Court Holds Ministerial Housing Allowance Unconstitutional

In a ruling that came early, but that was expected, Federal District Court Judge Barbara Crabb of Wisconsin struck down a law that allows ministers a tax-free housing allowance. In a decision issued on Thursday, November 21, 2013 – almost two months earlier than a decision was expected, Judge Crabb wrote that the housing allowance provision for ministers “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”

The ministerial housing allowance provision, commonly known as Section 107 and included in the tax code since at least 1954, has been under attack as providing a special benefit to ministers that is not available to other taxpayers.  Section 107 allows ministers to have a portion of their income designated as tax-free housing allowance or live in a parsonage without having to pay taxes on the fair rental value of the parsonage.  The ruling does not affect parsonages but declares the housing allowance provision unconstitutional.

Under Section 107, active credentialed ministers are able to have a portion of their ministerial compensation designated as tax-free housing allowance. Further, retired ministers who participated in their church-sponsored pension plans, like the Church of God’s Ministers’ Retirement Plan, can have some or all of their retirement distributions designated as ministerial housing allowance as well.

The plaintiffs in the lawsuit before Judge Crabb, led by the Freedom From Religion Foundation, contended that the housing allowance provision granted ministers an unfair benefit that violated the U.S. Constitution. In her ruling, Judge Crabb noted that a lot of tax revenue was a stake. The tax savings to ministers over a five year period of time was estimated to be more than $2.3 billion.

While the decision by the court was not unexpected, the timing was earlier than the anticipated ruling that was originally expected in January 2014. For now, the Court’s decision only impacts the Western District of Wisconsin – the district in which Judge Crabb serves. However, it is expected that other courts across the country could follow suit and issue similar rulings when this provision comes before their court in the future.

Judge Crabb’s decision is expected to be appealed to the 7th U.S. Circuit Court of Appeals in Chicago – but decision to appeal will have to be made by the Internal Revenue Service and the U.S. Department of Treasury, the defendants in the lawsuit. Ultimately, it is expected that this matter will reach the U.S. Supreme Court.

Although for now only the Western District of Wisconsin is impacted by this decision, the impact could eventually touch the entire nation. The Church of God Benefits Board, in conjunction with other denominations, will continue to fight to keep the housing allowance available to our active and retired ministers.

To read the entire decision, you may go to

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in Chaplains/Evangelists, Internal Revenue Service, Ministerial Housing Allowance, Ministers, Retirees, Tax Information. Bookmark the permalink.

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