it’s almost certain that the plaintiffs don’t have standing to challenge it, and it’s equally likely, as the court points out, that the two parts are severable—after all, the predecessor to section 107(1) predates section 107(2) by about three decades.
More interesting is the question of whether the court can order the IRS to extend the benefits of section 107(2) to people who don’t fit within the broad definition of “ministers of the gospel.” Again, the court is skeptical that this could be the case, explaining that the provision could be rewritten in a number of ways, and that it is probably a question best left to Congress.
On that, the court is definitely correct.
I mean, it’s definitely within the power of the judiciary to take a statute that benefits religious individuals, in violation of the Establishment Clause, and expand it by reading the religious requirements out of the statute. That’s what the Supreme Court did in Welsh v. United States. Welsh dealt with section 6(j) of the Universal Military Training and Service Act, which allowed conscientious objectors to avoid the draft, provided their objection came from “religious training and belief” that related to a “Supreme Being.” The Court essentially read the religious component out of the law, allowing conscientious objectors to avoid the draft provided their opposition to war had the strength of religious conviction.
That kind of expansion seems ill-suited to the parsonage allowance for two (related) reasons.
First is that there is a definitional problem that exists in the parsonage allowance that does not with conscientious objection. Specifically, who is the non-religious equivalent of “ministers of the gospel”? Presumably, the expanded definition would only encompass employees of tax-exempt organizations. But which employees? After all, not every employee of a church qualifies as a “minister of the gospel” for these purposes. Rabbis qualify, but the IRS determined that “ministers of education” and “ministers of music” don’t. The IRS decided that a cantor didn’t qualify, but the Tax Court disagreed. The IRS refused to acquiesce to that decision for a dozen years, though. Essentially, while the IRS has moved to a nonsectarian definition of “minister of the gospel,” it still requires that an individual receive the allowance for services that are ordinarily the duties of a minister of the gospel.
In most cases, it’s hard to say what these equivalent clergy-like duties would be an a non-religious tax-exempt organization. That’s not to say that Congress couldn’t expand the section 107(2) exemption more broadly. It could, for example, say that the five highest-compensated employees of a tax-exempt organization qualified for a tax-free rental allowance under section 107(2), or that whomever exercised some sort of managerial control qualified, or that the founder qualified.[fn3] None of those would raise an Establishment Clause issue, because it would be available to all tax-exempt organizations, whether religious or not.
In Welsh, the expansion was easy: removing the religion component didn’t change the fundamental nature of the conscientious objector, so Congress didn’t need to make any policy decisions. But here, there’s no easy equivalent. Whatever adjustment a court came up with would fundamentally change the nature of the exemption. Better, then, to enjoin section 107(2) and allow Congress to craft a solution, if it wants to.
And it may not want to. Expanding section 107(2) could potentially be very expensive. According to the IRS, there are roughly 270,000 organizations that file some version of Form 990. That is, 270,000 non-church tax-exempt organizations. Not all of them are big enough to provide housing stipends, but if even 10% are, that’s 27,000 organizations with at least one employee who could qualify for tax-free housing allowances. That risks being a real revenue drain. And again, if the government is going to give up significant amounts of revenue, it makes sense to do it in a reasoned and democratically-accountable way.
[fn1] I’m putting “ministers of the gospel” in quotation marks because it’s the terminology the Code uses. The IRS and courts have interpreted it as being wider than just Christian clergy, in spite of the plain language, however.
[fn2] Peter Reilly at Forbes has also blogged extensively about the case, including the most recent decision.
[fn3] I’m not judging whether these are good ideas or not.