Updates to the Housing Allowance Court Challenges

PCA Retirement & Benefits (RBI) has been diligently following the developments of the legal challenges to the Clergy Housing Allowance in recent years. Below you will find a history of our publications related to these developments. We will also post additional updates here as they become available.

History of the Freedom From Religion Foundation’s Legal Challenges





U.S. District Court (Eastern District of California) Judge William Shubb Freedom from Religion Foundation et al v. Geithner et al FFRF voluntarily dismissed complaint in regards to concern about legal standing.
2013 U.S. District Court (Western District of Wisconsin) Judge Barbara Crabb Freedom from Religion Foundation et al v. Lew et al Ruled Unconstitutional
2014 U.S. Seventh Circuit Court Judges Joel Flaum, Ilana Rovner, and David Hamilton Freedom from Religion Foundation et al v. Lew et al Ruled FFRF had no standing.  Vacated judgement of District Court and dismissed complaint.
2017 U.S. District Court (Western District of Wisconsin) Judge Barbara Crabb Freedom from Religion Foundation et al v. Munchin et al Ruled Unconstitutional; however, court delayed effect of order until 180 days after the conclusion of all appeals.
2019 U.S. Seventh Circuit Court Judges William Bauer, Michael Brennan, and Daniel Manion Freedom from Religion Foundation et al v. Munchin et al Reversed District Court’s ruling and ruled the Minister’s Housing Allowance is legal and does not violate the First Amendment


Appellate Court Upholds Housing Allowance for Ministers


See article below for details, or download a pdf of the article here.

History of PCA Retirement & Benefits Publications

Deadline for FFRF to Appeal has Passed (June 2019)

Thursday, June 13th, was the Freedom From Religion Foundation last day to appeal the Seventh Circuit Court of Appeals March 15, 2019 ruling.   This ruling found that the Minister’s Housing Allowance is legal and doesn’t violate the First Amendment.  For now, it appears that the FFRF has chosen to discontinue their protracted litigation against the minister’s housing allowance, which began with a filing of a lawsuit back in 2009.

Appellate Court Upholds Housing Allowance for Ministers (March 2019)

On March 15, 2019, in Gaylor v. Mnuchin the Seventh Circuit Court of Appeals upheld the constitutionality of the clergy housing allowance set forth in section 107(2) of the Internal Revenue Code (the “Code”). That section allows certain religious leaders to exempt church-approved housing allowances from their taxable income. Although section 107(2) refers to “ministers”, the IRS and courts long have interpreted that term to encompass religious leaders of any denomination, regardless of their title, who meet certain requirements. Thus, ministers, priests, pastors, rabbis, cantors, imams and other religious leaders are eligible for the housing allowance.

The decision by the three-judge panel was unanimous, thus putting at ease for the moment the concerns of thousands of ministers and other religious leaders.

The case was brought in 2016 by the Freedom From Religion Foundation (“FFRF”), an organization headquartered in Madison, Wisconsin, and by several of its executives. FFRF’s purposes, as stated in its bylaws, are to promote the constitutional principle of separation of state and church, and to educate the public on matters relating to nontheism.

To tee up a case that could challenge the constitutionality of the housing allowance, FFRF granted several of its executive employees cash housing allowances. The executives then filed amended federal income tax returns for 2011-13 claiming that the allowances did not constitute taxable income to them. In July 2015, the IRS initially disallowed the individual plaintiffs’ claim for 2012. The plaintiffs protested the disallowance, and after the IRS failed to respond to their claim within six months, their claim was effectively denied. The FFRF and its executives then filed a lawsuit in April 2016 in the Western District of Wisconsin, claiming that the clergy housing allowance violated the Establishment Clause of the First Amendment (“Congress shall make no law respecting an establishment of religion . . . .”) because it rendered ministers’ allowances tax-free but not theirs. The named defendants were the then Secretary of the Treasury and the Commissioner of the IRS in their official capacities. (The FFRF had previously filed two other lawsuits challenging the housing allowance, but those cases were dismissed for procedural reasons.) Several ministers and churches located in Chicago subsequently intervened in the case as additional defendants. They were represented by The Becket Fund for Religious Liberty.

In an October 2017 decision, District Court Judge Barbara Crabb ruled section 107(2) unconstitutional because it is a unique benefit for ministers. (The plaintiffs had also challenged Code section 107(1), which allows churches to provide tax-free in-kind housing, often called a parsonage or manse, but Judge Crabb dismissed that claim during the course of the case because the plaintiffs had been provided cash allowances, not in-kind housing.)

The defendants appealed Judge Crabb’s decision to the Seventh Circuit, which covers Illinois, Indiana and Wisconsin. The Church Alliance filed an amicus brief in the appellate case urging that court to reverse the district court decision and declare section 107(2) constitutional. More than 30 churches and other religious organizations joined the Church Alliance’s brief.

At oral argument, Judge Brennan, who ultimately authored the panel’s decision, asked both sides which test the court should apply in determining whether section 107(2) was constitutional, the Lemon test or the Town of Greece test.

The Lemon test refers to a 1971 Supreme Court case, Lemon v. Kurtzman, that involved state aid to parochial schools. The Supreme Court in that case articulated its test for determining whether a particular statute violates the Establishment Clause as follows: “First, the statute must have a secular legislative purpose; second, its principal or primary effect must be one that neither advances nor inhibits religion; …finally, the statute must not foster “an excessive government entanglement with religion.”

The Town of Greece test refers to Town of Greece v. Galloway, a 2014 Supreme Court decision that held opening prayers before town board meetings to be constitutional. In that case the Supreme Court indicated that the Establishment Clause must be interpreted “by reference to historical practices.”

The Seventh Circuit’s panel’s decision on March 15 reversed the district court’s decision and upheld the constitutionality of the housing allowance under both the Lemon and Town of Greece tests. In upholding section 107(2) under the Lemon test, the panel held that section 107(2) has a secular purpose in that it puts ministers on an equal footing with secular employees receiving similar benefits. Congress’ intent, the panel said, was to “exempt employer-provided housing for employees with certain job-related housing requirements.” This is a recognition that other provisions of the Code provide housing benefits for various types of employees, including military employees and employees living abroad. The panel also found section 107(2) to eliminate discrimination between ministers; that is, between those affiliated with churches that can provide in-kind housing benefits such as a parsonage that is tax-free to the minister under Code section 107(1) and those ministers affiliated with churches – perhaps new or less well-established churches – that cannot provide in-kind housing benefits. Finally, the panel indicated that the broad nature of the exemption in section 107(2) avoids “intrusive inquiries into how religious organizations use their facilities”. A contrary result, the panel noted, could force congregations to change their religious activities.

The panel also upheld the statute under the Town of Greece historical significance test. The panel found that while the defendants had provided substantial evidence of a lengthy tradition of tax exemptions for religion, particularly for church-owned properties, the plaintiffs had offered “no evidence” that provisions like section 107(2) were historically viewed as an establishment of a religion. The district court had held that the cases involving property tax exemptions were inapplicable to section 107(2), which was an income tax exemption, not a property tax exemption. However, the panel thought this “too fine a distinction” and noted that before the passage of the 16th Amendment in 1913, which sanctioned the current federal income tax scheme, Congress “could not constitutionally tax housing provided to ministers as part of their income.”

The panel undoubtedly analyzed the housing allowance under both tests because the viability of the Lemon test is an issue currently before the Supreme Court in a case involving a 40 foot cross-shaped war memorial situated on public land in Blandensburg, Maryland. Oral argument in that case occurred on February 27, and a decision is expected by the end of June.

What happens next?
The plaintiffs could petition to have the case reheard by the Seventh Circuit en banc, which means that it would be reheard by all of the dozen or so active judges in the Seventh Circuit. However, under the applicable rules governing appellate procedure such rehearings are not “favored”.

Ultimately, the plaintiffs could petition the Supreme Court to hear the case, but such petitions are long shots particularly in the absence of a conflict among the federal courts of appeals. The Supreme Court receives thousands of such petitions annually, but grants fewer than 100 each year.

There is no guarantee that the housing allowance will not be challenged again, but for now it remains intact.

The Future of the Clergy Housing Allowance (April 2018)

An important case is currently making its way through the federal courts which will impact ministers, and to a lesser extent churches, nationwide. On Oct. 6, 2017, the federal district court declared the clergy housing allowance unconstitutional in the Western District of Wisconsin. In response, certain Chicago area ministers have appealed the case to the Seventh Circuit Court of appeals. A decision is expected to be reached in the second half of 2018.

The court case challenging the Clergy housing allowance was first introduced in 2011 when the co-founders of the Freedom From Religion Foundation (FFRF) challenged the provision as unconstitutional, preferential, and discriminatory for permitting tax-free housing to “ministers of the gospel.” The case was voluntarily dismissed by the FFRF.  A second suit was filed in 2013 and the district court judge ruled the Housing Allowance was unconstitutional.   A year later, a circuit court vacated the lower court’s judgement.  A third case has been brought before a district court and again, the court found the clergy housing allowance was unconstitutional.  Now, the seriousness of the case (i.e. Gaylor v. Mnuchin) is being realized as an appeal is being heard by the U.S. Seventh Circuit Court..

The minister’s housing allowance has allowed PCA churches and church-related organizations to use limited resources more effectively.  A loss of this benefit would negatively impact PCA ministers and their families and would limit resources available to them in Gospel ministry throughout the United States. 

This article addresses three basic questions surrounding the housing allowance case.

What is the housing allowance?

The housing allowance is a provision, section 107(2) of the Internal Revenue Code, which permits  minsters to exclude from federal income tax all or a portion of their income designated as a housing allowance.

The allowance is commonly misunderstood in the Christian community as an additional monetary stipend. However, the allowance is not a bonus. Rather, it is part of the pastor’s salary, set aside for housing and free from federal income tax. The exclusion was created by Congress in 1954 to protect ministers and other workers whose jobs require them to live in the communities they serve from disadvantageous tax treatment.

Who will be affected if the housing allowance is invalidated?

If the Seventh District Court overrules the appeal supporting the housing allowance, then the case could be subject to review by the Supreme Court. Ministers everywhere would feel the effects of the exclusion’s annulment.

Ministers in Illinois, Indiana, and Wisconsin would feel the disruption first if the district court’s decision stands. But because the provision applies to ministers of all churches, ranging from small neighborhood churches to nationwide, multi-site churches, some ministers will be affected more than others.

Most churches within the Presbyterian Church of America are not large multi-staff churches. The PCA is made up of many small churches that serve their communities, often with less than three or four employees. It is these churches led by ministers with modest pay that benefit the most from the housing allowance. Smaller churches with solo ministers will be the most disadvantaged by the decision.

 How should churches prepare?

Start setting aside money for ‘a rainy day fund.’ Pray for the Lord’s care and provision and begin planning for changes to the stewarding of your church finances. If the housing allowance is discontinued, churches may want to offset all or part of the increase in the minister’s ‘new’ income tax liability.   For instance, the loss of a $20,000 housing allowance would amount to a tax liability of around $5,000.   

Many churches remain unaware of their pastor’s tax exclusion and could be caught off guard by the disappearance of funds. Small congregations do not typically have lots of discretionary income to help ministers, so saving money in advance is the best option to compensate church leaders.

If the court appeal is denied, your rainy day fund can be used to allow the pastor to continue serving your church. Should the appeal stand, your congregation can decide how to spend or reallocate the saved funds, which for most churches should not be a challenge.

While the appeal is still being reviewed, an Amicus Brief was filed with the Seventh Circuit Court by several organizations including the Church Alliance, with which PCA Retirement and Benefits is affiliated. The brief describes in detail the lengthy history of the housing allowance and the immense financial burdens ministers would face without it.

If churches or ministers have questions about contingency planning, they should schedule an appointment with one of our Financial Planning Advisors – 678-825-1198 or planning@pcarbi.org.

Another Challenge to the Clergy Housing Allowance Exclusion (October 2016)

Once again, the ‘Freedom from Religion Foundation’ (FFRF) has filed a federal law suit in the Western District of Wisconsin challenging the constitutionality of the ministerial housing allowance exclusion. In the suit, filed on April 4, 2016, the FFRF alleges that the law unconstitutionally provides “preferential and discriminatory tax benefits… exclusively to religious clergy” and therefore violates equal protection rights. 

You might recall that in a previous lawsuit the Seventh Circuit Court of Appeals in Chicago concluded that the FFRF ‘lacked standing’ to challenge IRC Section 107(2) and the lower court’s decision was vacated.  However, in response to this new law suit, the federal government has already conceded that based on its understanding of the facts, FFRF now has legal standing to challenge the housing allowance exclusion – but not parsonage (aka manse) allowances. 

As the Evangelical Counsel for Financial Accountability (ECFA) has put it, “with standing now conceded by the federal government in this case, this removes an important barrier to allowing FFRF to proceed for the time being with its latest challenge to the housing allowance at the federal district court level.”  And since this case is substantially the same as the previous FFRF lawsuit brought before the federal district court, it seems unlikely that Judge Barbara Crabb will rule in a different manner than she did in the FFRF’s initial case.  So, it appears that the ‘constitutionality’ of ministerial housing allowance may later be argued and decided on appeal by the Seventh Circuit Court of Appeals.  PCA Retirement & Benefits, Inc. will continue to follow this case.

Most Recent Housing Allowance Court Challenge Defeated (April 2015)

On November 13, 2014, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s ruling against the Minister’s Housing Allowance benefit.  In the lower court’s ruling, Judge Barbara Crabb deemed the minister’s housing allowance as an unconstitutional preference for religion.   Judge Crabb stayed her ruling until all appeals were exhausted.  The three judge panel of the Seventh Circuit Court dismissed the case and found the plaintiffs, the Freedom From Religion Foundation, did not have standing to challenge the law because they have never been negatively impacted by the law.

The Minister’s Housing Allowance provision mentioned in the lawsuit permits ministers to deduct the fair rental value of their residence from their taxable income. This unique ministerial benefit dates back to 1954, and has the effect of lowering a minister’s federal income taxes.

Freedom From Religion Foundation et al v. Jacob Lew et al

A Significant Challenge to the Clergy Housing Allowance Exclusion (April 2014)

On September 13, 2011, the Freedom from Religion Foundation (FFRF) filed a lawsuit challenging the tax benefits of the Minster’s Housing Allowance in the Western District of Wisconsin.  The plaintiff argued that the Minster’s Housing Allowance, as administered by the federal government, “violates the Establishment Clause of the First Amendment by providing preferential tax benefits to ministers of the gospel”.  U.S. District Court Judge Barbara Crabb largely agreed with the plaintiff’s argument and issued a 43 page decision declaring the Minister’s Housing Allowance was unconstitutional.

New developments to this on-going suit emerged in the first quarter of 2014.  On January 24th, The U.S. Treasury Department (U.S. Treasury) filed notice that the agency would appeal the court’s decision (the last day permitted by law), and nine days later the appeal was filed in the Seventh Circuit Court of Appeals in Chicago, Illinois.  Back in Wisconsin, Judge Crabb stayed her court’s decision pending the outcome of the federal government’s appeal. 

Judge Crabb’s decision did not come as a surprise to most legal experts.  The Western District of Wisconsin was widely believed to be one of the most favorable forums for this type of suit.  In 2010, Judge Crabb ruled in another FFRF lawsuit that the National Day of Prayer was unconstitutional.  Her ruling was unanimously dismissed by a three judge panel of the Seventh Circuit Court of Appeals in April 2011 due to lack of standing.

RBI is hopeful that the Seventh Circuit Court will rule in a similar manner and dismiss this case.  However, this is a different case with different arguments.  If the Seventh Circuit Court upheld the lower court’s decision, the housing allowance would be immediately taxable in the jurisdiction of the court: Wisconsin, Illinois, and Indiana.  This type of unfavorable ruling would most likely be appealed to the Supreme Court.

RBI’s Defense of the Exclusion

PCA Retirement & Benefits, Inc. and other members of the Church Alliance, an ecumenical coalition of church benefit program executives, worked with attorneys to create an amicus brief, a document that expresses views that the court may otherwise overlook.  Our amicus brief adds a different perspective than appeal filed by the federal government.  The brief focuses on the legal history of permitted legislative accommodation of religion and argues that US Code §107(2) is a constitutionally permitted accommodation of religion when viewed in the context of US Code §107(1), the minister’s housing allowance exclusion, and US Code §119, which excludes employer provided housing from employees’ income in numerous secular circumstances.  The brief was submitted by the Church Alliance and was filed in the Seventh Circuit U.S. Court of Appeals.

To find the latest updates, search the internet for “Freedom From Religion Foundation, Inc., et al. v. Jacob Lew, et al.”

Housing Allowance Lawsuit Dropped (October 2011)

Freedom From Religion Foundation et al v. Geithner, Timothy et al (filed 10/16/2009)

The Freedom From Religion Foundation (FFRF) agreed to voluntarily dismiss a federal lawsuit that challenged the tax advantages afforded to ministers through the housing allowance exemption, as well as the ability of ministers to deduct mortgage interest and property taxes allocable to their housing.  The Minister’s Housing Allowance provision mentioned in the lawsuit permits ministers to deduct the fair rental value of their residence from their taxable income. This unique ministerial benefit dates back to 1954, and has the effect of lowering a minister’s federal income taxes.

The original complaint in the FFRF’s lawsuit alleges that sections 107 and 265(a)(6) of the Internal Revenue Code violate the Establishment Clause of the US Constitution “by providing preferential tax benefits to ministers of the gospel”.  Additionally, the FFRF claims that the IRS is discriminating against secular organizations (e.g. like the FFRF), and permitting excessive entanglement between the U.S. government and religion.  If the challenge had been successful, it would have adversely affected all PCA Teaching Elders in the United States.

The main reason the FFRF dropped the lawsuit was due to a earlier 2011 Supreme Court case [i.e. Arizona Christian School Tuition Organization v. Winn (ACSTO v. W)] which limited a taxpayer’s legal standing (i.e. injured party’s ability to bring a controversy to a court)  to protest perceived violations of the First Amendment’s non-establishment of religion clause.  In ACSTO v. W, the Supreme Court noted that U.S. courts have frequently ruled that standing cannot be solely based on a plaintiff’s status as a taxpayer because the alleged injury is too speculative.   To have standing a plaintiff must establish “an injury in fact”.  Without standing, the FFRF voluntarily withdrew their lawsuit and the case was dismissed.

UPDATE: September 13, 2011

The FFRF, along with new plaintiffs Annie Laurie Gaylor, Annie Nicol Gaylor (Retired), and Dan Barker, are once again challenging the Minister’s Housing Allowance.  However, this time the case is being filed in the U.S. District Court of the Western District of Wisconsin.  All three plaintiffs in the suit receive the housing allowance from the FFRF, but are unable to qualify for the exemption because none of them are ministers of the gospel.

Court Allows Challenge to Minister's Housing Allowance to Move Forward (October 2010)

As reported in the last issue of the Benefit Bulletin, The Freedom From Religion Foundation (FFRF) filed a lawsuit against Timothy Geithner, Douglas Shulman, and Selvi Stanislaus (all acting in their official capacities as Secretary of the United States Department of Treasury, Commissioner of the Internal Revenue Service, and Executive Officer of the California Franchise Tax Board respectively) on October 16, 2009. The lawsuit challenged the tax advantage afforded to ministers through the housing allowance exemption, as well as the ability of ministers to deduct mortgage interest and property taxes allocable to the housing allowance.  The housing allowance, for those who are unfamiliar, is a provision which allows the fair rental value of a minister’s residence to be excluded from gross taxable income.  This provision has the effect of lowering a minister’s federal income taxes.


February 26, 2010 – The government filed a motion to dismiss the lawsuit.  Several legal issues were addressed in the motion, but the most relevant issue raised was one which questioned the standing of the FFRF to file a lawsuit in the first place.  In most cases, federal taxpayers do not have the right to challenge laws enacted by Congress (i.e. IRS107 and 265(a)(6)(B)).  There are exceptions, however, and one such case is Flast v. Cohen, 392 U.S. 83 (1968), which created limited exceptions that permit federal taxpayers to challenge congressional spending programs.

May 21, 2010 – The United States Court of Appeals for the 9th Circuit, widely believed to be the most favorable appellate forum for the FFRF, allowed the lawsuit to move forward.  The May ruling determined that federal taxpayers who are members of the FFRF do have the standing to challenge the housing allowance provision as described in section 107 of IRS tax code.  However, the court dismissed the challenge which questioned a minister’s ability to deduct mortgage interest and property taxes allocable to the housing allowance.  Also dismissed were the claims under the California constitution that challenged California’s parallel provisions.

We will continue to update you with new information regarding this important court case as it becomes available.

Minister's Housing Allowance is Under Attack (April 2010)

The Freedom From Religion Foundation (FFRF), along with twenty of its individual members, filed a lawsuit on October 16, 2009, that challenges the tax advantage afforded to ministers through the housing allowance exemption.  This exemption provides that ministers are not required to pay federal income taxes on the amount of their compensation designated as a housing allowance.

The lawsuit contends that the provisions allowing tax benefits exclusively for ministers violates the Establishment Clause of the First Amendment to the U.S. Constitution, along with similar provisions within the California Revenue and Taxation Code.  Since only ministers are afforded these advantages, the FFRF asserts that that the statutes granting tax benefits amount to a governmental endorsement of religion, religious employees and religious institutions.

This is not a new argument!  A California federal appeals court raised this same issue back in March 5, 2002, when reviewing the merits of a challenge to the housing allowance benefit involving Rev. Rick Warren.  However, in response to this threat, Congress enacted the Clergy Housing Allowance Clarification Act of 2002.  This Act, in effect, amended the tax code, causing the IRS to drop its appeal and preventing the California federal appeals court from addressing the constitutionality of the housing allowance.

It is a shame that these persistent litigants fail to acknowledge the important service provided by members of the clergy.  Many pastors are living on meager salaries, and this important benefit allows them to preserve more of their income in their service to others.  Please join us in prayer to our Heavenly Father that this important benefit to our PCA church servants will be sustained.

Recent Update

On December 4, 2009, a California federal district court refused to permit Michael Rodgers, Senior Pastor of Faith Baptist Tabernacle in Highland, California, to intervene in the case.  The court took the position that the pastor and his counsel, from the Pacific Justice Institute, failed to show that the government would inadequately represent Rev. Rodgers’ interests in defending the minister’s housing allowance benefit.  However, the court did permit Rev. Rodgers’ motion to file an amicus brief advocating the constitutionality of the minister’s housing allowance.

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