24 May 2010

Challenge To Parsonage Tax Break Moves Forward

A challenge to the exclusion from income for housing provided to clergy under Section 107 of the Internal Revenue Code on establishment clause grounds has survived a motion to dismiss in a federal court in California.

The order is in the case Freedom from Religion Foundation, Inc. v. Geithner, No. 09-2894 (E.D. CA May 21, 2010).

The trial court has held that the Freedom from Religion Foundation has standing to challenge the federal tax code provision on establishment clause grounds, and that the Freedom of Religion Foundation's sets forth a valid legal basis for challenging the law. Section 107 is one of the very few provision of the tax code that expressly provide an economic benefit to religious organizations in particular, rather than to non-profit organizations in general.

Normally, surviving a motion to dismiss is a minor part of a lawsuit, and the main disputes are over whether the violation of the law alleged in the complaint actually happened. But, civil rights test cases like this one, the main obstacles to someone bringing a lawsuit are standing, governmental immunity and whether the person bringing the suit has set forth what could be a violation of the law if it is true.

The facts to be proved at trial are a relatively minor part of the trial court proceedings in a case like this one, because everyone agrees on the language of the statute which is being challenged as facially unconstitutional. A trial or motion for summary judgment ruling can provide context for any balancing tests that apply under the law, but the court, in its ruling, is letting the parties know the legal standard that it believes applies to this particular, overwhelmingly legal rather than factual issue.

The 9th Circuit is the most favorable appellate forum for the case, and since legal issues are reviewed without deferring to the trial court's legal reasoning, and any ruling of the trial court, favorable or unfavorable, is almost certain to be appealled by the federal government, this is a key strategic aspect of the case.

If the United States Court of Appeals for the 9th Circuit rules in favor of the Freedom of Religion Foundation on appeal, the case will almost certainly be appealed to the U.S. Supreme Court and this is the sort of case that the U.S. Supreme Court is likely to accept and consider.

The fundamental issue in the case is whether a tax preference specifically targeted at religious individuals and specifically excluding non-religious individuals, violates the establishment clause. A secondary issue is what remedy is appropriate.

One remedy would be to declare that Section 107 is invalid and unavailable, subjecting clergy to tax on housing allowances. The other would be to generalize the exemption in some way, either to all housing allowances, or to all housing allowances for professional non-profit employees, so that it was neutral with respect to religion.

1 comment:

RLBaty said...

Hopefully, one of the things that will be brought out at trial is the compromise of the IRS and the law in the administration of IRC 107 by George H.W. Bush and Omar Burleson, the resulting IRS revenue ruling opening the floodgates for private school employees (e.g., basketball coaches and the such at places like Pepperdine) to register as ministers and have all or part of their income designated as income tax free housing.