Update on the Ministers’ Housing Allowance

Will the housing allowance for ministers still be available in the near future?

Though we can never predict a court ruling with certainty, there are indicators that the Seventh Circuit Court of Appeals in Chicago will dismiss the case that is attempting to eliminate housing allowances completely. Simply stated, there seems to be a good probability that ministers will be able to continue to take the benefits of the housing allowance.

Here are some key points to remember for background information:

The ruling at district court last year made housing allowances unconstitutional. Last year, U. S. District Judge Barbara Crabb of the Western District of Wisconsin ruled unconstitutional a provision in the U. S. tax code that allows ministers to declare some or all of their ministerial income as a housing allowance. That allowance is not subject to federal income tax.
The housing allowance law was passed by Congress in 1954. Subject to certain guidelines, ministers are able to declare a portion of their ministry income as a housing allowance that is not subject to federal income tax.
There is no doubt that ministers have benefited from this law. Many churches have as well, particularly smaller churches. The smaller churches are able to pay a minister a salary that has greater take home pay than a non-ministry counterpart. They are thus able to afford to pay pastors that they could not have afforded otherwise.
This ruling was not a complete surprise. Judge Crabb does not have a friendly track record on ruling on issues dealing with religious matters.
Judge Crabb stayed the ruling until the appeals process is exhausted. That means there was no immediate impact on ministers’ housing allowances.
I advise ministers to be very conservative as they deal with this issue in the future. If at all possible, do not be dependent on the tax benefits gained from having a housing allowance. Look carefully at the tax benefits you gain with the housing allowance. Be prepared to know what to do if the benefit goes away.
The amount a minister can take as a housing allowance has clear guidelines. Make certain you stay within those guidelines and do not abuse the tax privilege.
Watch for insights and updates from the Ethics and Religious Liberty Commission and GuideStone. Both organizations have top-flight leaders who are staying on top of these matters.

One of the primary reasons for my optimism that housing allowances will remain intact was the type of questions the appellate court judges asked on September 9. Particularly, the judges focused on issues of “standing.” They seemed to question if the allowance challenger, the Freedom from Religion Foundation (FFRP), has any legal right to seek the elimination of the housing allowance. The FFRP, in essence, is challenging someone else’s tax treatment.

As I indicated in an earlier post, I remain fairly optimistic that the housing allowance will remain intact. Certainly the questions of the judges on the first day of appeals affirm my optimism.

Still, I take nothing for granted in the legal system until a ruling is final. I will continue to keep you updated at this blog.

Please let me hear from you on this issue. Your insights are always helpful and timely.

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