Clergy Housing Allowance: Recent Ruling & Potential Impact on You

Get the rundown on the latest ruling of Section 107(2) and how it may affect you and your church.


Latest Section 107(2) Ruling.

As of October 6, 2017, Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin ruled Section 107(2) of the Internal Revenue Code to be unconstitutional. Sec.107(2) is a rental allowance paid to "ministers of the gospel" (interpreted liberally to encompass certain religious leaders of other religions) as part of their compensation.


The Freedom From Religion Foundation (FFRF) argued that Sec. 107(2) discriminates against secular employees, violating the establishment clause of the First Amendment. Four years ago, Judge Crabb ruled in their favor; however, the decision was reversed a year later due to lack of standing. The FFRF then applied for refunds to the IRS and were denied, providing them with enough proper standing for Judge Crabb to decide — again— in their favor that Sec. 107(2) demonstrated a preference for ministers over secular employees.


Even though Judge Crabb has made her ruling that Sec. 107(2) is unconstitutional, she has stayed or "suspended" the enforcement of her ruling until the end of October 2017 so that the parties can submit briefs on appropriate remedies for the plaintiffs. It is likely, though uncertain, that when the issue of remedies is resolved, the judge will do what she did in her earlier decision in 2013 and stay the enforcement of the ruling pending an appeal.


What this means for ministers.

A ruling by a federal district court judge in Wisconsin is not binding in other courts, and does not apply to ministers in other states. If the ruling is appealed and affirmed by the Seventh Circuit Court of Appeals, it will apply to ministers in that circuit (Illinois, Indiana, and Wisconsin). It would become a national precedent binding on ministers in all states if affirmed by the Supreme Court, which is an unlikely outcome. Note, however, that the IRS has the discretion on whether to follow, or not follow, the ruling in other circuits. They may be inclined to do so to promote consistency in tax administration.


If this does take place, there are some things that will immediately impact ministers:

  1. They will see an immediate increase in taxes, so they should be prepared to increase their quarterly estimated tax payments.

  2. Churches should increase the minister’s compensation to help reduce the hardship of this ruling

If you have any questions or requests, feel free to reach out to us by using our contact form.

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