This morning the Seventh Circuit Court of Appeals heard oral argument in the case involving the constitutionality of the ministerial housing allowance. Since 1954, a tax rule has allowed a “minister of the gospel” to be exempt from income tax on compensation that is part of a housing allowance. The IRS has interpreted the term “minister of the gospel” to include a whole range of religious leaders not restricted to Christian ministers.
The three judge panel of Seventh Circuit–Judges Bauer, Brennan, and Manion–heard the Freedom From Religion’s challenge to this important tax benefit which is enjoyed by tens of thousands of religious leaders across the country. Those challenging the decades old tax benefit argued that it is unconstitutional as an impermissible establishment of religion. Those defending the housing allowance defended the housing allowance as advancing a number of secular purposes including the purpose of keeping the government out of religious questions relating to how central a minister’s use of his or her living space is to the religious organization’s mission and activities.
Dalton & Tomich attorney Noel Sterett attended the oral argument and co-authored a friend-of-the-court brief with Alliance Defending Freedom attorney Erik Stanley on behalf of 8,899 pastors in support of the housing allowance.
While the housing allowance was well-defended at oral argument this morning, religious groups should pay close attention to this case and seek both legal and tax guidance on how best to compensate their ministers.