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For more than two years, the Evangelical Council for Financial Accountability (ECFA) has been closely tracking a federal court challenge brought by the Freedom From Religion Foundation (FFRF) to declare the clergy housing exclusion of Section 107 of the tax code unconstitutional.

In a decision that is sending shock waves across the religious community, a federal district court judge has declared a portion of the statute unconstitutional, leaving many ministers wondering what the impact of this case will be.

Click here to read today’s ECFA news release, “Federal District Court Rules Clergy Housing Exclusion Unconstitutional.”

While it is still too early to know all the potential ramifications of this decision, here is some of what we know up to this point and what to be looking forward to in the coming days:

  • The court’s decision applies only to ministers who receive a cash housing allowance from their employers to provide housing. Ministers who live in employer-provided housing (such as church-owned parsonages) are not affected.
  • Even ministers who receive a cash housing allowance will not be immediately impacted by the ruling. The district court’s decision on the clergy housing exclusion may be appealedby the government’s attorneys to the Seventh Circuit, where it could be overturned. Since the case was filed, attorneys for the federal government have defended the constitutionality of the clergy housing exclusion and have argued that FFRF lacked legal standing to bring the challenge in the first place.

If allowed to stand, what effect would this ruling have on clergy and their families?

  • For the most part, pastors across the country are compensated modestly for very demanding work. The history of the clergy housing allowance provided parity to pastors who did not live in church-owned parsonages.
  • Many members of the clergy have relied on this exclusion for decades. This ruling, in effect, would force clergy of nearly every religion across America to pay additional taxes, regardless of faith or creed.
  • This will either force congregations to increase clergy compensation to offset these taxes or require pastors to dig deep to see if they are able to absorb these taxes.
  • In most cases, this will lead to several thousands of dollars in additional taxes each year for clergy.
  • Retired clergy, in particular, would be impacted by this ruling, given their more limited sources of income to help offset the loss of the income tax exclusion.

Stay tuned to ECFA’s “In the News” page for future developments in these cases and for other legal, tax and finance updates affecting Christ-centered churches and nonprofit organizations.

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