Big things sometimes come in small packages.
A federal court in Chicago is examining the seemingly benign issue of how pastors should handle church-provided housing on their taxes. The decision in this case, however, shows the difference between freedom of religion and freedom from religion.
In this case, the Freedom From Religion Foundation is challenging the IRS rule allowing ministers to exclude the cost of housing from their taxable income. The plaintiffs claim that this amounts to an “establishment of religion” and, therefore, violates the First Amendment.
A little background and a commonsense understanding of the First Amendment show otherwise.
Many employers provide benefits, including housing, that compensate employees but may also further their own business. A hotel manager, for example, might have to live in the hotel; the lodging is a component of the job itself. Come tax time, the knotty question is whether, or how, such benefits should be counted as “income.” The answer has come to be known as the “convenience of the employer” rule.
For nearly a century, the IRS has said that employees need not count as income the value of “living quarters … for the convenience of the employer,” and Congress codified this rule in 1954. It applies automatically to specific categories of employees, such as members of the military or government employees living abroad. It also applies to any employee whose lodging arrangement meets certain conditions.
Congress has made sure that the “convenience of the employer” doctrine applies to ministers. In 1954, Congress codified the per se rule exempting church-owned parsonages and added “the rental allowance paid to him as part of his compensation.”
There are good reasons to treat these the same. For decades, courts had rejected the artificial distinction between in-kind housing and a cash allowance. That distinction exalts form over substance. The point for tax purposes, after all, is whether the housing arrangement serves the convenience of the employer.
In addition, this rule minimizes government meddling in religious organizations and the possibility of anti-religious bias. The Supreme Court, for example, has said that the First Amendment forbids “excessive entanglement” between the government and religion, which can include government “inspection and evaluation” of religious organizations.
It has also held that participation in government programs may not be denied solely because an entity is religious and that the First Amendment requires“religious neutrality” when the government makes decisions.
Sociologist Simon Brauer estimates that America has more than 350,000 church congregations of all sorts. The most recent National Congregations Study says the percentage claiming no denominational affiliation is rising. The average congregation is shrinking, while the congregation of the average churchgoer is growing.
Churches meet their staffing needs in many different ways. While 61 percent employ a full-time leader, 21 percent have a part-time leader, and 13 percent are led by a volunteer.
Some of these arrangements have theological significance, others do not. A large, well-heeled congregation with its own property might maintain a parsonage solely as the pastor’s personal residence. A small congregation with a tight budget and a rented meeting space, however, might give its pastor a housing allowance so he can also use his own home for meetings, counseling, or church activities.
A policy, however, is not constitutional simply because it is a good idea. This lawsuit should result in a clear decision that the First Amendment does not require the kind of exclusion and disfavored treatment that the Freedom From Religion Foundation wants.
The Supreme Court has held that the indirect effect of tax exemptions are different, for “establishment of religion” purposes, than direct government payments. The only exception, the court has held, involves tax exemptions provided only to religious groups that give them preferential treatment.
Applying the “convenience of the employer” doctrine even-handedly, to religious as well as to secular employees, is consistent with these principles.
Allowing ministers to exclude the value of church-provided housing, whether in-kind or by cash allowance, treats them the same as the vast range of secular employees who take advantage of the “convenience of the employer” rule. It minimizes the dangers of government entanglement with, or discrimination against, religious organizations. And it is consistent with the changing and varied choices made by congregations about how to structure their relationship with their ministers.
The right decision in this case would be a strong statement that America still embraces freedom of, rather than freedom from, religion.
Thomas Jipping is deputy director of the Edwin Meese III Center for Legal and Judicial Studies and senior legal fellow at The Heritage Foundation.
This Op-Ed originally appeared on The Daily Signal.
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