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Minister's Housing Allowance Ruled Unconstitutional

On Thursday, Nov. 21, U.S. District Judge Barbara B. Crabb for the Western District of Wisconsin issued a strong, 43-page decision declaring unconstitutional 26 U.S.C. § 107(2), passed by Congress in 1954. Quoting the Supreme Court, Crabb noted, 'Every tax exemption constitutes subsidy.'

The law allows 'ministers of the gospel' paid through a housing allowance to exclude that allowance from taxable income. Ministers can, for instance, use the untaxed income to purchase a home, and, in a practice known as 'double dipping,' may then deduct interest paid on the mortgage and property taxes.

Crabb wrote: 'Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility. It is important to remember that the establishment clause protects the religious and nonreligious alike.'

While enjoining Treasury Secretary Jacob Lew and IRS Acting Commissioner Daniel Werfel from enforcing the tax break, Crabb stayed her ruling until the conclusion of any appeals, as is typical in significant cases.

So, while the housing allowance has been ruled unconstitutional, the judge's stay means that ministers may continue to qualify for the housing allowance in tax year 2013. And because of the length of time it usually takes for cases to work their way through to the Supreme Court, it is likely that minister's housing allowance will be permitted in 2014 as well.

Pension Fund will continue to monitor this case and provide updates as they become available.