$800M Tax Hike for Ministers? Judge Kills 'Most Important Tax Benefit'

For 60 years, ministers and clergy in the U.S. have relied on an IRS law that allows them a tax-exempt housing allowance. Now that key exemption is at risk.

GuideStone Financial Resources calls it the "most important tax benefit available to ministers." And Christianity Today reports, the congressional Joint Committee on Taxation estimates the break is worth $800 million a year to American ministers.

But a federal judge in Wisconsin has now ruled that the tax break violates the establishment clause of the First Amendment.

District Judge Barbara B. Crabb says the problem with the law is that it provides a financial benefit to one group of religious employees and no benefit to secular employees in similar situations.

"I do not mean to imply that any particular minister is undeserving of the exemption or does not have a financial need," wrote Crabb. "The important point is that many equally deserving secular employees (as well as other kinds of religious employees) could benefit from the exemption as well."

Southern Baptist Convention pastor and blogger William Thornton has followed the debate over the tax break for years and says it's tricky to defend.  

"If I have an honest conversation with a plumber or teacher in my congregation about the minister's cash housing allowance I have to admit that it's a sweet tax break and no, I can't offer much of a cogent explanation as to why this is reserved exclusively for clergy and not plumbers or teachers," he said.

But the Becket Fund for Religious Liberty, which argued on behalf of defendants in the case, says the housing allowance serves an important purpose, allowing faith leaders to live close to their church or in an underserved community.  

It's the same tax principle, says Becket, "that allows businesses and the military to reimburse travel and overseas housing costs and provides tax-free housing to teachers and police who live in the communities they serve."

"Ending the parsonage allowance would discriminate against religious groups by treating them differently than many other secular employees who receive similar tax treatment on their housing allowances," the group continues.

Becket Fund provided this image of Bishop Ed Peecher of Chicago Embassy Church, a predominantly African-American congregation in one of the poorest neighborhoods in Chicago. Becket is defending Peecher in the case.

The Wisconsin-based atheist group Freedom from Religion Foundation sued the IRS to rule against the clergy housing allowance. A spokeswoman for the Becket Fund says it plans to appeal.