In Freedom from Religion Foundation, Inc. v. Geithner, (ED CA, May 21, 2010), plaintiffs are challenging two provisions of the Internal Revenue Code on Establishment Clause grounds. Section 107 exempts from income the rental value of a parsonage, or the amount of a parsonage allowance, furnished to a member of the clergy as compensation for service performed in the exercise of a religious ministry. Section 265(a)(6) allows a member of the clergy to claim interest and property taxes as deductions, even though the money used to pay such amounts was received from a church in the form of a tax-exempt §107 allowance. (See prior posting.) In Friday's decision, a California federal district court, after finding that plaintiffs had standing to bring the lawsuit, allowed the challenge to Section 107 to proceed, but dismissed the challenge to Section 265(a)(6). The court also dismissed on 11th Amendment immunity grounds the claims under the California Constitution (but not the federal Establishment Clause claims) challenging California's parallel provisions.
The court held that plaintiffs adequately alleged that Section 107 has the unconstitutional effect of advancing religion. It provides a blanket exemption from taxable income for ministers' housing that is not available to similarly situated secular employees, and allows them to receive a tax-free housing allowance that is not available to other taxpayers. The section also provides a benefit to religion itself, since churches can pay ministers lower salaries when part of their compensation is tax-free. This special benefit for clergy and religion cannot be justified as an accommodation to protect free exercise. However, plaintiffs did not allege sufficient facts to show that the predominant effect of § 265(a)(6) favors religion. It merely gives ministers the same incentive to purchase a home that is available to other taxpayers. [Thanks to Michael Gompertz for the lead.]