When Religious Tax Accommodations Are Inconsistent

By Sam Brunson

On Wednesday, October 24, the Seventh Circuit is going to hear arguments in the appeal of Gaylor v. Mnuchin. I’ve written about this parsonage allowance case a number of times in the past (see here and here for examples), but as a quick summary: section 107(2) of the Code says that “ministers of the gospel” don’t have to include rental allowances in gross income. Several years ago, the Freedom From Religion Foundation challenged this parsonage allowance on the grounds that it violated the Establishment Clause of the Constitution. They won in the district court, but the Seventh Circuit found that the plaintiffs didn’t have standing to challenge the provision.

The Seventh Circuit also suggested, in a footnote, that if they claimed a parsonage allowance and the IRS rejected their claim, they might have standing. So they did, the IRS did, and the district court again found the provision unconstitutional. And now the Seventh Circuit will weigh in (again).

As a side note, this provision (as well as a bunch of others) made their way into God and the IRS, the book I wrote that was recently published about tax accommodations of religious individuals. The fundamental purpose of the book was to illustrate the ad hoc nature of religious accommodations in the tax law, and develop a framework that could provide some consistency as Congress and the IRS consider providing these accommodations.

In anticipation of the Seventh Circuit hearing (and, perhaps, of a presentation I’m going to give at the law school), I was reading through the briefs, and something leapt out at me that vividly illustrates the danger of the current ad hoc version of accommodation. In describing why the parsonage allowance is not unconstitutional, the government makes a couple fundamental arguments. One is that the accommodation avoids excessive entanglement between the government and religion. There’s a general exemption for some employer-provided housing, as long as the housing is provided for the convenience of the employer. By exempting employer-provided housing (and, apparently, housing allowances), the government doesn’t have to investigate whether the provision of housing to ministers is for the convenience of the church.

(Note that, even if this is true, it’s at least slightly disingenuous. Sure, it eliminates entanglement with the question of the convenience of the employer test. But the question of convenience of the employer seems to me to raise limited questions of religious practice and belief. But the parsonage allowance does raise the entanglement stakes significantly on another ground: the definition of “ministers of the gospel.” Determining who qualifies as a “minister of the gospel” turns out to be a hard, and intrusive, question. For instance, while the IRS has (correctly, imho) expanded the definition to rabbis and imams, it decided that a “minister of music” and a “minister of education” didn’t count. And the IRS has gone both ways on Jewish cantors, first determining that they didn’t qualify, and then refusing to acquiesce to the Tax Court’s reversal for a dozen more years. Ultimately, the IRS can’t rely merely on education or ordination—it has to look into whether an individual provides, among other things, the worship, sacerdotal, and educational functions that the religion requires.)

The second argument is that the tax-free provision of housing allowances eliminates discrimination among various religious denominations:

Congress enacted § 107(2) to ensure that all ministers who were similarly situated were treated equally by the Government, tax-wise. Id. And, in doing so, Congress simply codified the results of  litigation brought by ministers seeking equal tax treatment of parsonages and parsonage allowances. See, above, pp. 7-8. Because § 107(2) has the permissible, secular purpose of avoiding governmental discrimination among religions, it furthers one of the core purposes of the Establishment Clause. See Larson v. Valente, 456 U.S. 228, 246 (1982) (determining that law that applied to some, but not all, religions violated the Establishment Clause by running afoul of the “principle of denominational neutrality”).

Brief for the Federal Appellants, BL-16, pp. 38-39 (emphasis added).

Leaving aside whether this is a compelling argument for the constitutionality of section 107(2),[fn1] the Larson citation suggests that another tax accommodation is insupportable. See, section 1402(g) provides an exception from SECA taxes. In order to be exempt, though, self-employed individuals must (a) be a member of a recognized religion, the established tenets of which don’t allow them to accept social security (or other public or private insurance similar to social security), and (b) they may be required to provide evidence to the Secretary of their membership in the religion and of its teachings.

Essentially, as I discuss in my book, this was an exemption created for the Amish. But when Congress created the accommodation, it wasn’t thinking broadly about how that accommodation would fit with other accommodations, and so it doesn’t fit. If the government is right that the touchstones of permissible accommodation are denominational neutrality and avoiding excessive entanglement, well, the SECA exemption does neither. Congress didn’t want social security to be an optional program, so it deliberately created a very narrow exemption, one that, as far as I know, applies only to the Amish.[fn2]

And the exemption demands entanglement: it requires individuals who want to take advantage of it to prove that they belong to a religion that forbids the use of this kind of insurance and that they comply with the religious prohibition. So the government has to evaluate what the tenets of the religion are, as well as an individual taxpayer’s compliance with those tenets. To be frank, I can’t imagine a much more intrusive religious inquiry.

That’s not, of course, to say that if the court upholds section 107(2) that the Amish accommodation will go away. It would be extremely difficult, I suspect, to have standing to challenge it. Still, because Congress (and, for that matter, the DOJ) has an atomized view of religious tax accommodation, the policies underlying the various accommodations are unrelated and, at least in some circumstances, inconsistent with each other.

Cross-posted at By Common Consent.


[fn1] Though frankly, I don’t find either argument super-compelling. Among other things, it seems to rely on the Rep. Peter F. Mack, Jr.’s testimony that section 107(2) was designed to correct for discrimination between denominations.

On its face, that’s vaguely plausible. After all, he testified that the provision occurred to him when a Baptist official called it to his attention. “Upon looking into the matter, I realized that the present tax laws are discriminatory among our clergy.” That statement certainly seems to support the idea that section 107(2) was not intended to advance religion, but rather to create denominational neutrality.

But there’s a problem with that argument: at the very end of his testimony, Rep. Mack says, “Certainly in these times, when we are being threatened by a godless and antireligious world movement we should correct this discrimination against certain ministers who are carrying on such a courageous fight against this foe. Certainly this is not too much to do for these people who are caring for our spiritual welfare.” And that sounds an awful lot like the provision was intended specifically to favor religion. So oops, maybe? (Both of these quotations come from Statement of Hon. Peter F. Mack, Jr., on H. R. 4275, Concerning the Taxability of a Cash Allowance Paid to Clergymen in Lieu of Furnishing Them a Dwelling, Bernard D. Jr.; William S. Hein Co. Reams, Inc., Internal Revenue Acts of the United States: The Revenue Act of 1954 with Legislative Histories and Congressional Documents at 1574-78.)

[fn2] There’s another exemption in 1402(e) that applies to clergy and Christian Science practitioners generally; that accommodation does seem to have denominational neutrality, but the Amish exemption applies to all Amish members, not just clergy.

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