Alas, our Sacred Clergy Tax Break declared unconstitutional

Is it unfair to say that few things get the attention of clergy quicker than pocketbook issues?

Thus, the decision handed down Friday by U. S. District Judge Barbara Crabb has riveted the attention of my Southern Baptist colleagues along with most every group who has been a beneficiary of the tax break we call the clergy housing allowance.

My interest in the housing allowance goes back several decades, since I have always used it to exclude a portion of my income from the churches I have pastored but my focus on the intricacies, history, and abuses of it are only a few years old. I heard the clear notes of a trumpet calling me to look closely at it. I credit my CPA blogging friend, Peter Reilly, for alerting me to most of the stuff happening with the housing allowance.

So, here we are with the housing allowance being ruled unconstitutional when paid in cash to a minister. Those clergy living in pastoriums weren't affected by the decision.

The reactions have been interesting.

Southern Baptists have two main entities that concern themselves with the allowance, our annuity board, GuideStone Financial Services and our lobbying arm, the Ethics and Religious Liberty Commission. The former provides clergy and churches with counsel on how to manage the allowance so as to keep the IRS happy and the latter is supposed to be a watchdog over our interests.

I get the feeling that both GuideStone and the ERLC were caught flatfooted by this decision. The two CEOs of the entities issued a joint statement and GS head, O. S. Hawkins even stated that the decision was "not unanticipated." I suppose that such anticipation was expressed around the water cooler in GuideStone's executive suite because nothing was said about it before the decision was handed down. I expect both entities to sharpen their focus now. It is incidental but both entity leaders are among the higher paid SBC clergy and likely exclude nice sums from their income tax through the housing allowance.

Naturally, the Freedom From Religion Foundation, Inc., plaintiff in the lawsuit is elated with the decision.

“May we say hallelujah!" sayeth the FFRF.

"Hallelujah" translates to "praise the Lord" so I am gratified that our fellow citizens at the FFRF aren't completely free from religion. Although, we hate to have our sacred tax break ox gored by the FFRF, those associated whom I have exchanged comments with have always been perspicacious, cordial and not unkind. Some Baptists commenters might take a lesson.

Judging from comments among the brethren, a good many Southern Baptist ministers believe that a Masters of Divinity degree conveys on them the ability to be an expert in constitutional law; hence, numerous pronouncements about rogue judges and what an establishment of religion really is. Let's be honest, this is a prickly issue with many components, precedents, and facets. While I disagree with the judge here, I cannot say flatly that any appeal is a slam dunk in our favor. We will see.

No reasonable, thinking Southern Baptist minister can avoid one conclusion in all this: the manner in which our housing allowance has been used borders on clergy malpractice. A growing subset of ministers who are very highly paid and who live in multi-million dollar mansions are able to exclude hundreds of thousands of dollars from income taxation. While this is perfectly legal, I would expect that most of us would think it to be bad policy for both government tax law and for maintaining clergy goodwill in the community. Do we really think it fair to shift taxes from wealthy clergy living in mansions to the less highly compensated? Surely not. Add to that the practice of churches ordaining ministry associates in administrative or peripheral church jobs solely so that they can be qualified for the housing allowance.

Not helpful, brethren. An overseer is required to be above reproach and have a good reputation in the community. Let's not forget that.

I wrote over two years ago,

Augie Boto, Frank Page, the SBC Executive Committee and our favorite SBC lobbyist, Richard Land, ought to be proactive on this matter and find a way to support legislation that will preserve the Housing Allowance in a reasonable fashion while excluding the ridiculous abuses, legal though they may be, by people like Phil Driscoll and Kenneth Copeland.

While this would not affect the constitutional issue, right is right and fair is fair. It's time to get our act together on this.

We will see what happens down the road. For now nothing is changed although Thom Ranier, head of our publishing and bookstore entity, LifeWay Christian Resources, said this:

Rainer advised ministers to be conservative as they deal with the issue. "If at all possible, do not be dependent on the tax benefits garnered from having a housing allowance," he wrote. "Look carefully at the tax benefits you gain with the housing allowance. Be prepared to know what to do if the benefit goes away."

No so simple for ministers who aren't as highly paid as Ranier, but this is good advice.

Brethren, our housing allowance is now unconstitutional

It has been ruled so by a federal district judge in Wisconsin. I don't know how widely the decision is to be applied.

My CPA blogging friend, Peter Reilly has greater understanding of this than I, so here is what he says:

The Freedom From Religion Foundation has won a stunning victory in the United States District  Court For The Western District Of Wisconsin where Judge Barbara Crabb has ruled that a substantial tax benefit enjoyed by many thousands of clergy – ministers, priests, rabbis, imams and others – is unconstitutional.

The ruling concerns only those housing allowances which are paid in cash, not those claimed by ministers living in pastoriums. I'd guess that most SBC pastors are in the former group and, absent subsequent action, face some serious recalibration of their compensation and tax payments.

The Freedom From Religion Foundation comments on the victory:

 The Freedom From Religion Foundation and its co-presidents Annie Laurie Gaylor and Dan Barker have won a significant ruling with far-reaching ramifications declaring unconstitutional the 1954 “parish exemption” uniquely benefiting “ministers of the gospel.”
“May we say hallelujah! This decision agrees with us that Congress may not reward ministers for fighting a ‘godless and anti-religious’ movement by letting them pay less income tax. The rest of us should not pay more because clergy pay less,” Gaylor and Barker commented.

U.S. District Judge Barbara B. Crabb for the Western District of Wisconsin issued a strong, 43-page decision Friday declaring unconstitutional 26 U.S. C. § 107(2), passed by Congress in 1954. Quoting the Supreme Court, Crabb noted, “Every tax exemption constitutes subsidy.” The law allowed “ministers of the gospel” paid through a housing allowance to exclude that allowance from taxable income. Ministers may, for instance, use the untaxed income to purchase a home, and, in a practice known as “double dipping,” may then deduct interest paid on the mortgage and property taxes.

“The Court’s decision does not evince hostility to religion — nor should it even seem controversial,” commented Richard L. Bolton, FFRF’s attorney in the case. “The Court has simply recognized the reality that a tax free housing allowance available only to ministers is a significant benefit from the government unconstitutionally provided on the basis of religion.”
Crabb wrote: “Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility. It is important to remember that the establishment clause protects the religious and nonreligious alike.”

You can expect GuideStone, the Ethics and Religious Liberty Commission, and every SBC leader living and breathing to be in a raging inferno over this decision and to be furiously lobbying for some legislative amelioration.

I haven't read the decision and don't know exactly what this means for clergy around the country. Let the lawyers and experts jump on it.

Alas, Sacred Clergy Tax Break in some trouble.

Those of you who live in pastoriums may now crow a bit, since you aren't affected by the decision.

Coming soon? Atheist ministers of the gospel and their very own housing allowance

I do not know of an ordained Southern Baptist minister, pastor, teacher, evangelist, or denominational worker who does not take full advantage of our Sacred Clergy Tax Break, the Minister's Housing Allowance, provided by our wonderful government for the regular benefit of "ministers of the gospel".

The housing allowance allows SBC and other clergy to exclude money spent on their housing. If the minister owns a home he can exclude mortgage, taxes, insurance, and stuff spent on the home (the hot tub he installed on his deck to dissipate all that bad old stress he gets from pastoring a church). It is really a pretty nice tax loophole, since he can turn it into a double tax break by using mortgage interest already part of income exclusion as an itemized deduction.

Most of us consider the housing allowance as our birthright, although I have wondered if any of my colleagues have honest conversations with church members about it: How do you explain your government tax break, the clergy housing allowance?

But what the government giveth, the government can taketh away.

The Freedom From Religion Foundation has a lawsuit going in which they argue that it is a violation of the constitution for only "ministers of the gospel" to receive the housing allowance. In an interesting development the government's defense is in part to assert that the FFRF staff who brought the lawsuit and who seek a housing allowance despite not being ministers of the gospel, might actually qualify to receive it...even though they are atheists. 

Ah, got it, atheist ministers of the gospel. 

Oh, the lengths to which we must go to defend our sacred tax loophole.

Peter J. Reilly, my CPA blogging buddy and Civil War afficionado (albeit on the wrong side, forgivable since he didn't choose to have Yankee ancestors), has actually read the documents and gives a much fuller explanation of the whole absurdity in his blog, Government lawyers advocate for atheism as a religion.

The litigation between the Freedom From Religion Foundation and the United States over the parsonage exclusion has taken an odd turn.  The Government is trying to convince a couple of atheists who get housing allowances from  FFRF that maybe they might qualify as “ministers of the gospel”.

What started out almost a century ago as a law that allowed ministers of the gospel who lived in pastoriums to have the same tax status as others who lived in employer housing has morphed into a monstrosity with some million dollar ministers living in mansions and excluding hundreds of thousands of dollars from being subject to income taxes. Ordinary Americans get a W-2 that lists their wages. Ministers don't have to report their housing allowance at all - no W-2 income for that.

But no one says tax laws have to make sense.

For the vast majority of us this is a very modest tax break, couple of thousand dollars in taxes saved, and I rather like it and would like to keep it. I would have no objection to the housing allowance having a cap, say, no more that $100,000 or so in income may be excluded, or even means testing it. That would sanitize it against the small fraction of extremely wealthy clergy getting tax loopholes.

But does anyone blame the FFRF for suing to get the same privilege as ministers of the gospel? Little did they know that government lawyers would be arguing that our atheist FFRF friends could be considered ministers of the gospel, just like us.

No one can make this stuff up.

So, to what lengths will we go to preserve our Sacred Clergy Tax break? Perhaps GuideStone, our SBC Ethics and Religious Liberty Commission, and convention attorney will file a friend-of-the-court brief in support of that.

Housing Allowance: Rick Warren giveth, will Ed Young taketh away?

My last post on the Minister's Housing Allowance, our Sacred Tax Loophole, was probably unwelcome with some of our Southern Baptist colleagues (Nope. You cannot use your housing allowance for a second home) because it shared the bad news that the more affluent clergy among us cannot expect Joe Sixpack to subsidize their second home at the beach or in the mountains.

Let's not get too upset about it because that first home that does qualify can be the Biltmore House and a high-income clergy person can pour as many hundreds of thousands of dollars into that as he can in order to maximize his or her tax break.

Makes sense in the same way that a lot of federal tax policy makes sense.

And, no, Rick Warren didn't originate the housing allowance but he was the catalyst for the federal law passed a decade ago that made it a bit smoother for us.

Ed Young? He has a pretty spiffy house in Houston that is or was on the market for over $2 million and Tom Rich of SBC Jax Watchdog puts a hefty figure on what his housing allowance comes to, a quarter million dollars or so. 

Rick Warren giveth...so how does Ed Young cause it to be taketh away?

Does anyone misunderstand that when clergy claim such exemptions to income by right and tax law that sooner or later folks will pay attention and say that something just isn't right here? Why should the government subsidize a mansion for clergy and not some hourly worker's hovel?

Why indeed?

There is some news here, rumblings on the horizon, because of a new legal challenge to the minister's housing allowance: Challenge to clergy tax break gets green light... My friend and CPA Peter J. Reilly has an interest in such things. The link is to his blog on Forbes. Read and learn.

The suit is being brought by the Freedom From Religion Foundation and Peter Reilly explains it much better than I could.

The FFRF certainly has some material to work with, what with clergy  mansions like the one above, not to mention the clergy who are "qualified" for the housing allowance as ministers of loose basketballs, ministers of maintenance, ministers of fun overseas mission trips and other odd church staff positions.

I'm guessing that the FFRF lawyers know how to hit softballs out of the park.

The average SBC minister in my state has a compensation package (generally salary plus housing allowance, or rental value of a pastorium) of around $71,000 and the housing allowance probably translates into a savings of a thousand dollars annually or so. A thousand dollars is real money to most SBC clergy.

If asked, and I have been asked about this, I cannot say that we clergy deserve this tax break any more or less than any other group with some pull in D.C.

Is it unconstitutional? Guess we may see.