Minister’s Housing Allowance

March 15, 2019 - The Seventh Circuit issued its decision in Gaylor v. Mnuchin today and upheld the constitutionality of the housing allowance under section 107(2) of the Internal Revenue Code.



Click here to view a summary of the Gaylor decision, by the Church Alliance.

March 15, 2019 - The Seventh Circuit issued its decision in Gaylor v. Mnuchin today and upheld the constitutionality of the housing allowance under section 107(2) of the Internal Revenue Code.

In a 3-0 decision, the panel found that section 107(2) was constitutional under both the traditional three-factor test set forth in Lemon v. Kurtzman, 403 U.S. 602 (1971), as well as the “historical significance” test of Town of Greece v. Galloway, 572 U.S. 565 (2014).

Please click on the link to read the court’s decision.


Q:  What is the minister’s housing allowance?

A:  A minister's housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.  It is an amount officially designated  (in advance of payment) as a housing allowance, and in reasonable payment for services rendered as a minister. Certain amounts, subject to IRS rules, may be excludable from gross income on the minister’s federal tax return. See for more information regarding the tax implications of the housing allowance.

Q:  What section of the Internal Revenue Code contains the exclusion for the minister’s housing allowance?

A:  Section 107(2) of the Internal Revenue Code.

Q:  Who is challenging the constitutionality of the Minister’s Housing Allowance?

A:  The Freedom From Religion Foundation (FFRF) located in Madison, Wisconsin.

Q: What is the FFRF?

A:  From its website, the purpose of the Freedom From Religion Foundation, Inc., as stated in its bylaws, is to promote the constitutional principle of separation of state and church, and to educate the public on matters relating to nontheism.  It was founded in 1978 in Wisconsin and has a purported national membership of approximately 32,200. FFRF is a non-profit, tax-exempt, organization.

Q:  What actions did FFRF take to challenge the Minister’s Housing Allowance?

A:  It filed a lawsuit in the Federal District Court for the Western District of Wisconsin claiming, among other things, that Section 107(2) violates the First Amendment’s Establishment Clause and the Equal Protection component of the Due Process Clause of the U.S. Constitution. They have filed twice in Wisconsin.

Q:  What is the Establishment Clause?

A:  The First Amendment's Establishment Clause prohibits the government from making any law “respecting an establishment of religion.” This clause not only forbids the government from establishing an official religion, but also prohibits government actions that favor one religion over another. It also prohibits the government from favoring religion over non-religion, or non-religion over religion.

Q:  What was Congress’s rationale for establishing the cash housing allowance for ministers?

A: In 1954 Congress added an explicit exemption for cash housing allowance in response to litigation which occurred after the Treasury was exempting the Fair Market Value of housing for seamen and miners but did not apply the same logic to the clergy.  Some denominations began providing cash allowance to their clergy.  The underlying premise being that due to either economic circumstances or theological concerns, some denominations did not provide parsonages, so the cash allowance is meant to equalize the standing of those clergy who do not receive parsonage with those who do.

Q: What is the status of the litigation (i.e. Gaylor v. Mnuchin)?

A:  The first case was filed in the U.S. District Court for the Western District of Wisconsin on September 12, 2011. This case was dismissed by the United States Court of Appeals for the Seventh Circuit for lack of standing (meaning the plaintiffs had not suffered the denial of the housing allowance on their tax return).  The case was filed a second time in the same U.S. District Court for the Western District of Wisconsin in April 2016, with a ruling in favor of FFRF issued on October 6, 2017.  The case has been appealed to the Seventh Circuit Court of Appeals.  All written arguments (briefs) have been filed with the court and oral arguments have been scheduled for October 24, 2018.  Many “friend of the court” briefs were filed in support of the minister’s housing allowance.

Q:  What is FFRF asking for as a remedy for the alleged violation of the constitution?

A: FFRF is seeking a declaration by the court that Section 107(2) of the Internal Revenue Code is unconstitutional and is seeking a permanent, nation-wide ban (injunction) against the clergy being allowed to continue taking the housing allowance.

Q:  What are some of the arguments in support of finding the minister’s housing allowance constitutional?

A:  Some, but not all of the arguments include that: (1) it does not violate the First Amendment’s Establishment Clause because it has a secular purpose of eliminating discrimination against ministers and of limiting government entanglement in religion; (2) it prevents intrusive government inquiries into the church-minister relationship and avoids the need for the government to determine if activities in a minister’s home are secular or religious; and (3)  Section 107(2) is merely a single provision in a larger Congressional scheme that exempts qualifying employer-provided housing from taxation (the Code contains several tax benefits for housing used by taxpayers in trade or business for the convenience of the employer – not just the clergy).

Q:  What happens when the Seventh Circuit rules on the case?

A:  Regardless of who “wins,” the case likely will be appealed to the United States Supreme Court, which has the option of hearing the case or rejecting the appeal, in which case the ruling of the Seventh Circuit will stand.

Q: What will that mean?

A: Technically, the Seventh Circuit ruling should only apply to residents of the circuit (Illinois, Indiana and Wisconsin); however, the lower court judge has attempted to invoke a nation-wide injunction that would apply to all 50 states.  This would go into effect 180 days after the final ruling of the case (whether through a Supreme Court ruling or its refusal to hear the case).

Q:  What should I do?

A:  Don’t panic!  Educate yourself about the effect the elimination of the Housing Allowance could have on your own personal tax situation.  Unfortunately, because every person’s situation is different, the Pension Boards cannot provide any specific advice as it pertains to a member’s tax situation or the effect of any tax law on an individual member.  You can find the Minister’s Tax Guide on the Pension Boards’ website that can provide information on tax issues that affect the clergy.  If you are participating in the Annuity Plan and are in the accumulation phase (either through your own contributions or your employer’s contributions), you should contact our partner Ernst & Young to discuss financial planning with them (see and click on Financial Planning Services).  Their services are free.  

Q: What is the Pension Boards doing to advocate for its clergy regarding the protection of the Minister’s Housing Allowance?

A:  The Pension Boards participates in the Church Alliance which is a coalition of chief executive officers of nearly 40 denominational benefit programs, covering ministers affiliated with the denominations who are eligible for a housing allowance under Section 107(2).  The Church Alliance, works with legal counsel in Washington D.C. to further legislative interests of the Church Alliance for the benefit of its membership and the clergy.

If there is an adverse ruling, there likely will be a transition period, during which time legislative fixes would be proposed to Congress.  The Steering Committee of the Church Alliance is meeting to engage in scenario planning to provide clergy with alternatives in the event the housing allowance is eliminated. There have been ideas introduced that would be researched and evaluated as potential resolutions to a finding that the minister’s housing allowance is unconstitutional.  Some proposed resolutions can be found in Judge Crabb’s ruling from October 2017.  All potential avenues will be explored and evaluated for the benefit of the clergy.

Stay hopeful!  The Pension Boards is working hard for you to protect this important benefit!

The Pension Boards does not provide any legal, accounting, investment or tax advice to its members regarding the taxability of any transactions associated with retirement funds. This material is purely for informational purposes and Members should consult their legal, accounting or tax professional prior to making any decisions concerning their retirement that could result in a taxable event or engaging in any transactions concerning their retirement funds.

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