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Key Legal Victory for Clergy Housing Allowance

Mar. 31, 2019

On March 15, 2019, in response to the latest court challenge to the long-standing clergy housing allowance exclusion set forth in section 107(2) of the Internal Revenue Code, the U.S. Seventh Circuit Court of Appeals unanimously upheld the exclusion’s constitutionality in Gaylor v. Mnuchin.

An earlier lower federal district court decision had sided with a Freedom From Religion Foundation (FFRF) lawsuit arguing that section 107(2) was a unique benefit for ministers and, therefore, unconstitutional. That suit was the latest in a series of suits brought by this organization to promote the constitutional principle of separation of church and state.

Church Alliance partners are celebrating this latest decision, including Portico CEO, Rev. Jeff Thiemann, and 37 other CEOs from churches and religious organizations. “This decision is particularly important for long-serving and retired clergy,” says Thiemann. “They’ve factored this exclusion into their retirement planning for years, and are counting on its continued availability. Through the Church Alliance, we were able to join the defense, filing an amicus brief that urged the Court of Appeals to reverse the earlier ruling.”

While there is no guarantee that the housing allowance won’t be challenged again, the hurdles are significant. “FFRF could petition the U.S. Supreme Court to hear the case,” says Portico’s attorney, Lori Brown, “but fewer than 100 cases are granted each year out of thousands.”

Thiemann, who also serves as Church Alliance Vice-Chair, considers Portico’s long-time advocacy around financial opportunities like the clergy housing allowance one of Portico’s most important contributions. “It’s our responsibility to step in as advocates when policy issues impact the financial well-being and retirement security of those we serve.”

The Church Alliance published a summary of the decision, offering detail on the legal precedent for the decision and the history behind it. The full 29-page U.S. Seventh Circuit Court of Appeals decision is also available.