Our country is committed to separation of church and state. Yet it also has a variety of tax exemptions for churches, mosques, and synagogues. How do these two things fit together?
That is the question in federal court this week in a landmark case involving “housing allowances” for ministers.
For almost 100 years — about as long as the nation has had a federal income tax — the tax code has allowed churches, mosques, and synagogues to provide tax-exempt homes for their ministers. But a new lawsuit seeks to change that.
The Freedom From Religion Foundation, an atheist group, has sued the IRS, arguing that tax-exempt homes for ministers are unconstitutional. If the lawsuit succeeds, ministers across the country will face billions of dollars in new taxes.
I represent several churches, defendants in the lawsuit.
So what is this tax exemption, and why do we have it? Is it a good idea or a bad one?
The answer to that question begins, oddly enough, with an office chair.
I’m sitting in an office chair paid for by my employer. I also use a cell phone and computer paid for by my employer. When I go on business trips, my employer gives me cash to cover the cost of my airline ticket, hotel room, and meals.
All of these are valuable benefits provided by my employer, but none are taxed as income. Why not?
The reason, according to the tax code, is that I’m not receiving these benefits merely as compensation; I’m receiving them because they help me do my job. In tax jargon, this is called the “convenience of the employer” doctrine.
The same principle applies to housing.
Take, for example, an apartment manager, who lives rent-free at the apartment complex so he can maintain the property and respond to tenants. His rent-free apartment is tax-exempt. The same is true of hotel managers who live at the hotel or construction workers who live at the construction site. Their housing is tax-exempt because it helps them do their jobs.
This principle has been applied to hundreds of thousands of workers who face significant job-related demands on their housing — including soldiers, diplomats, peace corps workers, prison wardens, state governors, non-profit presidents, oil executives, school superintendents, teachers, nurses, fisherman, and many more.
It also applies to ministers. Many ministers use their homes extensively for their jobs. They host church gatherings. They provide overnight lodging for guest speakers and other travelers with a connection to the church. They use their homes to prepare their sermons and counsel church members. And in small churches that lack their own building—like my client Chicago Embassy Church and its pastor Chris Butler—the only place to gather is often the minister’s home.
Given these demands on ministers’ homes, the tax code has long treated their housing as something that helps them do their job, and therefore tax-exempt. This ensures that ministers are treated no worse than hundreds of thousands of secular workers who also receive tax-exempt housing for their jobs.
In their lawsuit, the atheists argue that tax-exempt housing for ministers is “special treatment” for religion and is therefore unconstitutional.
But when compared with the hundreds of thousands of secular workers who receive tax-exempt housing, it’s not special treatment at all.
It’s equal treatment.
The atheists also complain that the tax code requires some secular workers to prove that they use their housing for their job, while ministers are automatically exempt. But many secular workers are also automatically exempt — including soldiers, diplomats, peace corps workers, teachers, and more.
More importantly, denying a clear exemption would actually undermine the separation of church and state. Without the exemption, the IRS would have to examine how each minister uses his or her home to determine whether the home really furthers the ministry of the church. Does a minister really need to host Bible studies and prayer meetings in his home? Is it really necessary to prepare sermons and counsel parishioners in the home?
The IRS may be good at many things, but it’s not good at deciding whether a prayer meeting needs to take place in a minister’s home. That is a religious question high above its pay grade.
Accordingly, the tax code wisely restrains the IRS from trolling through ministers’ homes. This common-sense exemption protects the separation of church and state. It ensures equal tax treatment for ministers. And it’s been working well for almost 100 years. We should keep it that way.
Luke Goodrich is Vice President and Senior Counsel at Becket and argued the housing allowance case, Gaylor v. Mnuchin, on October 24 on behalf of several churches. Before joining Becket, he was an appellate attorney at Winston & Strawn in Washington, D.C. He also served as an international legal and research advisor at the U.S. Dept. of State, Office to Monitor and Combat Trafficking in Persons. He’s a graduate of University of Chicago School of Law and Wheaton College.