Is the "Parsonage Allowance" Allowed?

Religious Liberties Practice Group Teleforum

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Last month, in a challenge brought by the Freedom from Religion Foundation, a Wisconsin federal district court ruled that the “parsonage allowance,” 26 U.S.C. § 107(2), violates the federal Establishment Clause. Enacted in 1954, the “parsonage allowance” allows clergy to exclude from gross income a rental allowance received as part of his or her compensation. In Gaylor v. Mnuchin, the district court found that 1) the allowance lacked a secular purpose or effect and 2) a reasonable observer would perceive it to be a governmental endorsement of religion. The case is likely to be appealed to the Seventh Circuit in the next month and could be heard by the United States Supreme Court in a future term.

This Teleforum will examine the nuts and bolts of the parsonage allowance, including its history as well as the practical impact that its loss would impose on religious congregations nationwide. The primary arguments for and against its constitutionality will be explored. 


Prof. Thomas C. Berg, James L. Oberstar Professor of Law and Public Policy, University of St. Thomas School of Law

John Van Drunen, Executive Vice President, General Counsel, Evangelical Council for Financial Accountability (ECFA)

Michael Martin, Vice President and Legal Counsel, Evangelical Council for Financial Accountability (ECFA)


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Event Transcript

Automation: Welcome to the Federal Society's Practice Group Podcast. The following podcast hosted by the Federal Society's Religious Liberties Practice Group was recorded on Friday, January 12th, 2018 during a live Teleforum conference call held exclusively for Federalist Society members.

Laura Flint:                          Welcome to the Federalist Society's Teleforum conference call. This afternoon, we will be discussing the parsonage allowance. My name is Laura Flint. I'm the Deputy Director of Practice Groups here at the Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call. Today, we are happy to have with us Professor Thomas C. Berg; James L. Oberstar, Professor of Law and Public Policy at the University of St. Thomas School of Law; John Van Drunen, Executive Vice President and General Counsel at the Evangelical Council for Financial Accountability; and Michael Martin, Vice President and Legal Counsel at the Evangelical Council for Financial Accountability. After remarks from Mr. Martin, we will go to the other speakers, and then to audience question and answer. Thanks for speaking with us, Michael. The floor is your.

Mr. Martin:                         All right, well thank you so much, Laura, and thank you to all those who are tuning in for, uh, this call today. It's our privilege to be here, and uh, I know anytime you're talking about a topic like this, where there's, uh, taxes involved. You know, lawyers we either love tax or we hate tax, so, um, I'm just gonna open up here a brief background on, uh, the parsonage allowance itself, um, in terms of, uh, as a tax provision, and how does it work. And then we'll transition it over to John who will talk about some of the impacts. And then, uh, Professor Berg in terms of the Constitutionality.

                                                Um, just by way of quick background on the parsonage allowance, how does the current law work that we're talking about. Um, well the law that we're discussing, on the forum today, can be found in Section 107 of the Internal Revenue Code, and that's titled Rental Value of Parsonages. And you've probably also heard it referred to over the years as housing allowance. Um, that's a term that you'll hear as well, uh, for clergy and ministers. This section of the code has two subparta and provides certain tax income benefits, uh, which are exclusions to clergy for their housing-related compensation. So I just want to cover real briefly those two subsections.

                                                The first subsection excludes from gross income the rental value of a home that's furnished to a minister, um, or member of the clergy as part of his or her compensation. So in other words, we're talking about, uh, in subsection one: church provided housing for the clergy, also referred to as a parsonage. And subsection two excludes from gross income the rental allowance that might be paid to a minister as part of his or her compensation within certain limits. So subsection two, uh, the context is we're talking about ministers who provide their own housing. And really the effect of these provisions is to remove the amounts of compensation, uh, related to these costs from a minister's income tax liability. So, that's a little bit of background on Section 107.

                                                Um, while the Freedom from Religion Foundation's lawsuits, uh, the plaintiffs in this challenge, uh, initially went for, uh, uh, Section 107 in its entirety, so both, both of those subparta. Um, it's important to note that subsection two is currently what's at stake in the case that we're talking about today. Judge Barbara Crabb of the Western District of Wisconsin ruled in the case that Freedom from Religion Foundation did not have standing to challenge subsection one based on the facts of this case. Really the situation with FFRF's leaders resembled more of a subsection two arrangement, so just a clarifier there.

                                                Um, another piece that I that I thought would just be helpful before we talk about the impacts and the Constitutionality is just a very brief history of how did we get here, uh, in terms of this, uh, provision in the tax code. It really dates back to 1921. Um, the income tax inclusion for clergy housing was first established by Congress again back in 1921. And originally, it just excluded from a minister's taxable income, the rental value of a home that was provided by a religious organization by their employer. So that was the subsection one that we've talked about that dates back to 1921. Uh, and then as, um, just the way that religious organizations and their leaders had housing around, arrangements, uh, developed over the years.

                                                Um, 1954 is the next critical date. That's when Congress amended the law to exclude also from a minister's taxable income, the housing allowance that might be paid to the minister to the extend that it's used to provide their own home. So that's again, subsection two that we're talking about today that dates back to 1954.

                                                Uh, and finally just another important date for context is 2002 with the passage of the Clergy Housing Allowance Clarification Act. Congress clarified its intent by amending the law to provide that the exclusion is also limited to the fair rental value of the minister's housing. And that provision, if you look back at, uh, the legislative history it was unanimously approved in both the House and the Senate. Um, and it, and you might be asking, "Well, why, you know, why did that amendment happen in 2002?" Well, actually, uh, of interest to this call is that Congress was responding to a legal challenge by the Freedom from Religion Foundation, uh, in making that amendment.

                                                And since that time, uh, there have been some other challenges to the Parsonage Allowance Provision by Freedom from Religion Foundation, and at least one other group that we are away of. Um, but up to this point all of them have failed, so far on standing.

                                                Um, and that really leads us to the current case, where the District Court has found, um, that Freedom from Religion Foundation has standing. Um, and so that's just a little by way of background in terms of this tax provision, and it's history. I'm gonna turn it over, uh, to my colleague John now who is gonna speak more to, you know, what would the impacts be for members of the clergy if ultimately, uh, this provision is held unconstitutional.

Mr. Drunen:                       Thanks so much, Michael. And, um, that's very helpful overview and setting the stage of the Clergy Housing Allowance, uh, context. Let me just say a couple words about this specific case. Um, and that is the, uh, widely known as either the Gaylor case or the Freedom from Religion Foundation case. Um, and, and that is, uh, this is a continuation of, uh, a prior challenge, um, er, a few years back, um, there was a first attempt, uh, made, uh, to challenge the Constitutionality of the, uh, Clergy Housing Allowance. And the District Court, the same District Court held, uh, the provision to be unconstitutional. Um, however, that was reversed by the Seventh Circuit Court of Appeals, uh, for a lack of standing as, uh, the, uh, plaintiffs were apparently trying to claim, uh, something akin to tax payer standing.

                                                Um, so in order to bring a, in a second attempt in order to gain standing, um, the, the Board of, uh, and we're learning this, um ... I should say we're learning what details we can from the pleadings and, uh, the court's opinion, so that's, that's our source in that. But it appears that the, the, the Board of the Freedom from Religion Foundation designated a Clergy Housing Allowance, um, for these leaders of the organization. Uh, after doing so, they, um, they went back, the leaders went back and amended tax returns, uh, and, uh, were granted a Clergy Housing Allowance. Um, it appears they then went back and amended a second year's tax return, and apparently, uh, included a self-disqualification disclaimer along with that amended tax return. Um, and, um, the, there was a series of, um, discussion with the IRS. Um, during the process, the IRS was working on making a final determination. The, um, plaintiffs filed suit and then shortly thereafter the IRS, um, gave a final administrative ruling that was denying that second amended tax return, uh, claiming the housing allowance.

                                                Um, so let me just with that context of this case, let me give a little further context of how the housing allowance works from a tax perspective. Um, and first just a word at the outset here, in terms of terminology, you know, we're talking about church or ministers or clergy. Um, those are generally the terms that are used in the tax code. Um, they're meant to understand, um, much broader terms and that is houses of worship or, uh, religious entities, um, religious organizations as we saw the terminology used in the Hosannah Taber Case. Um, and, and the same with ministers and clergy.

                                                That being said, let me move right along to here, you know, the significance of the Clergy Housing Allowance is that it allows a church to designate a portion of compensation to clergy, uh, that is exempt from personal income tax as a housing allowance. Now that housing allowance is still subject to SECA tax. That's the Self Employed equivalent of FICA and Medicare taxes. And there's certainly limits already in place, uh, on this provision, um, in terms of how much can be excluded from income tax. And that the, the lesser of the amount that the organization perspectively and officially designates, uh, as an employing entity as to housing allowance. Um, the second, uh, uh, limiting factor there is the amount that's actually used of ministerial income to provide the home. And the third is the fair rental value of the home including furnishings. So those are the ... It's the lesser of those three items that is the limiting factor of how much can be excluded from federal income tax.

                                                Um, now furthermore, the exemption is not just available to anyone who's ordained, licensed or commissioned as clergy. In addition to being a minister and performing service that qualify in the exercise of ministry, there's four general factors, and these are not elements, they're factors, um, that the Internal Revenue Service generally looks at. And that is is the, the clergy administering sacradotal functions, such as, uh, conducting sacraments or other religious, uh, events such as funerals. Um, the second is are they considered to be a religious leader by the church. Uh, third being do they conduct religious worship. And fourth, um, you know, are they, um, carrying out that role in, um, having that, um, leadership role as a denominational level or within the church in carrying out those responsibilities.

                                                Now, additionally, retired ministers may have some of their retirement that's classified as a housing allowance, and that's generally been for those that are involved in a church retirement plan. Um, so that being said, there are other contexts outside of a chruch or house of worship and that is is there, uh, in other religious organizations that are not denominationally-affiliated organizations, um, there is a process known as an assignment, where a local church body can assign a minister to a certain organization, um, and you know, there's, there's requirements that that be an effective assignment in, in some relation, not ... Something more than just for the purpose of saving taxes. So there, there has to be legitimacy to that assignments.

                                                So let me just quickly wrap up this section by saying in terms of what, what this would mean for pastors across America, um, let me make a few non-scientific observations to help us quantify if we're thinking about what are some of the ramifications in, in some of this we're making assumptions based on estimates. Um, so I, that's why I clarified that this is non-scientific. But according to some of the latest treasury data, it appears that the clergy housing exclusion represents, uh, in 2017 $770 million in tax expenditures. That's foregone tax revenue to the Federal Treasury. By that, by this provision being excusable from tax income. Presumably this estimate includes both parsonages and clergy-owned housing. Um, now if the District Courts ruling stands, it's reasonable to believe that the vast majority of the tax expenditures is attributable to clergy-owned housing. Um, the parsonage concept is not used as much, um, in our, in our experience today except in the context of, um, small rural churches. Um, and, and so I think a vast majority of churches would be affected by this ruling.

                                                You know the cost to overcome this burden, um, you know, so this would be a new tax burden on pastors, clergy. Um, you know, would be that tax expenditure or the vast majority of that tax expenditure. And let's just say 600 million just to pick a round number here. 600 million of that 770 is attributable to clergy-owned homes. The portion of what it would require a church to increase compensation to, uh, those pastors across America would be approximately a billion dollars because, um, the additional income given to off-set that tax burden, um, is taxable, is also taxable income. So you're somewhat chasing that taxable number to get to that calculation, so that would include federal income taxes, social security, you know, the SECA taxes, um, which would be our typical FICA and Medicare, uh, state taxes, uh, and the possibility of local taxes as well. Um, so that's a, a very significant tax burden. And that would be funds that a local church body would either need to raise additional funds for or start scaling back, uh, program, uh, program operations of a church to offset. Um, most churches in America do not operate with, um, significant reserves that would be able to absorb those kind of, those kinds of, uh, situations.

                                                Um, so there's, there's a strong implication factor that I think those that are advising churches, you know, need to start considering contingency plans. Um, that if this ruling is upheld, uh, the leaders of churches, boards, governing bodies need to consider how the local chruch body will try to make the pastor whole as much as possible in this process. So that being said, let me, uh, hand it over to Professor Berg.

Prof. Berg:                           Thanks, John. Uh, so I will talk about the Constitutional issues involved in, uh, particularly the, uh, the Wisconsin case, uh, and then more generally about the housing allowance, the exclusion. Um, I should disclose at the outset that I filed an Amicus brief in the earlier round of litigation that, uh, John referred to, uh, supporting the exclusion the Constitutionality of the exclusion. Uh, but today I will be try to put myself in the posture as much as possible of discussing the Constitutional arguments on, on both sides, uh, so that's, that's what I'll be doing.

                                                Uh, first of course in order to challenge a statute in Federal Court, the plaintiff must have standing to sue. Must suffer a, a legal injury either in the past or, or imminently. Uh, and, uh, the plaintiffs alleged injury here ... Her name is Annie Gaylor, the, the head of the Freedom from Religion Foundation. Uh, is, uh, denial of, uh, the, uh, allowance, the eligibility for the exclusion and unequal treatment she says in that as a leader of a non-religious organization, a non-religious organization, uh, she was denied the housing allowance available to ministers of religious organizations.

                                                Um, as John and Michael said, there was an earlier lawsuit in which the Court of Appeals for the Seventh Circuit, uh, held that, uh, that the plaintiff had not, uh, shown standing because she had not yet applied to claim the allowance and then, uh, uh, and had not been denied. Uh, then, uh, they, uh, re instituted an application, uh, and, uh, it's a complicated set of things that happened. In the end, however, the IRS did ultimately deny her request, and the District Court says that gave her standing. The government does not contest that.

                                                Um, of course, standing is a, an issue that can be raised and should be raised by the court on its own motion. It was also raised by intervener defendants in the lawsuits, um, who are churches and ministers, uh, who, uh, the district court allowed to intervene to defend the Constitutionality of the, the statue, and they raised standing. So it will be an issue in the Court of Appeals even though the government concedes, uh, concedes it.

                                                There are some complications here, uh, the IRS did not issue the ultimate denial letter until after, uh, the plaintiffs had sued. Uh, but the District Court said, "Well, that ultimate letter was evidence of what the IRS would generally, uh, hold." Uh, standing is usually decided as of the outset of the litigation. So the defendant's argument was, "Well there was no ruling against her, no ultimate ruling against her until after the litigation had commenced. The District Court said, uh, "That, that doesn't matter." I think ... It seems to me it's likely that standing, uh, is established. Um, there will be a, I think a tendency by the Court of Appeals to want to dodge this issue, uh, again as they did before. Uh, courts sometimes use rulings like standing to avoid the merits of a, of a tough question. Uh, but, um, the arguments for the standing here seem to me, at least, stronger than the arguments against.

                                                So let's move on to the merits. Uh, this is a challenge under the establishment clause. And under that clause, in the First Amendment, the government, uh, at least as the court has interpreted the clause, the government cannot give a bare preference to religion. It cannot favor religion just for its own sake. But it can exempt religion from regulation, including tax regulation in two categories of circumstances.

                                                The first category involves protection for religion that are also given to a variety of non-religious organizations or activities based on some common feature, uh, and reflecting some purpose for the protection other than simply religious freedom itself. Uh, for example the court in the Walz Case, W, A, L, Z, 1970, uh, upheld the Constitutionality of exempting religious organizations from property taxes along with a wide range of non-religious, charitable organizations.

                                                Now the defenders of the ministerial allowance exclusion, put it in this category as part of a set of exclusions for persons, a broad range of exclusions for persons defined by this category, namely that their housing is constrained by, and used for the needs of their employer. This set includes two specific groups of employees who can exclude a cash allowance for housing by other provisions of the code. Military personnel in a separate provision of the code, and citizens sent abroad by their employers to work abroad. These employees tend to face limited housing choices. They often must live near the military base or in an expatriate compound in some countries. And they also face extra burdens from frequent or distant relocation.

                                                You'd certainly argue that ministers fit in this category too. Many have to live near the chruch to be on call. Uh, they do, um, frequently relocate. Uh, you can argue this a statistic, a statistical matter. It's obviously not true in, in every case. Uh, in, in a lot of cases it's not. It's not true. In any event, these two example of military and, uh, employees abroad are far narrower than the wide range of organizations that receive property tax exemptions in the Walz Case.

                                                But the ministerial exclusion could also be analogized to two broader, general provisions in the code: excluding the value of a home that is used regularly for the convenience of the employer or for business purposes. Those are the two statutory, uh, phrases. Those are Sections 119 of the code and Section 280A. Many ministers fit within that category. They open their homes regularly for church activities. Um, the court may accept this kind of generalization, and see the ministerial exclusion as analogize to the broad set of, uh, exclusions. Ministers are like the category of employees who use their home for the convenience of the employer. And if that's the case, then the ministerial exception might fit within this broad range of, uh, exclusions, uh, given. It wouldn't be just a preference for religion.

                                                A counter argument to that, however, is that the ministerial exclusion goes further than these. A minister can claim it without showing that his or her home is actually used for church activities. And many ministers probably an increasing number don't use their home, uh, in this, uh, way. And for that reason the District Judge rejected the analogy. Rejected the idea that you could say the ministerial exemption is just simply a part of this broader class of, uh, cases where the home is used for the convenience of the employer.

                                                Here's where the second category permissible exemptions enters then. The government can enact provisions specifically exempting or accommodating religion in order to remove the burdens of regulation. Now this power to accommodation has limits, uh, but the court is emphasizes that there's ample room to accommodate. It's used that phrase. Um, we have a number of cases that go a number of different ways on the scope of accommodation, but under the famous or infamous Lemon versus Kurtzman test. The special treatment of religion that is now a special accommodation. A provision specifically for religion must have a secular purpose and a secular effect. So what we're talking about here is the extension of the housing allowance exclusion to all ministers receiving cash allowances, not just those in, uh, church-owned parsonages and not just those who use their home, who show that they use their home for the, um, uh, convenience of the church or for chruch activities. Extending the exclusion that way, uh, arguably serves two very important church-state values that constitutes secular purposes and effects under Lemon.

                                                First extending it beyond church-owned parsonages, promotes equal treatment between different religious bodies. Especially between more established groups that more often own some, uh, uh, a parsonage, and newer groups that more often locate say in non-residential areas or lack the means to buy nearby homes. This is a, a purpose then of achieving equality among denominations. And the Supreme Court has said that that is in fact the clearest command of the establishment clause. Equality among different religious denominations.

                                                The second purpose for extending it is that extending the exclusion categorically to all ministers avoid church-state entanglement by avoiding injuries into how and to what extent the minister used the home for church activities.

                                                There are other example where religious exemptions have been broadened because in a narrower form they would have created or required intrusive, entangling injuries into religious questions or religious matters. A couple of examples. The court unanimously upheld the exemption in Title VII allowing religious organizations to favor their own members in hiring, uh, for all their positions not only for those with religious responsibilities. This exemption from the anti-discrimination laws extending broadly to all of the organizations activities. The court said that distinguishing religious from secular activities of the organization could lead to the government mischaracterizing or second guessing the nature of an organizations words. And that was a reason to have a broader exemption.

                                                Another example is the ministerial exception in anti-discrimination law, which was unanimously affirmed by the Supreme Court in the Hosannah Taber Case. This exception broadly bars all discrimination suits by ministers against their employers. Not merely suits that involve or challenge some kind of doctrinal tenant like the Roman Catholic Churches rule of male only priests. The rationale for the broader exemption is that any discrimination suit by a clergy member might require the court ultimately to determine whether the churches reason for acting was discriminatory or legitimate. That comes up in, that is very often the ultimate question in a discrimination case, and well if the church had a legitimate reason that would mean the plaintiff was a bad minister. That would be the legitimate reason, and so the court has to get into deciding who was a good ministers versus a bad minister and that would be highly entangling.

                                                So we've got a number of situations in which, uh, avoiding entanglement in religious questions has been, uh, a justification for a broad exemption, and you could make the same argument here for the ministerial exclusion. The District Court, however, rejected these justifications. Uh, it said that the inequality between parsonage-owning churches and others, that is those that provided an allowance for, uh, clergy-owned housing. Uh, that was just the product of a facially neutral legal provision. Distinguishing between church-owned and non-church owned. Many laws affect different churches differently. Constantly happens. And such effects can't justify handing out blanket exemptions to churches. Some churches might charge fees for certain services they provide. The government doesn't have to allow deductions for those fees just because it allows deductions for charitable contributions. THere's a legal distinction made there and the fact that is affects different churches differently does not make it unconstitutional.

                                                The District Court also doubted that the, uh, on the entanglement question that the inquires into uses of the home would be highly intrusive or entangling. It said that the broad exclusion, uh, improperly gave employers and employees incentive to characterize the employees as ministers. Uh, uh, on the borderline on who is a minster and who is not. The proper course, the District Course said was to expand the exemption to cover leaders in secular organizations comparable to ministers in churches.

                                                Now, it's certainly true that this broader housing exclusion is not compelled by the Constitution. The limitation to church-owned housing, church-owned parsonages if that were the only one, if we only had 1071, that would certainly be upheld against a challenge, uh, on the ground that it was facially neutral. But the question here is not whether the government is compelled to go further, uh, but whether it has discretion to go further to broaden the exclusion based on reasonable even if debatable considerations of equality between denominations, and non-entanglement. Uh, and that I think is going to be the question in the case.

                                                There is final argument for upholding the exclusion, and that is that invalidating it will undercut some very strong reliance interests of churches and ministers, particularly older ministers. Uh, John and Michael talked about some of those issues. The cost to churches. The, uh, cost to, um, older ministers who have structured their financial, their retirement planning around, uh, the exclusion for, uh, an allowance that they continue to receive as part of their retirement benefits. Um, especially older ministers will not have, may not be able to contribute enough to cover the shortfall during, uh, there, uh, retirement years certainly or during, uh, a few years of remaining active ministry.

                                                Now the question is what does that argument have to do with the Constitution? In the Walz Case, the property tax case the Supreme Court said and I'll quote, " The unbroken practice of according the property tax exemption to churches is not something to be lightly cast aside." End quote. You might say that here. On the other hand the court has said that no one gets a vested interest in a violation of the Constitution. So ministers reliance interest and churches reliance interest may make the judges want to uphold the statute at the margin, but they still have to be able to give a Constitutional rationale for doing so.

                                                Let me close, quickly. Ultimately, the result in this matter, I think, depends on the court's attitude toward provisions that specifically accommodate religion. The exclusion will be upheld if the court takes a relatively deferential approach and allows the government leeway as long as it's reasonably promoting valid church-state concerns like denominational equality and non-entanglement in religious questions. And it's not directly imposing a significant burden on anyone else. It's only a very general burden that's, uh, uh, goes across all tax payers.

                                                Now, I believe that deferential approach is the correct. It's the one most consistent with the text, tradition, and precedence, especially with respect to the treatment of ministers. But there are certainly judges who view it as presumptively unfair to exempt religion when, uh, arguably comparable non-religious activities are not exempt. And those judges are likely to view the justifications here as insufficient. Uh, so that I think is the question that will, uh, the Court of Appeals will face, and maybe ultimately the Supreme Court. Thank you.

Laura Flint:                          Um, Michael and John would you like to respond to anything Professor Berg said?

Mr. Martin:                         I, I don't know that, um, I have any specific, uh, responses other than we certainly echo those comments and observations. Um, and it, it is a tough case, um, admittedly. Um, and, uh, that's the reason that, um, we've encouraged churches to start considering, uh, the implications, um, as there, there will be some phase-in time after the conclusion, uh, if, if the appeals process upholds the District Court's ruling. Um, the decision is stayed for 180 days after the conclusion of all appeals. Um, in the, in the context of tax, though that's not that great of a time window. Uh, and so that's gonna put a lot of questions for churches, um, as their just looking at what are the possible next avenues to, to address this issues.

Laura Flint:                          Let's go to audience questions. In a moment, you'll hear a prompt indicating that the floor mode has been turned on. After that to request the floor enter star then the pound key. When we get to your request, you will hear a prompt, and then you may ask your question. We will answer questions in the order in which they are received. Let's go to our first audience question.

Clyde Taylor:                      Hi, this is, uh, Clyde Taylor from the, uh, Wisconsin Institute of Law and Liberty in Milwaukee. Thank you for your comments.

                                                Um, I guess as I've looked at the briefs on this case and, um, read some of the statues, um, I'm favorably disposed toward the allowance. But I would say that if I real, I think the strongest argument against it maybe that, um, as far as I'm aware, um, sort of ministers are the only profession that has a specific statutory exclusion. Um, we have other categories of employers, um, uh, such as overseas workers, which would include many professions. Um, the military provision is actually not ... The provision and statue does not specifically address housing. It just says other qualified allowances. So, I guess my point is that, um, in the, the earlier ones in the stature for like canners and miners and hospital workers all apply to, um, um, housing provided by the employer. So that leaves ministers as the only profession that has a statutory exclusion for their personal rental costs. Um, and I guess, my, my question to Tom would be: um, how, how do we get over that? Um, or is that as big an issue as I'm making it out to be?

Prof. Berg:                           Uh, so I, I don't know why the term profession would be sort of dispositive on that, but, um, I take your point to be, um, that this, that ministers are, um, among a very small group of employees that have this, um, an, an allowance without a showing of ... That, that the home is used for the employer ... For business purposes or for the employers convenience. And I think that's correct. And I think that is, uh, that is the hurdle to, uh, to get over.

                                                Uh, the, the, the answers to it, um, and whether these are successful or not are number one: there is a tendency for ministers as a class are more likely to use their home for the convenience of the employers. I mean if you compare it with other professions. Lawyers don't, you know, use their home for, uh, for law firm activities, uh, to the extend that ministers use their home for church-related activities. Uh, I think we could probably make that, that generalization. I don't know where, exactly where the evidence would, uh, what, what sort of competent evidence you would develop on that, but I think you probably could. Um, uh, so, so, but it is only a generalization. And I think probably increasingly, uh, churches say that ministers are, uh, the home is, is, is separate. It's a place to kind of retreat from the responsibilities of the church, uh, and not be on call at home all the time.

                                                Um, but the second argument is that getting into that question of whether in any individual case the home is used for the employers business purposes, uh, would get the court involved in deciding what constitutes, uh, a church-related activity. Uh, how much does it take? Uh, how, how much is the phone call with the minister over the phone at home crucial to, to counseling. You could easily see how those questions would, uh, begin to require judgment calls by, by courts that they may not want to get involved in. That's what led the court unanimously to say we're gonna stay out of anti-discrimination suits by clergy against their churches. Uh, and I think it's got some force here. Although probably, er, less than in the, than the Hosannah Taber Case.

Mr. Drunen:                       This is John. I might just tag onto that. Um, I believe the military does have a basic housing allowance, um, reimbursement provision for privately leased, um, or secured, uh, property. Um, in the context where the employer does not provide that housing. Um, and so I think there is some similarities to the parity between the parsonage and the, and the clergy-owned housing allowance.

Laura Flint:                          Again to ask a question, please enter star and then the pound key on your telephone keypad. Not seeing another question. I'll make a brief announcement. Our next Teleforum conference call is scheduled for Tuesday, January 16th at 12 noon. That call will be on regulatory hurdles for entrepreneurs. The story of Project Bell, and will feature Armand Lewison, Founder and CEO of Bell; Bradon H. Boucek, Director of Litigation at the Beacon Center of Tennessee; and our moderator, Devon Westhill, Director of the Regulatory Transparency Project. Again to ask a question, please enter star then the pound key on your telephone keypad. While we wait for another audience question, I'll ask one of my own. Um, what are, what are some of the contingency plans churches might want to consider if the allowance is struck down?

Mr. Drunen:                       And this is John. Um, you know, one possibility is, uh, if the church is not already, um, utilizing a parsonage, that certainly is a, is a possibility that a church could acquire housing in proximity presumably to the church. But, um, I don't see practically that a lot of churches would be doing that. I think, uh, more likely, uh, a lot of churches would need to increase, um, taxable compensation to the minister to offset that, um, that tax burden. And that would take some coordination with that, um, that minister, member of the clergy, um, in estimating the appropriate, um, value in doing so. Uh, there are commercially free available gross-up calculators, um, available on the internet that one can use to put in various factors to determine what that gross-up cost would be. And so, our encouragement is for churches to start quantifying what that amount might be, uh, and start having those conversations, so, um, clergy can start the appropriate planning, uh, to, uh, know how this ruling one way or another may impact them.

Laura Flint:                          Again to ask a question, please enter star then the pound key on your telephone keypad. Um, not seeing any. I'll ask another. Um, procedurally what would be the timing if this decision was appealed?

Prof. Berg:                           Uh, John have you been following that?

Mr. Drunen:                       Um, yeah, and I'd defer to you in terms of timeline. Um, but in my understanding is that the, the judgment was entered by the District Court, um, around December 15th. And so, I think we've got our normal appeals process running out. I believe that's, um, from my, from my days in law school, I think that's 45 days. Um, but, uh, in terms of the overall appeals process, um, do you have, uh, thoughts on that, Professor Berg of when churches may need to start thinking about that, those, these ramifications impacting them?

Prof. Berg:                           Yeah, I think the, that notice has to be filed within 30 days, and then there's a briefing schedule. Um, which runs over probably about three months, uh, unless there are extensions, which there might be. Um, and then the court takes, you know, either a few weeks or a few months to, uh, to decide the case, uh, and that depends on whether the court is divided, uh, and there's a descent. Depends on what the issue is that they decide the case on. So, uh, this issue will be coming before the Seventh Circuit in the, in the next few months. Uh, and, um, and of course if the, if the Seventh Circuit rules, we can expect a cert position probably either way. Whether the Supreme Court would take this case is always, it's always a question whether the court will, will take it. Um, if the exclusion were struck down, I would imagine it would be very hard for the court to avoid taking the case, uh, because of the importance of this provision. Um, so it's coming up quickly, and I'd second John's recommendation that churches begin to plan, and take steps, uh, consider the contingency.

Laura Flint:                          Reminder to keep an eye for emails announcing upcoming Teleforum calls. And to consult the full schedule of our upcoming calls on the Federalist Society's website Also available there are podcasts of previously recorded Teleforum calls you may have missed. Let's go to our next audience question.

Speaker 6:                           Good day gentleman. Thank you for a very interesting, uh, discussion of the legal principles and situation. I wonder if our panelists would be willing to talk a little bit about the, uh, political end of the philosophical, uh, issues that underlie this legal and Constitutional issues.

Mr. Drunen:                       This is John. I'll just, um, discuss, you know, historically this has certainly has been a bipartisan issue. Um, we saw in the wake of the Warren Case, um, probably one of the more, um, expeditious, uh, bills in Congress passed with very, uh, little, uh, challenge. Um, the, the Clergy Housing Clarification Act, um, and so I, I think that that still is, um, true today as it was not so many years ago. And, and so I think politically there are, um, there will certainly be a lot of pressure to, to do something. Uh, depending on the court's ruling, um, I think may somewhat, uh, and the court's rationale in that ruling after all appeals are concluded may depend, may determine whether a legislative, uh, quote-unquote "fix" is possible, uh, in this context. But, uh, you know, at this point, we haven't seen, uh, a clear path forward in a political solution, um, absent, uh, significantly expanding the base of who is allowed to claim the, the housing allowance in this. And under current budgetary constraints that's another political reality, so, I'll defer to my other panelists for other thoughts on that.

Mr. Martin:                         This is Michael. I'll just piggyback, uh, on what John, John's comment about the broadening and also, um, related to kind of the philosophical or the, the broader landscape in a challenge like this. I think one thing that, um, is kind of intriguing in, uh, in looking at the filings is just to look at the motives of the organization that's challenging this. The Freedom from Religion Foundation, um, you know, to a lot of folks that aren't paying attention, they may think that these leaders truly do want a housing allowance (laughs) for the tax benefits for them. Um, but, you know, as you read it, you can tell that the intention is really not, uh, for them to, to experience any tax benefit, but it really is just they don't want to see, uh, ministers receiving a housing allowance. So that's just a little bit in terms of philosophically why, why the challenge is taking place.

Prof. Berg:                           We are more polarized than in 2002, uh, and it would be more difficult for Republicans and Democrats to work together. The budgetary constraints also work against that. But with that said, this is about a bi partan a religion issue as you can, as you can get. And so, I imagine there'd be a lot of pressure on Democrats as well as Republicans to, uh, to do something about this. I think it's also worth noting that the Hosannah Taber Case, in the Supreme Court, was a nine to nothing decision. That's in part because of the importance of autonomy to churches in selecting their ministers, which is what the issue was in that case. But it's also, I think because it was not, did not appear to the court as sort of one of these culture war cases where there's, uh, some religions on one side and some religions on the other the way gay rights and abortion have, uh, have become. Uh, when you're protecting, uh, uh, religion across the board, the tradition of, of sort of a general valuing of, uh, religion in American, uh, history, uh, is a lot stronger and, uh, I think gives both with the judges as well as as legislators a sense that they're on firmer ground and, and, and protecting this.

Laura Flint:                          Again to ask a question, please enter star then the pound key on your telephone keypad. Let's go to our next audience question.

Trent Tanner:                    Hi, this is Trent Tanner. I have a question about whether this exemptions, so facially it's neutral. I presume it doesn't apply only to Christian clergy, um, but to your knowledge are there other religious denominations, uh, Jewish, Muslim, others that, um, regularly provide these allowances to their clergy or is this more or less a strictly Christian practice?

Mr. Drunen:                       John, my understanding, um, is that this is, uh, utilized, uh, across the religious spectrum. Um, and, and not, um, in effect or practice singly used by Christian organizations or churches.

Prof. Berg:                           That's my understanding too, and the IRS has interpreted, interpreted even though the statutory term says, um, uh, ministers of the gospel. The IRS has interpreted it to, uh, to, uh, cover, cover all faiths, um, so. I think the IRS could have interpreted it to cover, um, to cover atheists leaders of an atheist organization too. The Obama administration had, had, had done that, uh, and, uh, I think, uh, it, it, there's a very good argument for treating atheist organizations as a kind of religious organization.

                                                Atheism is a religious position, and, uh, for example, we wouldn't want to the government to set up a and operate a school for atheism. We wouldn't allow the government to do that one the grounds that, oh, well that's a secular position rather than a, than a religious position. We would think that a school for atheism would, government sponsored school for atheism would violate the establishment clause, so I think that that option was open to, to the IRS to, uh, to answer the plaintiffs. They, they, in the end they didn't do it here. Uh, uh, in part because of the plaintiff self-declared themselves as not eligible for the exemption even as they applied for it, which is I think part of what Michael was saying about their, their goals not really, was not really to get the, uh, exemption. Uh, but you know maybe in the future that would be a, a, a way to solve the problem. There's some indication in the court's precedence that if you expand an exemption to include atheist as well as religious people that that might, uh, be sufficient to uphold it.

Laura Flint:                          We have another audience question, so let's go to that caller.

Kevin Snider:                      Hi, this is, uh, Kevin Snider, Pacific Justice Institute. Uh, as a form of Constitutional risk management are there any draft proposal that you're aware of regarding expanding Section, uh, 107?

Mr. Drunen:                       I'm not aware of any. This is John.

Prof. Berg:                           Uh, I'm not aware of, of any either. Uh, um, I think there's been some reluctance to, uh, to develop those, and at least circulate them widely, um, because, uh, just the mere consideration of those in the Congress, uh, might suggest that Congress thinks that there's a Constitutional problem with the, with the statute while litigation is going on.

                                                Do I think people have talked about various options, but I, I nothing has been introduced or I think widely circulated.

Mr. Drunen:                       I might also just observe that, um, the, the government in the first litigation and proceedings of this case, um, indicated that they believe that leaders of the Freedom from Religion Foundation could be eligible for the clergy housing allowance. Um, and so it is interesting, um, and it was, the determination was actually made under the same administration, um, in the second case to or the second amended tax return to, uh, deny that. And so, to Professor Berg's point, I think the IRS gave, um, a fair amount of weight it appears to the self-declaration, um, that we see evident in the, the pleadings.

Laura Flint:                          I'll make a final call for questions. Again to ask a question, please enter star then the pound key on your telephone keypad. [crosstalk 00:56:49].

Prof. Berg:                           Let me just add.

Laura Flint:                          Continue.

Prof. Berg:                           Can ... Hello, can I just in response to that last question the, um, there is, there is some good discussion of the housing allowance, and, um, the ministerial, uh, and possible remedies, um, uh, fixes. In, um, the report of a, a commission that, um, uh, that, uh, John ECFA, uh, helped put together this commission on religious organizations and regulator issues including tax issues. Do you remember the name of that commission that issued that report in around 2013 or 14?

Mr. Drunen:                       Well, I appreciate that Professor Berg, and um, you know, the, and just it was not scripted, but that is the Commission on Accountability and Policy for Religious Organizations and the report, um, that you've mentioned is available to anybody on the call here at That's And you'll be looking at the first report, um, with a blue cover, um, titled Enhancing Accountability for the Religious and Broad Non-Profit Sector.

Prof. Berg:                           So there's some discussion of that in that of, uh, possible changes to the, uh, provision.

                                                That was a great report overall.

Mr. Martin:                         Endorse it even further.

Mr. Drunen:                       We appreciate your assistance in that process as well.

Laura Flint:                          Would anyone like to make some closing remarks?

Mr. Drunen:                       Uh, this is John. And I'd, I'd just like to thank everyone for being on the call. Um, this is an important issue, um, that cuts across religious and political lines. Um, and I think one that's gonna have some very serious ramifications for, um, churches. Many of which are serving the neediest in our communities. Um, and I would hate, um, for to see a provision like this come into effect that would curtail some of those resources and services to the neediest, um, because of some of the tax ramifications.

                                                Uh, there was a study released, um, in the past few years. I, I can refer anybody that's interested can certainly email me for further information on that study. That just highlights the economic, uh, value that the average church in America provides to the community surrounding it. Um, and so, while some, some have, uh, speculated that churches are nothing more than social clubs. Um, I would certainly, uh, contend that churches not only care for the spiritual well-being of those that are attending church, but are also having a significant impact, uh, to those communities that they're involved with in helping to alleviate government burdens, um, in that process. Uh, and so I'd just encourage everyone to, uh, give very serious consideration to the ramifications and your potential involvement with churches and others as this case moves forward.

Laura Flint:                          Professor Berg, do you have anything to add?

Prof. Berg:                           Well, I, I would just second all of that. Uh, the evidence on what, uh, churches and religious non-profits provide in terms of service to others is, uh, is very, very powerful. And there are good sources on that. Uh, Stephen Monsma has a book called Pluralism and Freedom, uh, which also makes, uh, the case, the empirical case for what religious organizations provide. I'll just, I'll just say very quickly, uh, what, uh, the, this is a serious Constitutional issue. Um, we have seen instances, uh, recently in which Courts of Appeals have struck down some provision under the religion clauses and the Supreme Court, uh, has been, has taken a different attitude. It's been true with the Trump, uh, travel ban. Uh, it's been true with under God in the Pledge of Allegiance. Uh, and so the fact that this ... If the Seventh Circuit strikes this down, I wouldn't assume that the Supreme Court, uh, I wouldn't at all assume that the Supreme Court would go in the same, same direction.

                                                But with all that said, it's a serious issue and churches should, should plan.

Laura Flint:                          On behalf of the Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at [email protected]. Thank you all for joining us. We are adjourned.

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