Judge strikes down clergy tax-free housing allowances

Associated Press

MADISON, Wis.

A federal judge has struck down a law that gives clergy tax-free housing allowances in a decision that could have far-reaching financial ramifications for pastors across the U.S.

In her decision Friday, U.S. District Judge Barbara Crabb in Wisconsin wrote that the exemption “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise,” the Wisconsin State Journal reported.

The Madison-based Freedom From Religion Foundation filed the lawsuit against U.S. Treasury Secretary Jacob Lew and acting IRS commissioner Daniel Werfel.

Under the law, passed by Congress in 1954, ministers don’t pay income taxes on compensation that is designated part of a housing allowance. The Freedom From Religion Foundation says that a clergy member can use the untaxed income to purchase a home, and then, in a practice known as “double dipping,” deduct interest paid on the mortgage and property taxes.