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The First Amendment and parsonage allowances

EZ Thoughts

By Edward Zelinsky


Confronting an important constitutional question about religion and taxation, the US District Court for the Western District of Wisconsin, in Freedom from Religion Foundation, Inc. v. Lew, held that Section 107(2) of the Internal Revenue Code violates the First Amendment. Code Section 107(2) excludes from gross income cash housing allowances furnished to “minister[s] of the gospel.” Such housing allowances are today designated as “parsonage allowances.”

For three, interrelated reasons, the District Court’s opinion in FFRF is unpersuasive and should be reversed by the Court of Appeals. First, contrary to the District Court’s conclusion, Section 107 has secular purpose and secular effect. Section 107 manages the entanglement which is inevitable when the modern government decides whether or not to tax the modern church. Moreover, Section 107 accommodates the autonomy of religious institutions and actors by declining to tax both clerical housing provided in kind and parsonage allowances paid to clergy in cash. Section 107 should be understood, not as subsidizing the church, but as separating the church from the state. The economic benefit of tax exemption is a by-product of that separation.

Second, the District Court’s FFRF opinion places too much weight on the US Supreme Court’s plurality opinion in Texas Monthly, Inc. v. Bullock while giving short shrift to the Supreme Court’s earlier opinion in Walz v. Tax Commission. In Texas Monthly, the Supreme Court struck on First Amendment grounds a Texas sales tax exemption for religious periodicals. In Walz, the Supreme Court upheld against First Amendment challenge New York’s property tax exemption for churches.

Church and State

A careful reading of Texas Monthly and Walz indicates that, consistent with the First Amendment, Congress can exempt from taxation churches and religious actors to avoid church-state entanglement and to accommodate the autonomy of religious institutions and actors. That is what Code Section 107 does. Third, the District Court in FFRF accepts the premise of the Texas Monthly plurality that tax exemptions are always subsidies. Often tax exemptions are subsidies, comparable to direct expenditures. However, in many instances, they are not. In constitutional terms, Section 107 is more convincingly perceived, not as a subsidy, but, per Walz, as managing the inevitable entanglement caused by taxation and as accommodating the autonomy of religious institutions and actors. In a world of imperfect choices, Section 107 separates rather than subsidizes. The economic benefit of Section 107 is a side-effect of that separation.

As a matter of tax policy, there is a strong argument for taxing all cash income including parsonage allowances now excluded from gross income by Code Section 107(2). However, as a constitutional matter, Section 107 reflects a constitutionally permitted, though not a constitutionally compelled, choice to accept one form of entanglement over others and to accommodate the autonomy of churches and religious personnel by excluding their housing and housing allowances from clerical gross incomes. For First Amendment purposes, this is a plausible choice with secular purpose and secular effect in an area where there are no disentangling alternatives.

On 24 January 2014, the US Justice Department filed notice that it will appeal FFRF to the US Court of Appeals for the Seventh Circuit. The appeals court should reverse the District Court’s opinion and thereby sustain Code Section 107(2) as a constitutionally permitted, though not constitutionally compelled, accommodation of religious autonomy under Walz.

ZelinskiEdward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America. His monthly column appears on the OUPblog.

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Image credit: At the intersection of Church and State Streets in Salem, Oregon. © llhoward via iStockphoto.

Recent Comments

  1. RLBaty

    I’m not a lawyer, and I look forward to Zelinsky’s, the Baptists’, Holder’s, and the opinions of others in this matter to be tested by the 7th Circuit and the U.S. Supreme Court.

    I don’t think Zelinsky’s position is correct.

    In simple terms, if one imagines a world such as ours without IRC 107, I don’t think there is any constitutionally permitted basis for Congress and the President to single out ministers, ONLY ministers, million dollar ministers, basketball ministers at places like Pepperdine University, and lesser sorts at local churches and such, so that they can have income tax free benefits as long as they spend it on housing costs ($1,000, $10,000, $100,000, $500,000).

    I think we need to be in such a world and let Congress and the President start over if they think nice people need some kind of special tax free benefit for housing costs they incur.

    And that’s my opinion on that.

  2. Marcello

    Zelinsky’s allegation of entanglement is spurious. There is no “entanglement” with the church. The individual is being taxed on income, there is no taxation of the church. Where is the “entanglement”?

  3. Ed Silha

    Your argument that IRC 107 reduces entanglement seems unsupportable. IRC 107 requires that the government determine whether a person is a “minister of the gospel” by deciding what functions are sacerdotal, what services are worship services, whether an organization qualifies as a religious organization, whether a person is a spiritual leader, and what it means to be be ordained, licensed or commissioned as a minister. The result is that the government must rule on any number of religious concepts. The only solution that completely disentangles the government from involvement in deciding religions questions is to void IRC 107.

  4. [...] Constitutional Does Not Equal Sound Tax Policy Recent commentary by Professor Edward Zelinsky has driven home for me how important the issue of Code Section 107 is to the integrity of our tax system.  Activists and advocates tend to use the Constitution like a drunk uses a lamppost, more for support than illumination. Professor Zelinsky, who being a law professor and all probably knows more about First Amendment jurisprudence than I do, has a very nuanced view.  He argues that 107(2) is both constitutional and bad tax policy. The long version of Professor Zelinsky’s explanation is in this recent article in Tax Notes.  A shorter version appears on the Oxford University Press blog. [...]

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