Federal Appeals Court Dismisses Atheist Organization’s Attack on Clergy Tax Exemptions

December 4, 2014

Ruling blocks dangerous attempt to downgrade status of religion in America

In a welcome victory for religious freedom, the U.S. Court of Appeals for the Seventh Circuit dismissed Freedom From Religion Foundation, Inc. v. Lew, rebuffing an aggressive challenge to the legal status of clergy and the value of religion.  Liberty Institute submitted a friend-of-the-court brief in this important case.

The stakes in the case were high.  Freedom From Religion Foundation (FFRF) challenged the constitutionality of the tax exemption for ministers’ housing allowances.  The appeals court ruled that FFRF did not have standing to bring the lawsuit.

The Seventh Circuit’s decision overturned a chilling 2013 ruling by a federal judge in Wisconsin, which declared the housing allowance exemptions unconstitutional.  It marks a victory for the religious liberty of churches and ministers to exercise the “parsonage exemption” without government intrusion in church affairs or discrimination based on religious beliefs about church structure.

The parsonage exemption attacked by FFRF is a signal by American government that religion is valuable to society.  It allows ministers to deduct either the rental value of a parsonage provided to the minister or a minister’s housing allowance.  It is available to clergy from all religions.  FFRF wanted to eradicate the provision that allows ministers to exempt housing allowances from their taxable income.


In April, Liberty Institute, in conjunction with independent attorney Ken Klukowski, submitted a friend-of-the-court brief supporting the constitutionality of clergy housing allowances.

As stated in the brief, “The United States Supreme Court has long recognized that the First Amendment requires accommodation, not separation or mere toleration, in the state’s attitude towards religion.”

According to the brief, without the parsonage exemption, “the findings necessary to determine whether a minister’s housing is tax exempt would run afoul of the ecclesiastical abstention doctrine”—a doctrine that prevents governmental intrusion in a church’s internal operations.

That’s a crucial principle.  If the parsonage exemption didn’t exist, ministers who work for churches that provide a parsonage could only qualify for a housing deduction through a statute that allows housing exemptions for “employees whose lodging is provided for the convenience of the employer.”  And that would pose a major downgrade in the legal status of ministers.

For instance, judging if a minister belongs in that category “would require that the courts determine whether the minister lives in the parsonage ‘for the convenience of the employer,’—the sort of internal inquiry into the operations of the church that the ecclesiastical abstention doctrine seeks to avoid.”

In addition, according to the Liberty Institute brief, both provisions of the parsonage exemption are “necessary to avoid an Establishment Clause violation.”  If only the section that allows deductions for the rental value of parsonages existed, “the Tax Code would be granting an exemption to ministers who live at the church but not to those who live off-site, a distinction resulting from matters of church polity that is rife with theological implications.”

The brief stated, “To strike down I.R.C. § 107(2) [the housing allowance exemption] just because it provides a tax benefit to some ministers in an attempt to accommodate differing religious traditions and avoid governmental intrusion into church polity is to establish not neutrality towards religion, but active hostility.”


Liberty Institute has a fierce passion to protect churches from attacks that could potentially shove religion into a small, sealed compartment of our culture.

Liberty Institute’s Senior Counsel and Director of Research and Education Justin Butterfield, Director of Litigation Hiram Sasser, and Houston attorney Reed Smith coauthored an article titled “The Parsonage Exemption Deserves Broad Protection” published in the Spring 2012 issue of The Texas Review of Law and Politics.

They pointed out that “for nearly as long as governments have demanded tribute in the form of taxes from their subjects, those governments have chosen not to levy taxes on churches and other religious properties.”

According to the article, tax exemptions for religious property were prevalent throughout world history, dating to ancient Egypt.  Religious property exemptions also have a long history in America—they were recognized by the original colonies “either by law or by practice.”  Religious property exemptions continued to be recognized after the Constitution was ratified.  In the Revenue Act of 1921, Congress codified tax deductions of the rental value of a house provided for a minister.  In 1954, Congress added the provision allowing ministers to exempt housing allowances.


Will we live in an America that abandons protection of houses of worship, ministers, and religious liberty and influence?  Or will champions rise up to block the attempts of secularist organizations like FFRF and others, and protect the value of religion in the fabric of our communities?

Much is at stake.  Liberty Institute is dedicated to defending and restoring religious liberty in America, including the right of churches to determine matters of doctrine and internal governance without government interference or discrimination.

Please pray as we work to protect religious freedom in the church, the school, inside the military, and throughout the public arena, and please consider donating now to help us continue fighting for religious liberty.  Thank you for your support!

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About Liberty Institute
Liberty Institute is a nonprofit legal group dedicated to defending and restoring religious liberty across America — in our schools, for our churches, in the military and throughout the public arena. Liberty’s vision is to reestablish religious liberty in accordance with the principles of our nation’s Founders. For information, visit

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