Explainer: The ministerial housing allowance is still constitutional

July 30, 2019

This summer brought an end to the latest legal challenge to ministerial housing allowances. June 13, 2019, was the deadline for Freedom From Religion Foundation (FFRF) to appeal the Seventh Circuit’s decision in Gaylor v. Mnuchin to the Supreme Court, and the atheist group declined to appeal their suit. 

How did we get here? 

In 2016, FRFF sued the IRS claiming that a section of the Internal Revenue Code, 26 USC §107(2) providing housing allowances for ministers, violated the Establishment Clause. The Western District Court of Wisconsin agreed and struck down the housing allowance as unconstitutional. In reaching this conclusion, the district judge used the Lemon test to find that the housing allowance had no secular purpose and gave preferential treatment to religious individuals. For more on the Lemon test, see our Capitol Conversations episode, Supreme Court rules 7-2 for the Bladensburg Cross, for a discussion on how this legal framework was recently in play in a case before the justices.

The U.S. Treasury Department appealed to the Seventh Circuit Court of Appeals. The ERLC, alongside a number of religious organizations including Southern Baptist sister entity, Guidestone, filed an amicus brief in support of the Treasury Department’s appeal in 2018. In a unanimous 3–0 decision, the Seventh Circuit reversed the District Court decision on March 13, 2019, and held that §107(2) violated neither the Lemon test nor the “historical significance” test in Town of Greece

What was the case about?

§107(2) of the IRC provides that cash allowances to ministers used for housing payments be exempt from a ministers’ taxable gross income. This is a continuation of the longstanding practice of exempting employer-provided housing, including church-owned parsonages, and a Congressional response to the shift in clergy housing toward housing stipends. §107(2) allows for churches, mosques and synagogues to provide cash stipends to their faith leaders as an alternative to buying housing property. At stake in Gaylor v. Mnuchin were these cash housing allowances and not housing in kind (church-owned property) benefits.

How did the Seventh Circuit Rule?

FFRF argued that §107(2) grants greater tax exemptions to ministers than the IRS does to secular employees. This, however, is simply not true.

The IRS interprets “ministers of the gospel” to include leaders of other religious faiths. Further, the Seventh Circuit pointed to myriad other Title 26 categorical exclusions for housing benefits in cash or in kind that also lower the requirements to obtain standard §119(a)(2) employer-provided housing exemptions. Other categorical exclusions exempt housing allowances for members of the military, certain government employees, those working abroad and so on. Read in context with these other statutory exemptions, §107(2) is one of many categorical exclusions Congress chose to ease the burden of administering housing exemptions, which the Seventh Circuit held was a secular purpose satisfying the first prong of the Lemon test. The Seventh Circuit also found Congress’s reasoning to provide smaller, independent churches an alternative to buying housing property a valid secular purpose.

Regarding the second prong of the Lemon test, the Seventh Circuit reiterated that a tax exemption does not have the primary effect of advancing religion as “the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state.”

On the third prong of the Lemon test on excessive entanglement, the Seventh Circuit rejected FFRF’s argument that  §107(2) requires the IRS to engage in a fact-intensive inquiry into whether a taxpayer is a minister. The Seventh Circuit stated that “[a]ny financial interaction between religion and government—like taxing a church, or exempting it from tax—entails some degree of entanglement. But only excessive entanglement violates the Establishment Clause… the application of § 119(a)(2) to ministers would entangle church and state far more than under § 107(2).” To apply § 119(a)(2), the IRS would have to determine what the “business” of a church is, what is the church “premises” and how far does it go, and what ministry duties the minister performs at home count as part of their employment. In contrast, the categorical nature of §107(2) avoids such difficult inquiries and gives certainty to ministers and their churches that their housing allowances will be tax exempt.

The Seventh Circuit also applied the “historical significance” test from Town of Greece to find that there has been a long tradition of tax exemption for religion and church-owned properties as far back as 1802. The Sixteenth Amendment, authorizing Congress to levy an income tax, was ratified in 1913. Only a few years after income becoming taxable, Congress passed §107(1) for parsonages in 1921 and later §107(2) extended tax exemption to cash allowances in 1954. Given this historical tradition and Congress’s legitimate reasons for enacting the housing allowances, the Seventh Circuit held that §107(2) does not violate the Establishment Clause.

What are the broader implications?

First, the Seventh Circuit’s decision upholds §107(2) for ministers not only in the Seventh Circuit’s jurisdiction, but religious leaders of all faiths in the U.S. 

Second, this decision levels the playing field for ministers of smaller, poorer denominations to be able to meet their religious leaders’ housing needs. Roughly half of the churches in the U.S. have fewer than 80 members. Many smaller, independent, local churches and church plants lack the financial resources to pay their ministers a full-time salary or purchase a property for their ministers to live. Were the District Court’s decision to stand, only churches who could afford to buy property would be able to provide meaningful housing support to their ministers.

Third, as the Seventh Circuit noted with §107(2) still standing, churches will not be pressured to alter their religious activities in an attempt to meet the requirements for employer-provided housing tax exemptions in §119(a)(2), such as the house needing to be on business premises. §107(2) will allow churches, mosques, synagogues and their faith leaders to rest assured that their housing allowances are tax exempt.

What happens next?

Challenges to the §107(2) housing allowance will likely continue. The Seventh Circuit described Gaylor v. Mnuchin as “falling between the joints of the Free Exercise Clause and the Establishment Clause,” a harkening back to the Supreme Court’s language in Locke v. Davey in which the Court addressed the difficulty in harmonizing the First Amendment’s dual prohibitions.  In the present case, the Seventh Circuit states that the housing allowances fall within the “joints,” neither commanded by the Free Exercise Clause nor proscribed by the Establishment Clause. As Establishment Clause jurisprudence continues to evolve, the Seventh Circuit’s decision upholding §107(2) against the “historical significance” test in addition to the Lemon test is a valuable piece of case law. 

The ERLC will continue to monitor future challenges and engage on cases on the housing allowance, working to advocate on behalf of the churches we are privileged to serve, and all those communities of faith in this country who value religious liberty and the flourishing of local communities.

ERLC legal intern Dani Park contributed to this article.

Article 12: The Future of AI

We affirm that AI will continue to be developed in ways that we cannot currently imagine or understand, including AI that will far surpass many human abilities. God alone has the power to create life, and no future advancements in AI will usurp Him as the Creator of life. The church has a unique role in proclaiming human dignity for all and calling for the humane use of AI in all aspects of society.

We deny that AI will make us more or less human, or that AI will ever obtain a coequal level of worth, dignity, or value to image-bearers. Future advancements in AI will not ultimately fulfill our longings for a perfect world. While we are not able to comprehend or know the future, we do not fear what is to come because we know that God is omniscient and that nothing we create will be able to thwart His redemptive plan for creation or to supplant humanity as His image-bearers.

Genesis 1; Isaiah 42:8; Romans 1:20-21; 5:2; Ephesians 1:4-6; 2 Timothy 1:7-9; Revelation 5:9-10

Article 11: Public Policy

We affirm that the fundamental purposes of government are to protect human beings from harm, punish those who do evil, uphold civil liberties, and to commend those who do good. The public has a role in shaping and crafting policies concerning the use of AI in society, and these decisions should not be left to those who develop these technologies or to governments to set norms.

We deny that AI should be used by governments, corporations, or any entity to infringe upon God-given human rights. AI, even in a highly advanced state, should never be delegated the governing authority that has been granted by an all-sovereign God to human beings alone. 

Romans 13:1-7; Acts 10:35; 1 Peter 2:13-14

Article 10: War

We affirm that the use of AI in warfare should be governed by love of neighbor and the principles of just war. The use of AI may mitigate the loss of human life, provide greater protection of non-combatants, and inform better policymaking. Any lethal action conducted or substantially enabled by AI must employ 5 human oversight or review. All defense-related AI applications, such as underlying data and decision-making processes, must be subject to continual review by legitimate authorities. When these systems are deployed, human agents bear full moral responsibility for any actions taken by the system.

We deny that human agency or moral culpability in war can be delegated to AI. No nation or group has the right to use AI to carry out genocide, terrorism, torture, or other war crimes.

Genesis 4:10; Isaiah 1:16-17; Psalm 37:28; Matthew 5:44; 22:37-39; Romans 13:4

Article 9: Security

We affirm that AI has legitimate applications in policing, intelligence, surveillance, investigation, and other uses supporting the government’s responsibility to respect human rights, to protect and preserve human life, and to pursue justice in a flourishing society.

We deny that AI should be employed for safety and security applications in ways that seek to dehumanize, depersonalize, or harm our fellow human beings. We condemn the use of AI to suppress free expression or other basic human rights granted by God to all human beings.

Romans 13:1-7; 1 Peter 2:13-14

Article 8: Data & Privacy

We affirm that privacy and personal property are intertwined individual rights and choices that should not be violated by governments, corporations, nation-states, and other groups, even in the pursuit of the common good. While God knows all things, it is neither wise nor obligatory to have every detail of one’s life open to society.

We deny the manipulative and coercive uses of data and AI in ways that are inconsistent with the love of God and love of neighbor. Data collection practices should conform to ethical guidelines that uphold the dignity of all people. We further deny that consent, even informed consent, although requisite, is the only necessary ethical standard for the collection, manipulation, or exploitation of personal data—individually or in the aggregate. AI should not be employed in ways that distort truth through the use of generative applications. Data should not be mishandled, misused, or abused for sinful purposes to reinforce bias, strengthen the powerful, or demean the weak.

Exodus 20:15, Psalm 147:5; Isaiah 40:13-14; Matthew 10:16 Galatians 6:2; Hebrews 4:12-13; 1 John 1:7 

Article 7: Work

We affirm that work is part of God’s plan for human beings participating in the cultivation and stewardship of creation. The divine pattern is one of labor and rest in healthy proportion to each other. Our view of work should not be confined to commercial activity; it must also include the many ways that human beings serve each other through their efforts. AI can be used in ways that aid our work or allow us to make fuller use of our gifts. The church has a Spirit-empowered responsibility to help care for those who lose jobs and to encourage individuals, communities, employers, and governments to find ways to invest in the development of human beings and continue making vocational contributions to our lives together.

We deny that human worth and dignity is reducible to an individual’s economic contributions to society alone. Humanity should not use AI and other technological innovations as a reason to move toward lives of pure leisure even if greater social wealth creates such possibilities.

Genesis 1:27; 2:5; 2:15; Isaiah 65:21-24; Romans 12:6-8; Ephesians 4:11-16

Article 6: Sexuality

We affirm the goodness of God’s design for human sexuality which prescribes the sexual union to be an exclusive relationship between a man and a woman in the lifelong covenant of marriage.

We deny that the pursuit of sexual pleasure is a justification for the development or use of AI, and we condemn the objectification of humans that results from employing AI for sexual purposes. AI should not intrude upon or substitute for the biblical expression of sexuality between a husband and wife according to God’s design for human marriage.

Genesis 1:26-29; 2:18-25; Matthew 5:27-30; 1 Thess 4:3-4

Article 5: Bias

We affirm that, as a tool created by humans, AI will be inherently subject to bias and that these biases must be accounted for, minimized, or removed through continual human oversight and discretion. AI should be designed and used in such ways that treat all human beings as having equal worth and dignity. AI should be utilized as a tool to identify and eliminate bias inherent in human decision-making.

We deny that AI should be designed or used in ways that violate the fundamental principle of human dignity for all people. Neither should AI be used in ways that reinforce or further any ideology or agenda, seeking to subjugate human autonomy under the power of the state.

Micah 6:8; John 13:34; Galatians 3:28-29; 5:13-14; Philippians 2:3-4; Romans 12:10

Article 4: Medicine

We affirm that AI-related advances in medical technologies are expressions of God’s common grace through and for people created in His image and that these advances will increase our capacity to provide enhanced medical diagnostics and therapeutic interventions as we seek to care for all people. These advances should be guided by basic principles of medical ethics, including beneficence, non-maleficence, autonomy, and justice, which are all consistent with the biblical principle of loving our neighbor.

We deny that death and disease—effects of the Fall—can ultimately be eradicated apart from Jesus Christ. Utilitarian applications regarding healthcare distribution should not override the dignity of human life. Fur- 3 thermore, we reject the materialist and consequentialist worldview that understands medical applications of AI as a means of improving, changing, or completing human beings.

Matthew 5:45; John 11:25-26; 1 Corinthians 15:55-57; Galatians 6:2; Philippians 2:4

Article 3: Relationship of AI & Humanity

We affirm the use of AI to inform and aid human reasoning and moral decision-making because it is a tool that excels at processing data and making determinations, which often mimics or exceeds human ability. While AI excels in data-based computation, technology is incapable of possessing the capacity for moral agency or responsibility.

We deny that humans can or should cede our moral accountability or responsibilities to any form of AI that will ever be created. Only humanity will be judged by God on the basis of our actions and that of the tools we create. While technology can be created with a moral use in view, it is not a moral agent. Humans alone bear the responsibility for moral decision making.

Romans 2:6-8; Galatians 5:19-21; 2 Peter 1:5-8; 1 John 2:1

Article 2: AI as Technology

We affirm that the development of AI is a demonstration of the unique creative abilities of human beings. When AI is employed in accordance with God’s moral will, it is an example of man’s obedience to the divine command to steward creation and to honor Him. We believe in innovation for the glory of God, the sake of human flourishing, and the love of neighbor. While we acknowledge the reality of the Fall and its consequences on human nature and human innovation, technology can be used in society to uphold human dignity. As a part of our God-given creative nature, human beings should develop and harness technology in ways that lead to greater flourishing and the alleviation of human suffering.

We deny that the use of AI is morally neutral. It is not worthy of man’s hope, worship, or love. Since the Lord Jesus alone can atone for sin and reconcile humanity to its Creator, technology such as AI cannot fulfill humanity’s ultimate needs. We further deny the goodness and benefit of any application of AI that devalues or degrades the dignity and worth of another human being. 

Genesis 2:25; Exodus 20:3; 31:1-11; Proverbs 16:4; Matthew 22:37-40; Romans 3:23

Article 1: Image of God

We affirm that God created each human being in His image with intrinsic and equal worth, dignity, and moral agency, distinct from all creation, and that humanity’s creativity is intended to reflect God’s creative pattern.

We deny that any part of creation, including any form of technology, should ever be used to usurp or subvert the dominion and stewardship which has been entrusted solely to humanity by God; nor should technology be assigned a level of human identity, worth, dignity, or moral agency.

Genesis 1:26-28; 5:1-2; Isaiah 43:6-7; Jeremiah 1:5; John 13:34; Colossians 1:16; 3:10; Ephesians 4:24