Freedom from Religion Foundation v. Lew: Is the Ministerial Housing Allowance Unconstitutional?

UPDATE :  The Seventh Circuit Court of Appeals avoided the constitutional question posed in Freedom From Religion Foundation, Inc. v. Lew[1] (described in the original story below), by vacating, for lack of standing, a lower court’s ruling that the ministerial housing allowance violates the U.S. Constitution. The case was brought by the Freedom From Religion Foundation, Inc. (“FFRF”) and its co-presidents Annie Laurie Gaylor[2] and Dan Barker.[3] They claimed that the Defendants, the Secretaries of the Treasury Department and Commissioner of the Internal Revenue Service[4], respectively, violate the Establishment Clause of the First Amendment and the Equal Protection component of the Fifth Amendment.

The Appeals Court ruled that the plaintiff’s injury must be “concrete and particularized”, meaning that “the injury must affect the plaintiff in a personal and individual way.” Neither plaintiff, it noted, “sought to exclude this income on their federal income tax returns and neither has filed a claim for a refund after payment.” Citizens who claim “only harm to … every citizen’s interest in proper application of the Constitution and laws” have not shown an “injury” for standing purposes, it wrote. [5]

The Court vacated the lower court’s judgment and remanded the case with instructions that it be dismissed by that court for want of jurisdiction.[6] It did not rule on the merits of the case.

The Court admitted that proof of “injury” under the Establishment Clause might be difficult. It suggested a number of ways that the Clause might be violated, and how a justiciable injury might result. Relevant to this lawsuit was the prospect that a dollars-and-cents injury would occur if the plaintiffs had actually applied for a ministerial exemption and had been denied based upon their lack of religious affiliation. But, it wrote, because they never asked, they were never denied. “And absent any personal denial of a benefit, the plaintiffs’ claim amounts to nothing more than a generalized grievance about §107(2)’s unconstitutionality, which does not support standing.”[7]

Can the plaintiffs cure their lack of standing by applying for the ministerial housing allowance and being denied? The Court suggested that they might. “We think it unlikely that § 107(2) will be interpreted to apply to the plaintiffs in this case, but there may be many closer cases …. We thus think it important to allow the IRS and the Tax Court to interpret the boundaries of a tax provision before we assess its constitutionality.”

[1] Freedom From Religion Foundation v. Lew, No. 14-1152 (Nov. 13, 2014 7th Cir.) Appealing 11-CV-626-BBC, W.D. Wis. (Order filed 11/22/13).

[2] 26 U.S.C §107(2).

[3] Dan Barker is a former minister and evangelist and author of a number of books that challenge traditional religion.

[4] The original defendants were Timothy Geithner and Douglas Schulman in their official capacities.

[5] FFRF v. Lew supra p. 4.

[6] FFRF v. Lew supra p. 2.

[7] FFRF v. Lew supra p. 8.

Original Article (From the July/August 2014 issue of Taxation of Exempts)

The Seventh Circuit Court of Appeals is now considering the constitutionality of Section 107(2) of the Internal Revenue Code. The government filed its appeal  on 4/4/14, after Treasury and the IRS lost a case, brought in the Western District of Wisconsin, that challenges the constitutionality of the ministerial housing allowance now provided in the Code for “ministers of the gospel.”[1]

The case, Freedom From Religion Foundation, Inc. v. Lew (“FFRF v. Lew”),[2] was brought by the Freedom From Religion Foundation, Inc., and its co-presidents, Annie Laurie Gaylor [3] and Dan Barker.[4]  Defendants Jacob Lew and Daniel Werfel were the Secretary of the Treasury and Acting Commissioner of the Internal Revenue Service, respectively. [4]  Federal District Judge Barbara Crabb denied defendants’ preliminary motion to deny standing to the plaintiffs on grounds that it is clear from the face of the statute that plaintiffs are excluded from an exemption granted to others.

The original complaint contended that the income tax exemptions received by ministers in Section 107 violate the Establishment Clause of the First Amendment and the Equal Protection Clause of the Fifth Amendment.  Section 107 provides:

        In the case of a minister of the gospel, gross income does not include

  • the rental value of a home furnished to him as part of his compensation; or
  • the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities. [6]

Early in the proceedings, Judge Crabb granted defendants summary judgment as to the constitutionality of Section 107(1), so the remaining controversy concerns only Section 107(2).  While the plaintiffs had not sought summary judgment as to Section 107(2), she entered summary judgment sua sponte, noting that she had authority to do so as long as the losing party was on notice that it had to come forward with all its evidence. [7]  Section107(2), she declared, violates the Establishment Clause of the First Amendment to the United States Constitution because it provides a benefit to religious people and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.

Judge Crabb has enjoined implementation of her decision during pendency of the appeal.

 A Brief History

Rick Warren is pastor of the Saddleback Valley Community Church in Orange County, California.  In the early 1990s he asked his board of directors to declare that the entire amount of his compensation from the church was designated as tax-free housing allowance.  The board did so.  The IRS determined that the amounts thus excluded from Warren’s taxable income were in excess of the fair rental value of the home.  It declared deficiencies and accuracy-related penalties for several tax years, as shown in Exhibit 1, below.


Deficiencies and Penalties in Warren

Year Allowance Claimed IRS Deficiency Section 6662(a) Penalty
1993 $77,663 $11,932 $2,386
1994 $86,175 $18,061 $3,612
1995 $99,653 $16,080 $3,216


The case generated a great deal of publicity, no doubt because of Rev. Warren’s fame [8] and because Section 107(2), as it was worded at the time, was entirely open-ended.  Ministers were allowed to exclude from gross income the rental allowance paid to them as part of their compensation.  There was no qualifier for the fair rental value, as is now the case.

Rev. Warren claimed that his exemption was entirely legal and defended his claimed exemption with vigor when the Tax Court agreed with the IRS and ruled that his housing allowance was limited to the lesser of the fair rental value  of the home or the amount used to provide a home, [9] he appealed that ruling to the Ninth Circuit Court of Appeals.  Before the Ninth Circuit could adjudicate the appeal, Congress amended Section 107(2) to limit its exemption to the fair rental value of the house, the current language that is cited above. [10]  The purpose of the law clearly was to moot the Warren case, and it accomplished that purpose immediately. Two days after President George W Bush signed the amendment into law, attorneys for the government and Rev.  Warren filed a stipulated dismissal of the appeal.

A question of constitutionality arises

In 2001, while the Warren case was still pending, University of Southern California law professor Erwin Chemerinsky [11] was called by a staff attorney at the Ninth Circuit and asked to research the issue of whether Section 107 was constitutional.  In a boldly titled article published in 2003, “The Parsonage Exemption Violates the Establishment Clause and Should Be Declared Unconstitutional,”[12] Prof. Chemerinsky declared that the Code violated the First Amendment because it not only had the effect of advancing and benefitting religion, but it constituted an endorsement of it.  In addition to allowing ministers to claim an exemption that  is unique to religious employees, Prof. Chemerinsky asserted that Section 107(2) allowed ministers, alone among taxpayers, to double-dip:

The parsonage exemption provides an enormous financial benefit to clergy and to the religions that employ them, which is not available to any other taxpayers or employers . . . . Section 107(2) allows ministers to be paid without having to pay taxes on some or all of their salary by having it declared a housing allowance.  But the benefit is even greater than that: Clergy also can deduct their mortgage payments and real estate taxes from their income tax, even though they paid for these with tax exempt dollars. [13]

Does Section 107(2) advance and benefit religion?  Chemerinsky went back to 1953 when Section 107(2) was added to the Code, and discovered that it was part of an effort by Congress to help America fight “godless communism.”  He quotes Rep. Peter F. Mack, Jr.(D.Ill.), who argued during Congressional hearings on the amendment:

Certainly, in these times when we are being threatened by a godless and antireligious world movement we should correct this discrimination against certain ministers of the gospel 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. [14]

In many ways, Prof. Chemerinsky’s 2003 comprehensive analysis provides the intellectual framework for Judge Crabb’s 2013 decision now on appeal.  Whether his article was sitting on her bench when she wrote her decision, or whether his arguments were adopted by the FFRF as part of its argument, it is clear that Judge Crabb agrees with his understanding of Section 107(2)’s intention and effect. [15]  Specifically, Judge Crabb found that Section 107(2)is unconstitutional under the test promulgated in Lemon v. Kurtzman. [16]  There, the Supreme Court held that government action violates the establishment clause if (1) it has no secular purpose, (2) its primary effect advances or inhibits religion, or (3)it fosters an excessive entanglement with religion.  Judge Crabb concluded that Section 107(2) met each of these tests, ruling that the purpose in enacting it was to either endorse religion or convey a message of endorsement. [17]

Judge Crabb chided the defendants for failing to give any reason why a requirement for ministers to pay taxes on their housing allowances would be more burdensome for them than for the many millions of others who must pay taxes on income used for housing expenses. She concluded that the exemption provides a disproportionately greater benefit to relatively affluent ministers, due to the higher marginal tax rates applicable to their incomes.  Finally, she noted that tax exemptions constitute a subsidy that affects non-qualifying tax­payers, forcing them to become “indirect and vicarious donors'” [to the religions whose ministers are thus spared the duty of paying taxes on this income]. [18]

The government argued that Section 107(2) actually eliminates the discrimination among different religions and between religious and non-religious employers.  Its argument was that the impetus for the exemption could be traced to the convenience of the employer doctrine, under which employees are no taxed on the value of housing if the employer requires them to live in it.  They noted that when the IRS began applying this exemption in 1919, most ministers lived in parsonages that were connected to the church premises. As times changed, ministers began to prefer purchasing their own homes so that they could build a retirement nest egg as so many other homeowners were able to do.  Section 107(2), the defendants argued, provided an equalizer so that ministers could own their own homes  but treat the home as if it were purchased for the convenience of their employers.

Judge Crabb did not accept this argument, and cited the same 1953 speech byRep. Mack that Prof Chemerinsky cited in his 2003 article. She concluded by saying:

Defendants suggest vaguely that all of the recipients have ‘unique housing needs; but they never identify how the needs of ministers who do not live in employer housing are different from those of any other taxpayer [citations omitted]. [19]

The denominations weigh in

The religious heavyweights have filed their amicus briefs. Appearing for a host of denominations, The Church Alliance filed an amicus curiae brief on 4/8/14 in support of the defendants-appellants. [20] Not surprisingly, the Alliance – a coalition of denominations – alleges a substantial interest in the validity of Section 107(2) on behalf of its members, both because of its immediate impact on ministers’ compensation and housing and because of its longer-term impact on their retirement plans.

The United States Supreme Court has long distinguished between affirmative assistance to religious organizations and merely lifting government-imposed burdens so as to allow those organizations to exercise their religious mission more freely.  When Congress chooses not to impose a burden on religious organizations – whether by means of tax exemption or regulatory exemption-it honors, rather than transgresses, this nation’s long tradition of separation between church and state. [21]

The Alliance’s position adds to the argument of Treasury and the IRS argument by asserting:

1.   Section 107(2) is a permissible accommodation of religion that satisfies the three-prong Lemon test and does not impermissibly advance religion or entail excessive entanglement between church and state.

2.    Reliance interests militate against a change in the law because, for over 50 years, the churches of America and their ministers have assumed that they could receive the benefit of the housing-allowance exclusion without constructing and maintaining church-owned parsonages, and their compensation and retirement schemes have been tailored based on an expectation that the benefits would continue into the future.

In an amicus brief filed by a group called the Alliance Defending Freedom, [22] Judge Crabb’s decision is criticized on grounds that she erroneously based her decision on one critical assumption – that every tax exemption is a government subsidy.  The brief argues that exemptions and subsidies are significantly different, and that Judge Crabb failed to recognize the secular purpose and effect served by Section 107(2).

Far from establishing religion, this permissive accommodation fosters disentanglement with religion and neutrality towards religion as it seeks to navigate the perilous waters between the Establishment Clause and the Free Exercise Clause. [23]

How much lost tax revenue is at stake?

What does the parsonage allowance represent in terms of the amount of taxes that are foregone?  In 2003, Prof. Chemerinsky estimated that eliminating the parsonage exemption would cost clergy members $2.3 billion dollars over the five years from 2003 to 2008. [24]  Legislation has been proposed that could escalate this tax loss exponentially. A bill offered by Rep. Bill Cassidy (R. La.) would expand the definition of people eligible for the tax-free housing allowance to include “duly recognized officials of nontheistic spiritual, moral, or ethical organizations.” In his view, that would make FFRF v Lew lawsuit moot because the benefit would no longer be limited to religious officials.

Andrew Seidel, attorney for the Freedom from Religion Foundation, says that the Cassidy amendment probably would not withstand a legal challenge. [25] For instance, Seidel said, his group would not qualify for the tax exemption under the Cassidy proposal based on its stated goals of upholding the constitutional separation between state and church, and educating the public about matters of non-theism.

“Neither of those missions makes us ‘a religious, spiritual, moral, or ethical’ organization (whether theistic or not): ‘Seidel said.  “If they want to expand this exemption, they really need  to expand it to all nonprofits, whatever their mission.” [26]

Certainly, exempting the entire nonprofit sector would accomplish the goal of broadening the exemption and removing the problem of its endorsement of religion.  The cost, how­ever, would be astronomical.  The broader the exemption allowed under Section 107(2), the greater loss of tax revenue.  One can only guess at the amount of taxes that would be involved if every nonprofit executive were able to get a tax ­free housing allowance.


The ministerial housing exemption has existed for over 60 years, and it is heavily relied upon by churches and their pastors.  Housing allowance procedures are well established, and virtually every minister not living in church-supplied housing receives a tax-free allowance to pay for housing costs.  This is a benefit that is highly prized by the religious sector.  Its history does raise disturbing questions of its constitutionality, however.  This is an issue that appears destined to go all the way to the U.S. Supreme Court.

By Kathryn M. Vanden Berk

NOTE: This article was published in the July/August 2014 issue of Taxation of Exempts, a professional journal for attorneys in the nonprofit sector.

This article is provided for general information and should not be relied upon as legal advice for a specific situation.  If you are in need of specific advice or legal representation, please do not hesitate to contact us.  ©2014 Bea & VandenBerk


1. Although Section 107 refers to a “minister of the gospel,” the Service has always interpreted that phrase as applying to people holding an equivalent status in other religions. See, e.g. Salkov, 46TC190 (1966)and Rev. Rul. 78-301, 1978-2 CB 103 (Jewishcantors), Rev. Rul. 58-221, 1958-1 CB 53 (rabbi’sassistant).

2.  112AFTR2d2013-7103(DCWisc.,2013).

3.  Annie Laurie Gaylor is the daughter of FFRF founder Anne Gaylor.

4.  Dan Barker is a former minister and evangelist and author of a number of books that challenge traditional religion.

5.  The original defendants were Timothy Geithner and Douglas Schulman in their official capacities as Treasury secretary and IRS Commissioner, respectively. Mr.Werfel has since been succeeded by IRS Commissioner John Koskinen.

6.  Emphasis indicates material added in 2002. See below.

7.  Citing Ellis v. OHL Exp. Inc. (USA), 633F.3d 522 (CA-7,2011).

8.  Rev. Warren has authored several popular books. He owned and operated a tape and book ministry called The Encouraging Word.

9.  Warren, 114 TC 343, filed 5/16/00.

10. Section 107 (2) was amended to limit the rental allowance to the amount to rent or provide a home, to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities. Clergy Housing Allowance Clarification Act of 2002, P.L. 107-181, 5/20/02.

11. Prof. Chemerinsky became the founding Dean of the School of Law at the University of California, Irvine, where he is a Distinguished Professor of Law and the Raymond Ptyke Professor of First Amendment Law.

12. 24 Whittier Law Review 707 (2003).

13.  Id. at 712.

14.  H.R. Comm. On Ways and Means, “Hearings on Forty Topics Pertaining to the General Revision of the Internal Revenue Code,” 83d Cong., 1st Sess. 1576 (8/11/53). cited in Chemerinsky, supra note 12 at 711.

15.  Judge Crabb cited the Chemerinsky article in FFRF v. Lew, supra note 2 at 112 AFTR 2d 2013-7115. She did not cite the Warren case.

16.  403 U.S. 602 (1971).

17.  Citing also Lynch v. Donnelly, 465 U.S. 668 (1984).

18. Citing Walz v. Tax Commission of City of New York, 397 U.S. 664 (1970).

19. FFRF v. Lew, supra note 2 at 112 AFTR 2d 2013-7116.

20. The Church Alliance describes itself in its brief as a coalition of the chief executive officers of more than 20 denominational benefit programs, covering ministers affiliated with a number of named church denominations and other denominations.

21. “Amicus Curiae Brief of the Church Alliance, et al.  In Support of Defendants-Appellants,” available at www.becket­­Church-Alliance-amicus.pdf.

22.  The Alliance Defending Freedom describes itself in its brief as a coalition of 624 churches. It is a Section 501(c)(3) organization involved in advocacy on behalf of religious bodies.

23.  “Amicus Curiae Brief of 624 Churches in Support of Defen­dants-Appellants and Reversal.” filed4/9/14, availableat

24.  Chemerinsky, supra, note 12 at 713.

25.  “Some ministers worry courts will strike down tax-exempt housing allowances,” The Times-Picayune, 4/16/14, updated 4/19/14, available at

26.  Id.