A federal district court has once again decided that the exemption for minister housing allowance under Code Sec. 107(2) violates the Establishment Clause. The court determined that the statute provided financial assistance to ministers without any consideration for similarly situated secular employees. Therefore, the statute has no secular purpose and could not be justified on secular grounds.
Convenience of the Employer
The basic premise of the “convenience of the employer” doctrine is that certain benefits may be tax exempt if the benefit or the way it is conferred serves the employer’s convenience. Thus, employees may exclude the value of lodging when the employee is required to accept such lodging as a condition of employment. However, the convenience of the employer doctrine does not extend to a housing allowance for anyone but ministers and service members.
Congress expanded the “convenience of the employer” doctrine for ministers in a way that eliminated any requirement to show that their housing allowance was actually for the employer’s convenience. Unlike other taxpayers, who are required to justify their request for an exemption, the doctrine applies to ministers even when the reasons for applying it are absent. The benefit does not depend on the minister’s home being used for church purposes or whether the minister’s choice of home is restricted by the church.
Other professionals often need to live near their work and be on call even when they are not working. For example, healthcare providers, hotel managers, maintenance staff and funeral directors may all have special housing needs. However, unlike ministers, none of those groups receive a categorical tax exemption for housing expenses. Rather, these employees must satisfy the requirements of the convenience of the employer doctrine set out in Code Secs. 119 or 280A.
The government’s arguments that Code Sec. 107(1) discriminated against particular religious denominations or that Code Sec. 107(2) corrected that discrimination were inaccurate. Congress’ statement that it was unfair to make ministers pay taxes on a housing allowance was simply an admission that it wanted to provide aid to a group of religious persons. Because that is not a secular purpose, it cannot justify Code Sec. 107(2) under the Establishment Clause.
The government argued that Code Sec. 280A, which allows a “home office” deduction, involved intrusive inquiries. However, it failed to explain why those inquiries are more intrusive for ministers than for other employees. Moreover, church employees who are not ministers have likely claimed “home office” deductions when applicable but the government failed to identify any religious entanglement problems. Accordingly, the government failed to show that applying Code Sec. 280A was more intrusive or difficult than applying Code Sec. 107(2).
Further, while Congress was apparently concerned with the low wages paid to ministers, the manner in which it alleviated the financial burden was not required by the Free Exercise Clause nor permitted by the Establishment Clause. The mere payment of a generally applicable tax does not qualify as a substantial burden on free exercise. Accordingly, the potential financial impact that the loss of the exemption might have on some ministers did not impact the validity of Code Sec. 107(2).
Moreover, while invalidating Code Sec. 107(2) could divert a minister’s resources from furthering a church’s mission, the same is true of any tax. Thus, the payment of such taxes does not qualify as a significant government interference with religious exercise and exemptions from such taxes cannot be viewed merely as religious accommodation. Rather, since the government has eliminated a burden for certain ministers that is shared by millions of taxpayers, the exemption is more accurately viewed as religious favoritism.
Related case at Freedom From Religion Foundation, Inc., DC Wisc., 2013-2 ustc ¶50,600, rev’d and rem’d, CA-7, 2014-2 ustc ¶50,505.
A.L. Gaylor v. S. Mnuchin, DC Wis.