On October 6, 2017, a federal district court judge in Wisconsin ruled that the ministerial housing allowance violates the Constitution. Judge Barbara Crabb held that Section 107(2) of the Tax Code, the provision that specifically addresses the “cash” ministerial housing allowance, violates the Establishment Clause of the First Amendment, simply because it does not have a secular purpose or effect, and because it singles out “ministers of the Gospel” for special tax treatment not available to others.
The ruling only deals with the housing allowance where ministers are provided cash to rent or purchase a home, and leaves fully intact, at least for now, the tax-free use of parsonages.
Although Judge Crabb ruled that the ministerial housing allowance was unconstitutional, she did not immediately implement a ruling as to what was supposed to happen next. In a follow-up order dated December 13, 2017, Judge Crabb issued an injunction that prohibits the government from enforcing Section 107(2) of the Tax Code. Simply stated, the injunction prohibits the Internal Revenue Service from allowing ministers to claim the housing allowance as an exclusion from income. However, as expected, the judge “stayed” the injunction until “180 days after the conclusion of any appeals.” Therefore, if the decision is upheld on appeal, the order mandates that the injunction will become effective 180 days after the appeal process is completed in order to allow an orderly transition. The judge noted that “the additional time will allow Congress, the IRS and affected individuals and organizations to adjust to the substantial change.”
It is expected that the unconstitutional determination will be appealed to the Seventh Circuit Court of Appeals in Chicago within the next few weeks, continuing a legal battle that ultimately could end up before the U. S. Supreme Court. It is expected that the Church of God International Offices and the Church of God Benefits Board will file a “friend of the court” brief in support of maintaining the housing allowance once the case reaches the appellate court.
Since the injunction has been stayed, and until a final decision has been entered, churches should continue to follow normal procedures in setting a housing allowance for their ministers.