Michigan and the Parsonage Allowance


I’ve been following Gaylor v. Mnuchin, the parsonage allowance case, for years now. A couple months ago, I got to hear oral arguments the second time it went up to the Seventh Circuit. And I’ve been waiting eagerly since for the court to issue its decision.

As of 11:18 pm Central time on January 30, the court had not yet issued its opinion. But, in spite of the case being fully briefed and argued, one update to the case recently occurred: the state of Michigan changed its mind.  

What’s that? What does the state of Michigan even have to do with this? After all, at issue is section 107(2) of the Internal Revenue Code, which provides that “ministers of the gospel” can exclude from gross income any amount they receive as a rental allowance, subject to certain ceilings and limitations. That seems like a purely federal question.

What happened is this: on April 26, 2018, the Attorney General of Michigan signed onto an amicus brief with the states of Wisconsin, Arizona, Arkansas, Colorado, Georgia, Indiana, Kansas, Louisiana, Missouri, Nebraska, Ohio, Oklahoma, South Carolina, Texas, Utah, and West Virginia. In that brief, the states and Michigan’s AG supported the constitutionality of the parsonage allowance.

And why did these 17 states care what happened to the federal parsonage allowance? They provided three reasons why it mattered to them:

  1. Incorporation: many state income taxes incorporate parts of the federal income tax, including the parsonage allowance, and the amicus brief claims that disallowing the federal parsonage allowance would also invalidate the state parsonage allowances;
  2. Invalidating the parsonage allowance would threaten other religious tax exemptions offered by states; and
  3. Ministers and religious organizations provide charitable services in the states, which reduces the burden on government; increasing the financial burden on these individuals and organizations would ultimately undermine states’ pursuit of social welfare.

I’m not interested (for purposes of this post, at least) in engaging these three assertions. Rather, I’m interested in what the Attorney General of Michigan did on January 29. As the Midwest was gearing up for #PolarVortex2019, she filed a motion to withdraw Michigan’s support of the amicus brief.

The amicus brief, she explained, was filed under state Attorney General Bill Schuette. On January 1, 2019, Dana Nessel took office. Nessel determined that the amicus brief no longer represents Michigan’s position, and thus wants to withdraw from it.

As a practical matter, I’m not sure what Michigan’s withdrawal does. I suspect that the judges have come to their conclusions, and at this point are working out the language of the opinion.

Still, as a strategic matter, I find this fascinating. While there may not be a lot of practical impact to withdrawing Michigan from the amicus brief, it demonstrates the impact that a new officeholder, with new priorities, can have on law generally, and on tax in particular.

So, while the Seventh Circuit opinion is still to come, the case still raises interesting issues that aren’t the main substantive question.

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