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Tax Deductions Blog

Could Religious Leaders Be Taxed on Their Housing?

Authored by Melissa S. Kampmann
Posted on May 30, 2014
Filed under Tax Deductions

On November 22, 2013, the federal district court for the Western District of Wisconsin struck down Internal Revenue Code Section 107(2) which exempts from income tax any compensation that is received by a "minister of the gospel" which is considered a housing allowance. The Freedom From Religion Foundation filed suit against the government on the argument that its atheist leaders did not receive the same exclusion as religious leaders and as a result, the code section was unconstitutional.

The court agreed and stated that any tax exemption for religious organizations must also benefit similarly situated nonreligious organizations. However, the court stated that it's ruling would only apply after all appeals had run their course. In April of 2014, the government appealed the ruling of the district court.

So what does this mean for religious organizations and their leaders? It means we will need to keep a watchful eye on the appeals process as the outcome of this case could drastically affect the way religious organizations operate and the compensation of their leaders. This may be an issue that is actually taken up by the Supreme Court given the consequences to religious leaders. Stay tuned.