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Government Urges Court to Allow Minister Rental Allowance Exclusion

APR. 19, 2018

Annie L. Gaylor et al. v. Steven T. Mnuchin et al.

DATED APR. 19, 2018
DOCUMENT ATTRIBUTES
  • Case Name
    Annie L. Gaylor et al. v. Steven T. Mnuchin et al.
  • Court
    United States Court of Appeals for the Seventh Circuit
  • Docket
    No. 18-1277
    No. 18-1280
  • Institutional Authors
    United States Department of Justice
  • Cross-Reference

    Appealing Gaylor v. Mnuchin, No. 3:16-cv-00215 (W.D. Wis. 2017).

  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2018-17184
  • Tax Analysts Electronic Citation
    2018 TNT 78-35
    2018 EOR 5-65
  • Magazine Citation
    The Exempt Organization Tax Review, May 2018, p. 371
    81 Exempt Org. Tax Rev. 371 (2018)

Annie L. Gaylor et al. v. Steven T. Mnuchin et al.

[Editor's Note:

Appendices can be viewed in the PDF version of the document.

]

ANNIE LAURIE GAYLOR; DAN BARKER;
IAN GAYLOR, personal representative of the estate of Anne Nicol Gaylor; and FREEDOM FROM RELIGION FOUNDATION, INC.,
Plaintiffs-Appellees
v.
STEVEN T. MNUCHIN, Secretary of the United States Department of Treasury; DAVID J. KAUTTER, Acting Commissioner of the Internal Revenue Service; and the UNITED STATES OF AMERICA,
Defendants-Appellants
and
EDWARD PEECHER; CHRIS BUTLER; CHICAGO EMBASSY CHURCH; PATRICK MALONE; HOLY CROSS ANGLICAN CHURCH; and the DIOCESE OF CHICAGO AND MID-AMERICA OF THE RUSSIAN ORTHODOX CHURCH OUTSIDE OF RUSSIA,
Intervenors-Defendants-Appellants

IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

ON APPEAL FROM THE JUDGMENT AND ORDER OF
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

BRIEF FOR THE FEDERAL APPELLANTS

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

TRAVIS A. GREAVES
Deputy Assistant Attorney General

GILBERT S. ROTHENBERG
(202) 514-3361

TERESA E. MCLAUGHLIN
(202) 514-4342

JUDITH A. HAGLEY
(202) 514-8126

Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, DC 20044

Of Counsel: 

SCOTT C. BLADER
United States Attorney


TABLE OF CONTENTS

Table of contents

Table of authorities

Statement regarding oral argument

Jurisdictional statement

A. District Court jurisdiction

B. Appellate jurisdiction

Statement of the issue

Statement of the case

A. Procedural overview

B. Background: § 107

C. FFRF and the individual plaintiffs

D. The proceedings below

1. The parties' contentions

2. The District Court's decision

Summary of argument

Argument

The parsonage allowance exclusion in Section 107(2) does not violate the Establishment Clause

Standard of review

A. Introduction

B. Section 107(2) satisfies the Lemon test because it is a neutral provision that tailors a generally available tax benefit to avoid Establishment Clause concerns raised by the unique church-minister context

1. Section 107(2) has a secular legislative purpose

a. The history and context of § 107

b. The history and context of the statute disclose the secular purpose of eliminating discrimination against and among ministers and of minimizing intrusion into internal church affairs

2. Section 107(2) does not have the primary effect of advancing or inhibiting religion

3. Section 107(2) does not produce excessive entanglement

C. The District Court's Establishment Clause analysis cannot withstand scrutiny

1. By dismissing the Government's stated concerns about treating religions equally and avoiding entanglement, the District Court ignored § 107(2)'s history and context

2. The categorical nature of the exclusions accorded by § 107 does not convey a message of endorsement

3. Texas Monthly is not controlling because it is distinguishable in crucial respects

Conclusion

Certificate of compliance

Certificate of service

Statutory addendum

Circuit rule 30(d) certification

Appendix Table of Contents

TABLE OF AUTHORITIES

Cases:

Alicea-Hernandez v. Catholic Bishop of Chicago, 320 F.3d 698 (7th Cir. 2003)

Ariz. Christian School Tuition Org. v. Winn, 563 U.S. 125 (2011)

Books v. Elkhart County, Ind., 401 F.3d 857 (7th Cir. 2005)

Boyd v. Commissioner, 42 T.C.M. (CCH) 1136 (1981)

Cohen v. City of Des Plaines, 8 F.3d 484 (7th Cir. 1993)

Commissioner v. Kowalski, 434 U.S. 77 (1977)

Conning v. Busey, 127 F. Supp. 958 (S.D. Ohio 1954)

Corp. of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints v. Amos, 483 U.S. 327 (1987)

Cutter v. Wilkinson, 544 U.S. 709 (2005)

Doe v. Elmbrook School District, 687 F.3d 840 (7th Cir. 2012)

Eveland v. Erickson, 182 N.W. 315 (S.D. 1921)

Fields v. City of Tulsa, 753 F.3d 1000 (10th Cir. 2014)

Freedom from Religion Foundation, Inc. v. Lew, 773 F.3d 815 (7th Cir. 2014)

Freedom from Religion Foundation, Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis. 2013), vacated, 773 F.3d 815 (7th Cir. 2014)

Gillette v. United States, 401 U.S. 437 (1971)

Grussgott v. Milwaukee Jewish Day School, Inc., 882 F.3d 655 (7th Cir. 2018)

Hernandez v. Commissioner, 490 U.S. 680 (1989)

Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 565 U.S. 171 (2012)

Immanuel Baptist Church v. Glass, 497 P.2d 757 (Okla. 1972)

Larson v. Valente, 456 U.S. 228 (1982)

Lemon v. Kurtzman, 403 U.S. 602 (1971)

MacColl v. United States, 91 F. Supp. 721 (N.D. Ill. 1950)

Marks v. United States, 430 U.S. 188 (1977)

McCreary County v. ACLU, 545 U.S. 844 (2005)

McDaniel v. Paty, 435 U.S. 618 (1978)

Medina v. Catholic Health Initiatives, 877 F.3d 1213 (10th Cir. 2017)

Mercier v. Fraternal Order of Eagles, 395 F.3d 693 (7th Cir. 2005)

Mueller v. Allen, 463 U.S. 388 (1983)

Murdock v. Pennsylvania, 319 U.S. 105 (1943)

Salazar v. Buono, 559 U.S. 700 (2010)

Salkov v. Commissioner, 46 T.C. 190 (1966)

Santa Monica Nativity Scenes Committee v. City of Santa Monica, 784 F.3d 1286 (9th Cir. 2015)

Schleicher v. Salvation Army, 518 F.3d 472 (7th Cir. 2008)

Sherman v. Koch, 623 F.3d 501 (7th Cir. 2010)

Surinach v. Pesquera de Busquets, 604 F.2d 73 (1st Cir. 1979)

Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989)

United States v. Indianapolis Baptist Temple, 224 F.3d 627 (7th Cir. 2000)

Vision Church v. Village of Long Grove, 468 F.3d 975 (7th Cir. 2006)

Walz v. Tax Commission, 397 U.S. 664 (1970)

Warnke v. United States, 641 F. Supp. 1083 (E.D. Ky. 1986)

Williamson v. Commissioner, 224 F.2d 377 (8th Cir. 1955)

Constitution, Statutes, and Regulations:

U.S. Constitution:

Amend. I, cl. 1

Amend V

Amend. XVI

Art. III

Clergy Housing Allowance Clarification Act, Pub. L. No. 107-181, 116 Stat. 583

Internal Revenue Code of 1986 (26 U.S.C.):

§ 107

§ 107(1)

§ 107(2)

§ 119

§ 119(d)

§ 134

§ 162

§ 280A(c)(1)

§ 911

§ 912

§ 6511(a)

§ 6532(a)(1)

§ 7422

Revenue Act of 1921, Pub. L. No. 98, § 213(b)(11), 42 Stat. 227

Revenue Act of 1921, Pub. L. No. 98, § 214(a)(1), 42 Stat. 227

Section § 22(b)(6) of the 1939 Internal Revenue Code, 53 Stat. 10

28 U.S.C.:

§ 1291

§ 1331

§ 1346(a)(1)

§ 2107(b)

Treas. Reg. § 1.119-1(b) (26 C.F.R.)

Miscellaneous:

1 Mertens Law of Fed. Income Taxation (2013)

148 Cong. Rec. 4670 (Apr. 16, 2002)

148 Cong. Rec. 4671 (Apr. 16, 2002)

148 Cong. Rec. 5106 (Apr. 18, 2002)

Barham, The Parsonage Exclusion under the Endorsement Test: Last Gasp or Second Wind?, 13 Va. Tax Rev. 397 (1993)

Bittker, Churches, Taxes & the Constitution, 78 Yale L. J. 1285 (1969)

Brunner, Taxation: Exemption of Parsonage or Residence of Minister, Priest, Rabbi or Other Church Personnel, 55 A.L.R.3d 356 (1974)

Clergy Housing Allowance Clarification Act, H.R. 4156, 107th Cong. § 2(a)(4) (as introduced April 10, 2002)

Fed. R. App. P. 4(a)(1)(B)

Hearings on Forty Topics Pertaining to the General Revision of the Internal Revenue Code (Aug. 1953)

H.R. Rep. No. 1337 (1954)

Internal Revenue Manual § 7.25.3.6.5(2) (Feb. 23, 1999)

I.T. 1694, C.B. II-1 (1923)

Legg, Excluding Parsonages from Taxation: Declaring a Victor in the Duel between Caesar & the First Amendment, 10 Georgetown J. of Law & Public Policy 269 (2012)

O.D. 862, 4 C.B. 85 (1921)

Savidge, The Parsonage in England (1964)

S. Rep. No. 1622 (1954)

Zelinsky, Do Religious Tax Exemptions Entangle in Violation of the Establishment Clause? The Constitutionality of the Parsonage Allowance Exclusion, 33 Cardozo L. Rev. 1633 (2012)

Zelinsky, The First Amendment & the Parsonage Allowance, Tax Notes 5-8 (Dec. 2013)


STATEMENT REGARDING ORAL ARGUMENT

In this case brought by an atheist advocacy organization and several of its members, the District Court struck down, as a violation of the Establishment Clause of the Constitution, the longstanding exclusion for a parsonage allowance under § 107(2) of the Internal Revenue Code. This issue is important to the administration of the tax laws, and counsel for the federal appellants respectfully inform the Court that they believe that oral argument is warranted.

JURISDICTIONAL STATEMENT

A. District Court jurisdiction

This suit against the Secretary of the Treasury and the Commissioner of Internal Revenue was brought by Freedom From Religion Foundation, Inc. (FFRF), a Wisconsin corporation with its principal place of business in Madison, Wisconsin, its co-presidents Annie Gaylor and Dan Barker, and the estate of its former president, Anne Nicol Gaylor (together, plaintiffs). (Doc. 1 at 3.)1 The gravamen of the complaint was that § 107 of the Internal Revenue Code, which excludes from federal income taxation certain housing benefits provided to ministers (the parsonage allowance), violates the Establishment Clause of the First Amendment to the United States Constitution and the Equal Protection component of the Due Process Clause. Plaintiffs sought (i) a declaration that § 107 is unconstitutional and (ii) an injunction against the continued allowance of the exclusion. (Id. at 13.)

The individual plaintiffs also sought refunds of federal taxes paid on designated secular (non-parsonage) housing allowances paid to them by FFRF. They alleged that, before filing suit, they had filed timely administrative refund claims that had not been acted on for at least six months. (Doc. 1 at 4; see App6; A66-68.) See 26 U.S.C. §§ 6511(a), 6532(a)(1), 7422. The District Court had federal question jurisdiction under 28 U.S.C. § 1331 and tax refund jurisdiction under 28 U.S.C. § 1346(a)(1).

B. Appellate jurisdiction

The District Court rendered a final judgment on December 15, 2017, disposing of all claims of all parties. (App52-53.) The Government filed its notice of appeal on February 8, 2018, within the 60 days allowed by Fed. R. App. P. 4(a)(1)(B). (Doc. 100.) See 28 U.S.C. § 2107(b). This Court's jurisdiction over the appeal rests upon 28 U.S.C. § 1291.

STATEMENT OF THE ISSUE

Whether Section 107(2) of the Internal Revenue Code, which provides an exclusion from income for parsonage allowances, violates the Establishment Clause.

STATEMENT OF THE CASE

A. Procedural overview

Plaintiffs brought this suit against the Secretary and the Commissioner, seeking (i) a declaration that § 107 violates the Establishment Clause and (ii) an injunction barring the continued allowance of the exclusion. Section 107 provides two federal income-tax exclusions to “minister[s] of the gospel”: an exclusion for housing provided in kind, § 107(1), and an exclusion for cash housing allowances, § 107(2). Because plaintiffs did not themselves seek the benefits of § 107(1) for housing furnished in kind, the Government moved to dismiss the case as it related to § 107(1), contending that plaintiffs lacked standing. (Doc. 6.) The District Court granted the motion. (A1-4.) Several ministers and religious organizations representing a variety of denominations (Intervenors) moved to intervene (Doc. 21, 81), which the court granted (Doc. 35; App46). The Government and the Intervenors moved for summary judgment, contending that § 107(2) does not violate the Establishment Clause. (Doc. 43, 48.) The court struck down § 107(2) as unconstitutional, denying summary judgment to the Government and Intervenors and granting summary judgment to plaintiffs sua sponte. (App46-47.) The Government and the Intervenors now appeal.

B. Background: § 107

Section 107 is one of several statutory exclusions from gross income for employment-connected housing benefits. Taxpayers who are furnished housing by their employers may exclude the value of that housing from their gross income where (among other things) the housing is furnished for the “convenience of the employer.” § 119. All taxpayers, regardless of profession, may qualify for this exclusion, so long as the taxpayer meets the criteria of § 1192 Taxpayers who furnish their own housing, but use it for business purposes for the “convenience of [the] employer,” may deduct from income expenses related to that housing. §§ 162, 280A(c)(1). In addition, certain federal employees may exclude from gross income cash provided to them for housing purposes. § 134 (military housing allowance); § 912 (foreign housing allowance for Foreign Service, the CIA, etc.). And U.S. citizens or residents living abroad may exclude the costs of housing from their gross income. § 911.

Section 107 provides an analogous exclusion for housing or its cash equivalent provided to a “minister of the gospel” by his employing church (or synagogue, mosque, etc.).3 Specifically, when furnished or paid to him “as part of his compensation,” a minister's gross income does not include “(1) the rental value of a home” or “(2) the rental allowance paid to him . . . to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home,” plus utilities. § 107.

Section 107 has its origins in the Revenue Act of 1921, which created an exclusion for “[t]he rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation.” Pub. L. No. 98, sec. 213(b)(11), 42 Stat. 227, 239. This exclusion was carried forward in successive revenue acts and was incorporated into the Internal Revenue Code of 1939 without substantive change. See Section 22(b)(6) of the 1939 Code, 53 Stat. 10. When the exclusion was reenacted as § 107(1) of the Internal Revenue Code of 1954, the addition of § 107(2) allowed ministers to exclude “rental allowance[s].”

The treatment of clergy housing under prior law sheds light on the purpose of Section 213(b)(11). Immediately before its enactment, the Treasury Department had allowed some employees — but not clergy — to exclude the value of employer-provided housing from income pursuant to the “convenience of the employer” doctrine. See Commissioner v. Kowalski, 434 U.S. 77, 84-90 (1977) (describing history of exclusion for such employer-provided housing). Those benefiting included seamen living aboard ships, workers living in “camps,” cannery workers, and hospital employees. Id. In 1921, the Treasury announced that ministers would be taxed on the fair rental value of parsonages provided as living quarters, O.D. 862, 4 C.B. 85 (1921), even though ministers traditionally resided in parsonages for the church's convenience (A7-21). Shortly thereafter, Congress changed that treatment by enacting Section 213(b)(11), thereby placing ministers on an equal footing with other employees who already enjoyed an exclusion for housing provided for the employer's convenience.

When the parsonage exclusion was enacted, churches had differing traditions and practices that influenced how they provided parsonages to their ministers. (A8-27, 40-43.) Older or more hierarchical churches tended to furnish church-owned parsonages to ministers; newer churches favored providing ministers cash housing allowances. (Id.) But either way, the minister's housing was generally used for the church's religious purposes. (A8-32, 40-43.)

When churches that did not own parsonages provided ministers with cash housing allowances in lieu of in-kind housing, the Treasury ruled that the statutory exclusion was limited to in-kind housing and that housing allowances were includable in gross income. I.T. 1694, C.B. II-1, at 79 (1923). The Treasury noted, however, that the allowance would be deductible by the minister as a business expense, to the extent it was used for “expenses attributable to the portion of the parsonage which is devoted to professional use.” Id. Several courts disagreed. They held that, in order to treat similarly situated ministers equally, cash allowances must also be considered excludable under the statutory parsonage exclusion. E.g., Williamson v. Commissioner, 224 F.2d 377, 380 (8th Cir. 1955); Conning v. Busey, 127 F. Supp. 958 (S.D. Ohio 1954); MacColl v. United States, 91 F. Supp. 721 (N.D. Ill. 1950). Whether paid in cash or in kind, the benefits were considered provided for the church's “convenience” and therefore excludable. Williamson, 224 F.2d at 380.

In 1954, Congress resolved the dispute by codifying the prevailing judicial view in § 107, which excludes compensatory housing furnished to ministers in cash as well as in kind. In doing so, Congress sought to remove discrimination against ministers who were paid cash allowances, as the House and Senate Reports explained. H.R. Rep. No. 1337, at 15 (1954); S. Rep. No. 1622, at 16 (1954).

In 2002, Congress amended § 107(2) to clarify that the exclusion was limited to the fair rental value of the parsonage. Pub. L. No. 107-181, 116 Stat. 583. The bill that introduced the proposed amendment reiterated that one of the purposes of § 107 was to “accommodate the differing governance structures, practices, traditions, and other characteristics of churches through tax policies that strive to be neutral with respect to such differences.” Clergy Housing Allowance Clarification Act, H.R. 4156, 107th Cong. § 2(a)(4) (as introduced April 10, 2002). In addition to preventing discrimination, § 107 was also designed, according to this legislative history, to avoid “intrusive inquiries by the government into the relationship between clergy and their respective churches” entailed by the generally available convenience-of-the-employer doctrine codified elsewhere in the Code. Id. at § 2(a)(5). Section 107 avoids such potential church-state entanglement by eliminating any need for the minister to demonstrate that the parsonage or allowance therefor is being used for the church's convenience under § 119 or § 280A(c)(1), respectively.

C. FFRF and the individual plaintiffs

Plaintiff FFRF is a nonprofit membership corporation that promotes the separation of church and state and educates on matters of “non-theism.” (A36.) The individual plaintiffs are current and former officers of FFRF. Gaylor and Barker, FFRF's co-presidents, are “nonbeliever[s]” who are “opposed to government preferences and favoritism towards religion.” (Doc. 1 at 3.) The now-deceased Anne Nicol Gaylor (whose estate is represented on appeal by her personal representative, Ian Gaylor), president emerita of FFRF, also was a “non-believer” who was “opposed to government preferences and favoritism towards religion.” (Id.) Since 2011, FFRF has provided Gaylor, Barker, and (before her death) Anne Nicol Gaylor with housing allowances not exceeding housing-related expenses. (App5; A64-65.) When filing their federal income tax returns, each individual plaintiff included the amount of the housing allowance as part of his or her reported income, which subjected the allowances to taxation. (A36-37.) Plaintiffs complained that the § 107 exclusion, being limited to “ministers of the gospel,” subsidizes, promotes, and endorses religion in violation of the Establishment Clause. (Doc. 1 at 5-7.)

This is the second time that plaintiffs have challenged the constitutionality of § 107. In their first challenge, the District Court (Judge Crabbe) determined that the plaintiffs had standing to challenge § 107(2) and that the provision violates the Establishment Clause. Freedom from Religion Foundation, Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis. 2013). On appeal, the Government argued that plaintiffs lacked standing because the individual plaintiffs had not asked for, and been denied, the tax exclusion at issue, and, alternatively, that § 107(2) was constitutional. Freedom from Religion Foundation, Inc. v. Lew, 773 F.3d 815 (7th Cir. 2014). Without addressing the merits of the Government's argument that § 107(2) is constitutional, the Seventh Circuit vacated the District Court's decision. It agreed with the Government's threshold jurisdictional argument that the plaintiffs lacked standing to sue.

After their initial suit was dismissed for lack of jurisdiction, the individual plaintiffs filed claims for refund for the years 2012 and 2013, challenging § 107(2) as unconstitutional unless it applied to them. (App5; A36-37, 66.) After more than six months had passed without the IRS acting on Gaylor and Barker's refund claim for 2012 and Anne Nicol Gaylor's refund claim for 2013, plaintiffs filed the instant suit.4 (App8-10; A66-69.) See I.R.C. § 6532(a)(1). The IRS later disallowed Gaylor and Barker's claim for 2012, explaining that they were not entitled to the exclusion under § 107 because they avowedly were not ministers of the gospel. (App6; A66-68.)

D. The proceedings below

1. The parties' contentions

The Government moved to dismiss part of the suit for lack of subject matter jurisdiction, contending that plaintiffs lacked standing to challenge § 107(1) under Article III of the Constitution because plaintiffs did not claim, and had not been denied, an exclusion for the rental value of a home provided by their employer. (Doc. 6.) The District Court agreed, dismissing the complaint as it related to § 107(1). (A1-4.)

After that dismissal, several pastors who received housing allowances, as well as their associated religious organizations, sought to intervene in the case in order to defend the constitutionality of § 107(2). (Doc. 21.) The District Court granted their motion. (Doc. 35.)

The Government and the Intervenors then moved for summary judgment. (Doc. 43, 48.) The Government argued that § 107(2) does not violate the Establishment Clause because it has the secular purpose and effect of eliminating discrimination against, and among, ministers, and of limiting government entanglement with religion. (Doc. 47 at 2.) As the Government explained, potential church-state entanglement is avoided by permitting ministers to exclude parsonage allowances under § 107(2). (Id.) Because of the exclusion, ministers need not rely on the generally available deduction for the business use of the home, which would entail intrusive inquiries into the church-minister relationship and an evaluation as to whether activities in a minister's home are religious or secular. (Id.)

2. The District Court's decision

The District Court denied the Government and the Intervenors summary judgment and granted summary judgment to plaintiffs sua sponte. (App3-4, 46.) The court first held that plaintiffs had standing to challenge § 107(2), finding “it is undisputed that plaintiffs Gaylor and Barker asked for the exemption and that the IRS denied the request.” (App8-13.) The court further held that § 107(2) violates the Establishment Clause, reaffirming its holding from plaintiffs' previous lawsuit that § 107(2) “does not have a secular purpose or effect” and that “a reasonable observer would view the statute as an endorsement of religion.” (App4.)

At the outset, the District Court invoked Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989), where a plurality of the Supreme Court struck down a sales tax exemption that applied only to religious periodicals. (App15-16.) In the court's view, § 107(2) was invalid under the plurality opinion in Texas Monthly because it “gave an exemption to religious persons without a corresponding benefit to similarly situated secular persons” (App15) and did so “without a corresponding showing that the exemption was necessary to alleviate a significant burden on free exercise” (App14). The court also considered § 107(2) invalid under the concurring opinion in Texas Monthly because a tax exemption provided only to ministers prefers religious messages over secular ones. (App15.)

The District Court further concluded that, even aside from Texas Monthly, “both the purpose and effect of § 107(2) were to endorse religion, in violation of the establishment clause.” (App16.) It relied on statements in the legislative history as showing “that the purpose of § 107(2) was to assist a group of religious persons, which is not a secular purpose.” (App17.)

The District Court first rejected the Government's contention that § 107(1) was intended to achieve parity between the clergy and laity respecting exemptions for housing furnished for the convenience of the employer found in § 119, as well as similar exemptions for housing of Americans and federal employees working overseas (§§ 911 and 912, respectively) and members of the military (§ 134). (App20-22.) In the court's view, there was no justification for granting a “categorical tax exemption” for clergy housing when none was enjoyed by the secular groups of employees. (App23.) Despite finding “surface appeal” to the Government's argument that § 107(2) was intended to eliminate discrimination among religions, the court concluded that “a closer look reveals that the enactment of § 107(1) provides no justification for § 107(2).” (App27.) In the court's view, the exclusion for church-provided parsonages “goes beyond simply codifying the convenience of the employer doctrine for ministers,” because the parsonage need not be on the employer's premises, nor must living in it be a condition of employment (as § 119 requires). (Id.)

The District Court then rejected the proposition that § 107(2) was designed to accord equal treatment to denominations that furnish cash housing allowances rather than housing in kind. It found “no authority for the view that the government may eliminate a perceived disparity among religions by creating (or exacerbating) a disparity between religious persons and secular persons.” (App28.)

The District Court went on to reject the Government's argument that § 107(2) avoids entanglement by sparing the clergy from establishing that they comply with the requirements of the “convenience of the employer” exclusion that must be demonstrated by secular employees. It commented that “defendants cite no evidence that concerns about entanglement had anything to do with § 107(2) and they cite no authority for the view that concerns about entanglement can justify preferential treatment for religious persons.” (App33.)

Nor were the District Court's concerns allayed by the fact that § 107(2) grants an exemption, rather than a subsidy. It concluded that, because paying generally applicable taxes does not significantly burden religious exercise, “exemptions from such taxes cannot be viewed merely as a religious accommodation.” (App39.) To the contrary, “because the government has eliminated a burden for certain ministers that is shared by millions of taxpayers, the exemption is more accurately viewed as religious favoritism.” (Id.)

In sum, the District Court concluded that the Government's “stated concerns about treating religions equally and avoiding entanglement do not find any support in the facts or the law.” (App43.) The court determined that, rather than granting refunds, the appropriate remedy was to issue an injunction nullifying § 107(2). (App50.) The court stayed the injunction, however, until 180 days after the final resolution of all appeals. (App50-51.)

SUMMARY OF ARGUMENT

Plaintiffs — an advocacy organization (and its members) promoting atheism and its view of separation of church and state — challenge the constitutionality of § 107(2), a longstanding exclusion for a cash parsonage allowance provided by a church to its minister. That tax benefit is one of several tax benefits provided in the Internal Revenue Code for employer-provided housing. The District Court held that § 107(2) violates the Establishment Clause. That ruling is flawed.

Section 107(2) is constitutionally sound. It satisfies the prevailing test for analyzing Establishment Clause claims because it has a secular purpose and effect and because it avoids excessive church-state entanglement. The clergy have long been provided with homes at or near their places of worship to use in connection with their ministries. Just as it has done for lay employees furnished housing for the employer's convenience under § 119, Congress has exercised the discretion that accompanies its taxing power to exempt the value of such professionally used parsonages from taxation. Extension of this “refusal to tax” to the cash equivalent of in-kind housing under § 107(2) merely “eliminates the discrimination,” in the words of the drafters, that would otherwise exist against ministers, and between churches that have historically provided parsonages in kind and those that do not. Permitting ministers to exclude parsonage allowances under § 107(2), rather than forcing them to rely on the generally available deduction for the business use of the home under §§ 162 and 280A(c)(1), may also prevent more intrusive Government inquiries into the church-minister relationship, and avoid the need to evaluate whether activities in a minister's home are secular or religious. These statutory purposes comport fully with the restraints of the Establishment Clause.

In striking down the law, the District Court disregarded the reasons Congress enacted § 107 in the first place. It also failed to appreciate that providing ministers categorical, rather than case-by-case, tax exemptions actually prevents unnecessary entanglement between church and state. Section 107's blanket exclusion for minister housing is consistent with the ministerial exception to the anti-discrimination laws recognized by the Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 565 U.S. 171, 188 (2012), and with this Court's approval of categorical religious exemptions that “avoid[ ] intrusive inquiry into religious belief and practice” in Cohen v. City of Des Plaines, 8 F.3d 484, 491-493 (7th Cir. 1993). Because § 107(2) is merely one component of a larger, integrated tax code, tailored to further Establishment Clause principles, Congress has by no means provided a tax benefit to religious organizations and “no one else” (App1).

ARGUMENT

The parsonage allowance exclusion in Section 107(2) does not violate the Establishment Clause

Standard of review

The District Court's grant of summary judgment to plaintiffs on their Establishment Clause claim is reviewed de novo. Books v. Elkhart County, Ind., 401 F.3d 857, 863 (7th Cir. 2005).

A. Introduction

1. The First Amendment states that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” U.S. Const. amend. I, cl. 1. Generally speaking, the First Amendment's Free Exercise Clause prohibits Congress from interfering with religious practices and institutions, while the Establishment Clause prohibits Congress from inappropriately advancing religion. Between the “two Religion Clauses,” there is a middle ground — “room for play in the joints” — within which Congress may accommodate religion “without sponsorship and without interference” and thereby achieve “benevolent neutrality” towards religion. Walz v. Tax Commission, 397 U.S. 664, 668-669 (1970).

The Supreme Court has “'long recognized that the government may (and sometimes must) accommodate religious practices and that it may do so without violating the Establishment Clause.'” Corp. of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints v. Amos, 483 U.S. 327, 334 (1987) (citation omitted); see Cutter v. Wilkinson, 544 U.S. 709, 719-720 (2005) (upholding Religious Land Use & Institutionalized Persons Act as a “permissible legislative accommodation of religion,” even though it was not “compelled by the Free Exercise Clause”); Gillette v. United States, 401 U.S. 437, 450 (1971) (upholding religion-specific exemption from military draft).

Permissible accommodations of religion include laws designed to avoid discrimination among religions and laws designed to avoid entanglement with religion. E.g., Cohen v. City of Des Plaines, 8 F.3d 484, 489-490 (7th Cir. 1993) (upholding special-use permit exemption for churches because it reasonably accommodated religion by “minimizing governmental interference with the decision making processes of a religious organization”); Medina v. Catholic Health Initiatives, 877 F.3d 1213, 1231-1233 (10th Cir. 2017) (upholding church-plan exemption from ERISA because it reasonably accommodated religion by “avoid[ing] entanglement with religion”); Fields v. City of Tulsa, 753 F.3d 1000, 1010-1011 (10th Cir. 2014) (upholding policy enacted to avoid potential claims of “disparate treatment” among religious groups).

2. To determine whether the Government's accommodation of religion is permissible under the Establishment Clause, courts generally apply the three-pronged test set forth by the Supreme Court in Lemon v. Kurtzman, 403 U.S. 602 (1971), which “'remains the prevailing analytical tool for the analysis of Establishment Clause claims.'” Doe v. Elmbrook School District, 687 F.3d 840, 849 (7th Cir. 2012) (en banc) (citation omitted). In order to comport with the Establishment Clause, (i) “the statute must have a secular legislative purpose,” (ii) “its principal or primary effect must be one that neither advances nor inhibits religion,” and (iii) it “must not foster 'an excessive government entanglement with religion.'” Lemon, 403 U.S. at 612-613 (citation omitted).

A comparison of Amos and Walz (upholding religious exemptions) to Texas Monthly (invalidating such an exemption) illustrates the contours of permissible accommodation of religion. In Amos, the Supreme Court addressed whether the exemption for religious organizations from the prohibition against religious discrimination under Title VII violates the Establishment Clause. The Court upheld the exemption as a permissible accommodation, even though it was not required by the Free Exercise Clause and even though it applied categorically to all of the religious organization's activities, including its secular activities. 483 U.S. at 335-336. The Court concluded that the exemption satisfied the Lemon test. First, it served the secular purpose of minimizing governmental interference “with the decision-making process in religions.” Id. Second, it did not advance religion, but merely removed a regulatory burden imposed thereon. Id. at 338. Third, it avoided excessive entanglement by “effectuat[ing] a more complete separation” of church and state. Id. at 339. The Court expressly rejected the complaint “that [the exemption] singles out religious entities for a benefit.” Id. at 338. As the Court explained, “[w]here, as here, government acts with the proper purpose of lifting a regulation that burdens the exercise of religion, we see no reason to require that the exemption comes packaged with benefits to secular entities.” Id.

In Walz, the Supreme Court held that exempting religious organizations from a generally applicable property tax did not violate the Establishment Clause. The Court emphasized that the tax exemption served the permissible purpose of “sparing the exercise of religion from the burden of property taxation.” 397 U.S. at 673-674. The exemption, moreover, by no means sponsored religion, but “simply abstains from demanding that the church support the state.” Id. at 675. And it “create[d] only a minimal and remote involvement between church and state and far less than taxation of churches.” Id. at 676. Although the Court observed that the property tax exemption was also available to other nonprofit organizations, its conclusion that the exemption was a “permissible state accommodation to religion” did not depend on that fact. Id. at 673. As the Court explained, the Establishment Clause prohibits government “sponsorship” of “religious activity,” and a property-tax exemption — unlike a “direct money subsidy” — does not run afoul of that prohibition because the “government does not transfer part of its revenue to churches.” Id. at 675.

Finally, in Texas Monthly, the Supreme Court addressed a state sales-tax exemption for periodicals distributed by a “religious faith” that promoted the “teachings of the faith.” 489 U.S. at 5-6. A divided majority of the Court held that this differentiation of literature based upon religious content violated either the Establishment Clause (all but White, J.) or the Press Clause of the First Amendment (White, J.). Id. at 17-25 (Brennan, J., joined by Marshall and Stevens, JJ.); id. at 25-26 (White, J., concurring in the judgment); id. at 26-29 (Blackmun, J., joined by O'Connor, J., concurring in the judgment). Justice Blackmun's concurrence provides the rationale for the Court because it provides the narrowest grounds on which the decision is based. See Marks v. United States, 430 U.S. 188, 193 (1977). Justice Blackmun believed that, although “some forms of accommodating religion are constitutionally permissible” (citing Amos as an example), the Texas sales-tax exemption was not, because it entailed “preferential support for the communication of religious messages” without any secular justification for doing so. 489 U.S. at 28.

3. Section 107 is a permissible accommodation of religion under Lemon. Like the exemptions in Amos and Walz, § 107 lifts a burden on religious practice by eliminating governmental discrimination against (§ 107(1)) — and between (§ 107(2)) — religions, and by minimizing governmental interference with a church's internal affairs, without burdening third parties. Unlike the exemption in Texas Monthly, § 107 does not endorse a religious message. It merely adapts the Code's general exemptions for certain types of employer-provided housing to the unique context of a church and its minister. See Legg, Excluding Parsonages from Taxation: Declaring a Victor in the Duel between Caesar & the First Amendment, 10 Georgetown J. of Law & Public Policy 269, 271 (2012) (arguing that “the parsonage exclusions are constitutional when (necessarily) viewed as one element of a larger congressional plan to extend tax relief to recipients of employer-provided housing as a principal feature of their employment”).

4. Before turning to those arguments, however, we first highlight three aspects of § 107(2) that are crucial to an understanding of its constitutional soundness. First, § 107(2) is but a single provision in a larger Congressional scheme that exempts qualifying employer-provided housing from taxation. As noted above (at pp. 4-6), and described more fully below, the Code contains several tax benefits for housing used by a taxpayer in his trade or business or for the convenience of his employer, including §§ 119, 162, and 280A(c)(1). Section 107 merely adapts those provisions to the unique church-minister context, so as to avoid the entanglement problems that could arise if ministers had to rely on those provisions to exclude or deduct the value of church-provided housing. Analyzed in its specific history and context, § 107(2) is not “accurately viewed as religious favoritism.” (App39.) Rather, “[w]hen viewed in the context of other employer-provided housing provisions — both historic and currently-existing — [§ 107(2)] hardly singles out religion for an exclusive benefit in violation of the Constitution.” Legg, above, at 297.

Second, § 107(2) provides an exclusion from gross income for employment benefits provided by a church to its minister. The courts have been particularly solicitous of governmental accommodation regarding the “employment relationship between a religious institution and its ministers.” Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 565 U.S. 171, 188 (2012). In Hosanna-Tabor, the Supreme Court held that “there is a ministerial exception grounded in the Religion Clauses of the First Amendment” that precludes the government from applying generally applicable anti-discrimination laws to a church's minister, even though such laws may be applied to the church's other employees. Id. at 190. As the Court explained, the church-minister relationship concerns “the internal governance of the church,” given that the minister “personif[ies] its beliefs,” and a church's decisions regarding its ministers “affects the faith and mission of the church itself.” Id. at 188-190. Indeed, this Court refers to the “ministerial exception” as the “internal affairs” doctrine because the exception is designed to prohibit governmental interference “in the internal management of churches.” Schleicher v. Salvation Army, 518 F.3d 472, 474-475 (7th Cir. 2008) (applying doctrine to reject ministers' claim that church violated minimum-wage laws); see Grussgott v. Milwaukee Jewish Day School, Inc., 882 F.3d 655 (7th Cir. 2018) (applying doctrine to reject minister's claim that religious employer violated the Americans with Disabilities Act).

Third, § 107(2) involves an exemption from tax, rather than the grant of a direct subsidy. As a general rule, the “grant of a tax exemption is not sponsorship” prohibited by the Establishment Clause, despite the “indirect economic benefit” that goes with it. Walz, 397 U.S. at 674-675. Unlike a “direct money subsidy,” the “government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state.” Id. at 675. Moreover, the Government's refusal to “impose a tax” on religion does not impose a burden on third parties. Ariz. Christian School Tuition Org. v. Winn, 563 U.S. 125, 142-143 (2011).

B. Section 107(2) satisfies the Lemon test because it is a neutral provision that tailors a generally available tax benefit to avoid Establishment Clause concerns raised by the unique church-minister context

Section 107(2) satisfies each part of the Lemon test and thus does not violate the Establishment Clause. Before turning to that test, we first correct the District Court's misconstruction of our argument. The Government does not contend here that § 107(2) is “compelled” (App29) by the Free Exercise Clause. We contend that § 107(2) is permitted by the Establishment Clause. In this regard, an exemption can be a “permissible legislative accommodation of religion” under the Establishment Clause, even if it is not “compelled by the Free Exercise Clause.” Cutter, 544 U.S. at 719-720. Nor do we contend that § 107(2) permissibly accommodates religion by eliminating the “payment” of taxes. (App17.) Broadly speaking, applying a generally applicable tax to a church or its minister does not substantially burden religion. See Murdock v. Pennsylvania, 319 U.S. 105, 112 (1943); United States v. Indianapolis Baptist Temple, 224 F.3d 627, 629 (7th Cir. 2000). Rather, we contend that § 107(2) permissibly accommodates religion by tailoring a generally available tax benefit in order (i) to equalize governmental treatment of ministers and (ii) to avoid church-state entanglement, as demonstrated below.

1. Section 107(2) has a secular legislative purpose

In reviewing an Establishment Clause challenge, it is critical to consider the historical context of the statute and the specific sequence of events leading to its passage. See Salazar v. Buono, 559 U.S. 700, 715 (2010) (reversing determination that law violated Establishment Clause where the “District Court took insufficient account of the context in which the statute was enacted and the reasons for its passage”). The history and context of § 107(2) demonstrate that the manifest purpose of the statute is to achieve parity among clergy and denominations, irrespective of how a church and its minister decide to arrange housing, and to avoid interference in a church's internal affairs.

a. The history and context of § 107

Church-provided housing is a tradition that dates back at least to the 13th century. Savidge, The Parsonage in England 7-9 (1964). The patterns of housing members of the clergy in America have deep histories in the churches of Western Europe. The most common feature of this long-held tradition is that clergy lived in housing (called a parsonage) on the church grounds or nearby on church-owned property. (A8, 38-39.) The parsonage system provided a critical means for churches to ensure that the spiritual needs of their congregations were met by housing the clergy in a place available to the congregation that could accommodate the church business conducted there. (A8-32, 40-43.)

In 1921, when Congress first enacted the parsonage exclusion, most religious denominations in the United States directly furnished parsonages to ministers. (A8-20.) The denominations that did not do so were generally very small or were newer sects. (A16, 22-29.) The latter denominations found it more convenient or feasible to furnish parsonages for their ministers by providing them with cash in lieu of the use of a church-owned building. (Id.)

Since a minister “will personify” his church, Hosanna-Tabor, 565 U.S. at 188, his residence is traditionally more than mere housing (A8-32, 40-43). It is an extension of the church itself, frequently used for “religious purposes such as a meeting place for various church groups and as a place for providing religious services such as marriage ceremonies and individual counseling.” Immanuel Baptist Church v. Glass, 497 P.2d 757, 760 (Okla. 1972); see Brunner, Taxation: Exemption of Parsonage or Residence of Minister, Priest, Rabbi or Other Church Personnel, 55 A.L.R.3d 356, 404 (1974) (observing that “[m]ost ministerial residences can be expected to be incidentally used to some considerable extent as an office, a study, a place of counseling, a place of small meetings, such as boards or committees, and a place in which to entertain and lodge church visitors and guests”). Accordingly, whether provided in cash or in kind, the minister's housing benefit historically was considered to be provided for the church's “convenience.” Williamson, 224 F.2d at 380; see Eveland v. Erickson, 182 N.W. 315, 319 (S.D. 1921) (observing that a church “furnish[es] the pastor a house” to “make efficient the religious work and purpose of the church”); Barham, The Parsonage Exclusion under the Endorsement Test: Last Gasp or Second Wind?, 13 Va. Tax Rev. 397, 418 (1993) (observing that the “clergymember's situation is unique because by and large his home becomes the business place of his employer”).

Against this historical backdrop, Congress enacted an exclusion from gross income for parsonages in 1921, just eight years after the modern federal income tax was authorized by the 16th Amendment to the Constitution. See Revenue Act of 1921, Section 213(b)(11). Section 213(b)(11) — the precursor to § 107(1) — excluded from income “[t]he rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation.” 42 Stat. 227, 239. Immediately before the enactment of Section 213(b)(11), the Treasury Department had allowed some employees — but not clergy — to exclude the value of employer-provided housing from income under the “convenience of the employer” doctrine.5 See, above, pp. 6-7. In response, Congress enacted Section 213(b)(11). Ministers were thereby placed on an equal footing with other types of employees who were already enjoying the Treasury's recognition of an exclusion for housing provided for the employer's convenience. It also spared them the prospect of undergoing an intrusive inquiry regarding the church's convenience. See, above, n.2.

Ministers whose churches chose to furnish them with parsonages by way of providing cash allowances for that purpose also sought to exclude the parsonage allowance under Section 213(b)(11). The Treasury determined that Section 213(b)(11) “applies only to cases where a parsonage is furnished to a minister and not to cases where an allowance is made to cover the cost of a parsonage.” I.T. 1694. The Treasury advised, however, that such ministers could deduct their payments for the parsonage to the extent that the parsonage was used for “professional” rather than personal reasons.6 Id.

Several courts, however, rejected the Treasury's determination and permitted ministers to exclude from income the value of parsonages furnished to them in cash as well as in kind. See, above, pp. 7-8. As the Eighth Circuit explained, when a church provides a minister a parsonage allowance in lieu of a parsonage, it was “manifestly for the convenience of the employer,” and such housing should be excluded from income, whether furnished in cash or in kind. Williamson, 224 F.2d at 380.

In 1954, Congress codified those decisions by enacting § 107(2) as an additional exclusion to the existing one, which was redesignated as § 107(1). The statute as a whole leaves it to churches to determine how to provide parsonages — in cash or in kind — free from any influence from the tax laws. As the House and Senate Reports explained (using identical language), the rationale for the new provision was as follows:

Under present law, the rental value of a home furnished a minister of the gospel as a part of his salary is not included in his gross income. This is unfair to those ministers who are not furnished a parsonage, but who receive large salaries (which are taxable) to compensate them for expenses they incur in supplying their own home.

Your committee has removed the discrimination in existing law by providing that the present exclusion is to apply to rental allowances paid to ministers to the extent used by them to rent or provide a home.

H.R. Rep. No. 1337, at 15 (emphasis added); S. Rep. No. 1622, at 16 (emphasis added). Congress had been alerted to the discrimination in existing law by officials from various religious denominations who complained that the existing “discriminatory” tax provision benefited some clergy and churches but not others. Hearings on Forty Topics Pertaining to the General Revision of the Internal Revenue Code at 1574-1575 (Aug. 1953) (Statement of Hon. Peter Mack) (hereinafter “1953 Hearings”). Section 107(2) was enacted “to equalize the disparate treatment among religious denominations.” Legg, above, at 275.

Those purposes of preventing discrimination and preserving neutrality were confirmed in 2002, when Congress amended § 107(2) to clarify that the exclusion is limited to the fair rental value of the parsonage. 116 Stat. 583. The bill introducing the proposed amendment explained that § 107 was designed to “accommodate the differing governance structures, practices, traditions, and other characteristics of churches through tax policies that strive to be neutral with respect to such differences.” H.R. 4156, 107th Cong. § 2(a)(4). The bill further confirmed that § 107 was also intended to minimize “intrusive inquiries by the government” into a church's internal affairs by obviating the convenience-of-the-employer inquiry required by §§ 119 and 280A(c)(1). Id. at § 2(a)(3), (5).

b. The history and context of the statute disclose the secular purpose of eliminating discrimination against and among ministers and of minimizing intrusion into internal church affairs

Far from seeking to provide religion a special benefit, Congress enacted § 107(1) and its statutory predecessors to ensure that ministers received the same tax benefit that similarly situated secular employees had received pursuant to the convenience-of-the-employer doctrine (now codified in § 119). All employees — religious or lay — are entitled to exclude from gross income the value of “lodging furnished to him” by his “employer for the convenience of the employer.” § 119. Besides being furnished for the employer's convenience, the lodging must be situated on the employer's business premises, and living there must be a condition of employment.

When the convenience-of-the-employer doctrine was initially developed, the Treasury applied it to many secular employees, but not to ministers. By allowing secular employees, but not ministers, to exclude employer-provided housing from income, the Treasury's 1921 ruling raised serious constitutional concerns. E.g., McDaniel v. Paty, 435 U.S. 618, 629 (1978) (determining that law permitting all persons, except for “ministers,” to participate in political conventions violated the First Amendment). Congress quickly reacted to that ruling by enacting Section 213(b)(11) of the Revenue Act of 1921, the predecessor of § 107(1). Consequently, § 107(1) simply levels the playing field between ministers and other types of employees.

After eliminating discrimination against ministers who were furnished housing in kind by their churches, Congress next eliminated discrimination among ministers. H.R. Rep. No. 1337, at 15; S. Rep. No. 1622, at 16. It addressed the problem that some churches furnished parsonages by providing parsonages in kind, while others did so by providing cash for that purpose. Id. Congress enacted § 107(2) to ensure that all ministers who were similarly situated were treated equally by the Government, tax-wise. Id. And, in doing so, Congress simply codified the results of litigation brought by ministers seeking equal tax treatment of parsonages and parsonage allowances. See, above, pp. 7-8. Because § 107(2) has the permissible, secular purpose of avoiding governmental discrimination among religions, it furthers one of the core purposes of the Establishment Clause. See Larson v. Valente, 456 U.S. 228, 246 (1982) (determining that law that applied to some, but not all, religions violated the Establishment Clause by running afoul of the “principle of denominational neutrality”); Grussgott, 882 F.3d at 658 (rejecting an interpretation of the ministerial exception that would “impermissibly favor religions that have formal ordination processes over those that do not”).

Moreover, by enacting § 107(2), Congress removed tax-related disincentives to a church's decision whether to furnish a parsonage to its minister in cash or in kind, thereby avoiding interference in the church's internal affairs. See H.R. 4156, 107th Cong. § 2(a)(3) (observing that one purpose of § 107 is to “minimize government intrusion into internal church operations and the relationship between a church and its clergy”). “Under the Lemon analysis, it is a permissible legislative purpose to alleviate significant governmental interference with the ability of religious organizations to define and carry out their religious missions.” Amos, 483 U.S. at 335. Section 107(2) allows each church to decide whether and how best to furnish a parsonage to its ministers.

Finally, § 107 also serves the secular purpose of avoiding problems of entanglement between church and state that could result from administering the convenience-of-the-employer doctrine where ministers are concerned. As Congress and the courts have recognized, the minister's home frequently is used for the “convenience of the employer,” whether the home is owned by the church or its minister. Williamson, 224 F.2d at 380; 148 Cong. Rec. 4671 (Apr. 16, 2002) (observing that § 107 recognizes “that a clergy person's home is not just shelter, but an essential meeting place for members of the congregation”). By providing an exclusion for housing provided by churches to ministers, regardless of the form in which it is furnished, § 107 avoids the intrusive convenience-of-the-employer inquiry required by § 119 (when taxpayers seek to exclude employer-provided housing) or §§ 162 and 280A(c)(1) (when taxpayers seek to deduct the cost of housing used in the employer's business, such as “home office” expenses). See H.R. 4156, 107th Cong. § 2(a)(5) (observing that one purpose of § 107 is to accommodate the fact that “clergy frequently are required to use their homes for purposes that would otherwise qualify for favorable tax treatment, but which may require more intrusive inquiries by the government into the relationship between clergy and their respective churches with respect to activities that are inherently religious”). “[T]he Supreme Court has expressly held that a purpose of avoiding government entanglement does not violate the Establishment Clause.” Medina, 877 F.3d at 1231 (citing Amos). See, e.g., Amos, 483 U.S. at 335-336; Cohen, 8 F.3d at 489-490. The District Court's conclusion to the contrary (App35) conflicts with binding authority.

2. Section 107(2) does not have the primary effect of advancing or inhibiting religion

To determine whether a law has the primary effect of advancing or inhibiting religion, this Court considers whether “'irrespective of government's actual purpose,'” the “'practice under review in fact conveys a message of endorsement or disapproval.'” Sherman v. Koch, 623 F.3d 501, 517 (7th Cir. 2010) (citation omitted). Section 107(2) does not convey a message of endorsement or disapproval of religion and therefore complies with the second prong of the Lemon test.

Taking steps to avoid a potential Establishment Clause violation cannot itself violate the second prong of the Lemon test. Santa Monica Nativity Scenes Committee v. City of Santa Monica, 784 F.3d 1286, 1300 (9th Cir. 2015); see Mercier v. Fraternal Order of Eagles, 395 F.3d 693, 705 (7th Cir. 2005). Indeed, in Mercier, the Court observed that by selling part of a park and a monument to the Ten Commandments situated thereon in order to “end a perceived endorsement” of religion and “preempt” an Establishment Clause challenge, “the City exercised an option that served a secular purpose.” Id. As relevant here, legislation enacted to avoid potential claims of “disparate treatment” among religious groups does not “'convey[ ] a message of endorsement or disapproval'” of religion. Fields, 753 F.3d at 1010-1011 (citation omitted). Similarly, legislation enacted to avoid “entanglement with religion” does “not run afoul of the second prong of the Lemon test” and “does not convey an impermissible message that religion is favored or preferred.” Medina, 877 F.3d at 1231-1233.

Section 107(2) has a secular effect because it minimizes governmental interference with a church's internal affairs. The limited nature of the exclusion in § 107 — which applies only to ministers and not to all religious employees — confirms that its primary effect is not to advance religion, but to preserve the autonomy of churches. Section 107 preserves the autonomy of churches by permitting them to determine how best to furnish parsonages to their ministers (whether with cash or in kind) “under the ecclesiastical doctrine of each church,” free of discriminatory tax laws and without any adverse tax consequences hinging on that determination. Legg, above, at 291. In this regard, the § 107 exclusion is similar to the “ministerial exception,” or “internal-affairs doctrine,” that the courts have applied to generally applicable employment laws. Like that doctrine, which minimizes governmental interference “in the internal management of churches,” Schleicher, 518 F.3d at 475, § 107 minimizes both governmental influence on a church's decision regarding how to furnish a parsonage, and governmental evaluation of church activities that take place in the parsonage.

The effect of the § 107 exclusion must also be judged in the context of other housing-related exclusions and deductions provided in the Code. See Zelinsky, The First Amendment & the Parsonage Allowance, Tax Notes 5-8 (Dec. 2013) (critiquing the District Court's opinion in Freedom from Religion Foundation, Inc. v. Lew, 983 F. Supp. 2d 1051 (W.D. Wis. 2013), vacated, 773 F.2d 815 (7th Cir. 2014), for analyzing “section 107 in isolation from other code provisions,” and explaining how applying § 119 to religious employers creates church-state entanglement problems). Section 107 is “similar to other housing provisions in the Tax Code offered to workers who locate in a particular area for the convenience of their employers, and military personnel who receive a tax exclusion for their housing.” 148 Cong. Rec. 4670 (Apr. 16, 2002). All taxpayers may exclude certain employer-provided housing from income. § 119. Likewise, all taxpayers may deduct the cost of their housing to the extent that it is used for their employer's business and convenience. §§ 162, 280A(c)(1); I.T. 1694. In addition, certain employees of the federal government are entitled to exclude their housing allowances without first demonstrating that the housing was being used for the employer's convenience. See § 134 (military members); § 912 (civil servants on foreign postings). Section 107 provides similar tax benefits to ministers, but does so in a way that avoids the intrusive inquiries implicit in the employer's convenience and business exigency requirements inherent in §§ 119, 162, and 280A(c)(1).

A “reasonable observer” would not view § 107(2) as “an endorsement of religion,” as the District Court assumed. (App4.) A “reasonable observer” is one who is familiar with “'the text, legislative history, and implementation of the statute'” at issue. McCreary County v. ACLU, 545 U.S. 844, 862, 866 (2005) (citation omitted). Someone familiar with the text, history, and context of § 107(2) would understand that it is a tax exemption, not a direct subsidy to religion, and that it was designed not only to eliminate discrimination among religions, but also to avoid intrusive inquiries that §§ 119, 162, and 280A(c)(1) may entail.

If a minister had to rely on §§ 119, 162, and 280A(c)(1) to support an exclusion or deduction, as the case may be, it would raise questions regarding the church's “convenience,” the scope of the church's “business premises,” and the degree to which the minister's activities in the parsonage were secular or religious. By obviating the resolution of such questions, § 107 has a salutary effect. Indeed, it has long been recognized that the “blanket exclusion” under § 107 “does not 'prefer' religion but merely reduces the administrative burden of applying § 119 to clergymen.” Bittker, Churches, Taxes & the Constitution, 78 Yale L. J. 1285, 1292 n.18 (1969);7 see Legg, above, at 292 (explaining that § 107 prevents “entanglement” problems under § 280A(c)(1) by “avoid[ing] the need to have the IRS make case-by-case determinations of whether the parsonage was truly granted 'for the convenience of the employer' based on the church's ecclesiastical doctrine or instead granted as a form of compensation not directly for the benefit of the church”); Barham, above, at 418-419 (comparing § 107(2) to § 119). If it were necessary for such questions to be answered, it might “requir[e] the Government to distinguish between 'secular' and 'religious' benefits or services, which may be 'fraught with the sort of entanglement that the Constitution forbids.'” Hernandez v. Commissioner, 490 U.S. 680, 697 (1989) (citation omitted). Each prong of § 107 removes the potential for entanglement by eliminating the intrusive inquiries that could arise if ministers were forced to rely upon § 119 or §§ 162 and 280A(c)(1). The statute therefore has an indisputably secular effect.

3. Section 107(2) does not produce excessive entanglement

Section 107 does not produce excessive entanglement with religion. Indeed, the District Court did not find otherwise. (App32-35.) To “constitute excessive entanglement, the government action must involve 'intrusive government participation in, supervision of, or inquiry into religious affairs.'” Vision Church v. Village of Long Grove, 468 F.3d 975, 995 (7th Cir. 2006) (citation omitted). Section 107(2) is a tax exemption, and, as such, does not raise this concern. As the Court noted in Walz, a tax “exemption creates only a minimal and remote involvement between church and state and far less than taxation of churches.” 397 U.S. at 676. And determining whether an individual is a minister so as to qualify for the exemption is no more entangling than the determination required by the judicially created ministerial exception endorsed by the Supreme Court in Hosanna-Tabor. See also Medina, 877 F.3d at 1233 (holding that determining whether an entity is (or is affiliated with) a “religious organization” for purposes of the church-plan exemption from ERISA did not constitute “impermissible entanglement”).

Moreover, by adapting the tax benefits generally available to taxpayers in §§ 119, 162, and 280A(c)(1) to the unique circumstances of ministers, § 107 prevents the entanglement that would ensue if the tax benefit were contingent on whether the minister acts for the “convenience of the employer” in using his home. By making such scrutiny unnecessary, the exclusion provided in § 107(2) avoids entanglement and promotes the statute's secular purposes.

Because § 107(2) satisfies each part of the Lemon test, it does not violate the Establishment Clause. For the same reasons, § 107(2) does not violate the Equal Protection component of the Fifth Amendment's Due Process Clause, an issue raised by plaintiffs but not reached by the District Court (App4). See Amos, 483 U.S. at 338-339 & n.16 (rejecting Equal Protection claim for the same reasons that the Court rejected Establishment Clause claim).

C. The District Court's Establishment Clause analysis cannot withstand scrutiny

The District Court concluded that § 107(2) violated the Establishment Clause because (in its view) the statute “single[d] out religious persons for preferential treatment without a secular basis for doing so.” (App44.) In so ruling, the court rejected the Government's “stated concerns about treating religions equally and avoiding entanglement,” holding that such concerns “do not find any support in the facts or the law.” (App43.) The court further concluded that the “categorical tax exemption” provided in § 107(2) impermissibly endorsed religion because it provided a tax benefit to ministers without requiring them first to satisfy the convenience-of-the-employer doctrine. (App23, 26.) Finally, the court concluded that § 107(2) was analogous to the exemption struck down in Texas Monthly. As demonstrated below, the court's analysis cannot withstand scrutiny.

1. By dismissing the Government's stated concerns about treating religions equally and avoiding entanglement, the District Court ignored § 107(2)'s history and context

In concluding that § 107(2) lacked a “secular purpose” (App17), the District Court ignored the statute's history and context, including the articulation of its anti-discrimination purpose in the 1954 House and Senate reports. H.R. Rep. No. 1337, at 15; S. Rep. No. 1622, at 16. That primary purpose has been recognized by the courts and commentators. E.g., Warnke v. United States, 641 F. Supp. 1083, 1087 (E.D. Ky. 1986) (observing that § 107(2) was enacted “to eliminate discrimination”); Boyd v. Commissioner, 42 T.C.M. (CCH) 1136, 1137 (1981) (“Section 107(2) was enacted in 1954 to equalize treatment of ministers who received housing in kind, see section 107(1), and ministers who received housing allowances”); 1 Mertens Law of Fed. Income Taxation § 7:196 n.71 (2013) (same). While the legislation's sponsor briefly opined that § 107(2) would aid in the “fight against” a “godless and antireligious world movement,” 1953 Hearings, above, at 1576, this Cold War era rhetoric, although emphasized by the District Court (App32), does not alter the fact that the primary reason for the legislation was concern that the then “present tax laws are discriminatory among our clergy,” 1953 Hearings, above, at 1574-1575. The District Court ignored this clear and permissible substantive premise for extending the exclusion to cash benefits, which was to eliminate discrimination between sects. In any event, whether any particular legislator might actually have wished to grant a particular advantage to churches would not have undermined Congress's legitimate anti-discrimination purpose. See Sherman v. Koch, 623 F.3d 501, 510 (7th Cir. 2010) (observing that “'what is relevant is the legislative purpose of the statute, not the possibly religious motives of the legislators who enacted the law'”) (citation omitted).

By enacting § 107(2), Congress intended to lift the burden of discriminatory tax treatment that had been imposed on churches and ministers by allowing all ministers to exclude the value of the parsonage from income, no matter how each church chooses to provide that housing. In providing that equal treatment, the statute by no means “'discriminate[s]' against religions that do not have ministers,” as the District Court posited. (App31.) If a religion has no ministers, then, a fortiori, there is no taxation of a minister's housing to accommodate. See Legg, above, at 292 (observing that “religions without clergy have no leaders needing the benefit of the exclusion”). For this same reason, the ministerial exception recognized in Hosanna-Tabor — which, like § 107(2), is limited to religions with ministers — also serves legitimate First Amendment interests, rather than discriminating against religions without ministers. Nor does § 107(2) create an imbalance between ministers who receive housing in kind and those who receive a housing allowance, as the District Court further posited. (App31.) The fact that a minister who uses his housing allowance to buy a home may also benefit from the Code's deductions available to homeowners is not a consequence of § 107(2), but flows from the minister's independent decision to use the housing allowance to buy, rather than rent, a home.

Because the stated purpose for enacting § 107(2) was to eliminate “discrimination” (H.R. Rep. No. 1337, at 15; S. Rep. No. 1622, at 16), the District Court's belief that “§ 107(2) was not needed to eliminate discrimination” (App17) is unfounded. Congress's concern clearly was secular. As this Court observed in Grussgott, there is a governmental interest in avoiding a rule that “would impermissibly favor religions that have formal ordination processes over those that do not.” 882 F.3d at 658. Congress's concern regarding discrimination among sects was also well founded. Before § 107(2) was enacted, a number of ministers contacted Congress to complain about the disparate treatment of ministers who received housing in kind and those who received cash housing allowances. 1953 Hearings, above, at 1574-1576. And their complaints were validated by the courts, which uniformly had rejected Treasury's disparate treatment of these ministers. E.g., Williamson, 224 F.2d at 380. For purposes of the first prong of the Lemon test, therefore, the District Court should have deferred to Congress's articulation of its secular purpose, unless it determined that purpose to be a “sham.” McCreary, 545 U.S. at 865. The District Court did not — and could not — find that Congress's articulated purpose here was a “sham.”

Similarly lacking merit is the District Court's conclusion (App23) that there is “no evidence” that concerns regarding church-state entanglement “had anything to do with the enactment of § 107(2).” First, “evidence” of purpose is not required. Rather, this Court “will defer to [the Government's] sincere articulation of a secular purpose,” especially “'when a plausible secular purpose for the State's program may be discerned from the face of the statute.'” Cohen, 8 F.3d at 489 (quoting Mueller v. Allen, 463 U.S. 388, 394-395 (1983)). For example, in Cohen, this Court accepted the government's “assert[ion]” of a law's “legislative purpose” despite the fact that the “sparse legislative history [of that law] reveals precious little about its purpose.” Id. at 490. There, the Court endorsed the “legitimate purpose of minimizing governmental interference with the decision making processes of a religious organization,” even though the legislative history contained no evidence that this purpose actually motivated the law's enactment. Id. The same legitimate purpose may be discerned from the face of § 107, as Professor Bittker explained long ago. See Bittker, above, at 1292 n.18.

Second, the District Court disregarded the evidence submitted by the Government demonstrating that one purpose of § 107(2) is to avoid government entanglement under §§ 162 and 280A(c)(1). In this regard, the Government relied upon the legislative history to the law at issue in this case — § 107(2) as amended in 2002. (Doc. 47 at 15, 31.) The bill introducing the proposed amendment explained that § 107 was intended to minimize “intrusive inquiries by the government” into a church's internal affairs by obviating the inquiries required by §§ 119, 162, and 280A(c)(1).8 H.R. 4156, 107th Cong. § 2(a)(3); see id. at § 2(a)(5) (observing that one purpose of § 107 is to accommodate the fact that “clergy frequently are required to use their homes for purposes that would otherwise qualify for favorable tax treatment, but which may require more intrusive inquiries by the government into the relationship between clergy and their respective churches with respect to activities that are inherently religious”). This direct evidence of Congress's anti-entanglement purpose was inexplicably ignored by the District Court.

The District Court nevertheless opined that § 107(2) was intended “to assist a group of religious persons” and held that doing so could not be considered a secular purpose when like benefits were withheld from secular organizations and employees. (App17.) In so holding, the court lost sight of two critical facts. First, the original parsonage exclusion was intended to alleviate discrimination against ministers, who had been denied the favorable treatment extended to other, secular employees furnished with lodging for the employer's convenience. I.T. 1694, above. Second, Congress created the exclusion for cash parsonage allowances to “remove[ ] the discrimination in existing law” among ministers. H.R. Rep. No. 1337, at 15; S. Rep. No. 1622, at 16. The District Court accordingly erred by considering the constitutionality of § 107(2) in a vacuum, rather than in the context of its specific “history.” McCreary, 545 U.S. at 862.

2. The categorical nature of the exclusions accorded by § 107 does not convey a message of endorsement

The District Court concluded (App31) that § 107 demonstrates “religious preference” and thereby endorses religion because the benefit it confers is not contingent upon the convenience of the employer. In this regard, the court observed (App23-24) that, to receive a similar tax benefit, similarly situated secular employees “must satisfy the requirements for the convenience of the employer doctrine set out in § 119 or § 280A,” whereas ministers are relieved of that burden. That observation misses the mark.

First, other provisions in the Code also categorically exclude housing benefits from taxation without requiring a case-by-case analysis under the convenience-of-the-employer doctrine. E.g., §§ 119(d), 134, 911, 912. Like those provisions, § 107 provides a blanket exclusion that is merited because of the nature of the specific occupation at issue. Such line-drawing is common with tax classifications. Even in Establishment Clause cases, “'[l]egislatures have especially broad latitude in creating classifications and distinctions in tax statutes,'” and courts must give “substantial deference” to a legislative “judgment” regarding a “tax” classification that is challenged under the Establishment Clause. Mueller, 463 U.S. at 396 (citation omitted). To be sure, § 107 confers tax benefits on ministers, a religious occupation. But ministers are provided with the exclusion because Congress reasonably concluded that their occupation — like that of members of the military and government employees living abroad — frequently requires them to use their homes for the employer's convenience, as evidenced by the relevant case law and the undisputed record evidence. See, e.g., Williamson, 224 F.2d at 380; Immanuel Baptist Church, 497 P.2d at 760; Eveland, 182 N.W. at 319; A8-32, 40-43.

Moreover, given that the minister “personif[ies]” the church, Hosanna-Tabor, 565 U.S. at 188, asking whether the minister is residing in the parsonage for the church's convenience is a somewhat circular question. The church's convenience and the minister's convenience are, for all practical purposes, one and the same. That cannot be said for secular employees and their employers. The unique nature of the church-minister relationship obviates the need for a case-by-case determination whether the employer's convenience is served.

In addition, the absence of an express convenience-of-the-employer requirement in § 107 furthers — rather than thwarts — the objectives underlying the Establishment Clause. See Amos, 483 U.S. at 336-339 (holding that lifting a burden that potentially creates church-state entanglement problems furthers Establishment Clause objectives); Cohen, 8 F.3d at 490 (same); Medina, 877 F.3d at 1230-1231 (same). Congress eschewed the case-specific, convenience-of-the-employer qualification in § 107 not to provide ministers “favorable treatment,” as the District Court wrongly assumed (App24), but for two salutary reasons. First, it wished to avoid “intrusive inquiries by the government into the relationship between clergy and their respective churches with respect to activities that are inherently religious.” H.R. 4156, 107th Cong. § 2(a)(5). Second, it hoped “to minimize the involvement of the Government in the affairs of churches, that is, to keep the separation between Church and State.” 148 Cong. Rec. 5106 (April 18, 2002).

The fact that applying §§ 119, 162, and 280A(c)(1) may be “intrusive” for “any secular employee who wants the exemption” (App34) by no means undermines the secular effect of § 107(2). Intruding on the “secular” employer-employee relationship does not raise First Amendment concerns, while intruding on the church-minister relationship does. The principle of avoiding Government entanglement in religious affairs — particularly in the church-minister context — has no parallel with regard to secular organizations and their employees.

What Congress correctly recognized — and the District Court ignored — is that the First Amendment permits religion to be treated differently because religion is different under our constitutional design. The very presence of the Religion Clauses in the Constitution makes that clear, as the Supreme Court has repeatedly emphasized. For example, in Walz, both religious organizations and non-religious organizations were eligible for the property-tax exemption at issue in that case. But only the religious organizations could receive the tax exemption without first demonstrating that they served the “social welfare.” Walz, 397 U.S. at 674. That different treatment was permissible because it served an important Establishment Clause function of avoiding Government entanglement with religious affairs. As the Court explained, to condition the exemption on the “'good works' that some churches perform” could “introduce an element of governmental evaluation” of a church's programs “which the [First Amendment] policy of neutrality seeks to minimize” and “conceivably give rise to confrontations that could escalate to constitutional dimensions.” Id. See Grussgott, 882 F.3d at 660 (categorically applying the ministerial exception to employment discrimination laws because “drawing a distinction between secular and religious” activity of a minister is “line-drawing [that is] incredibly difficult” and “impermissibly entangles the government with religion”). Accordingly, treating ministers differently by providing them categorical rather than case-by-case exemptions prevents entanglement between Church and State.

This Court has previously upheld against an Establishment Clause challenge a similar categorical grant to religious institutions of a benefit that secular entities enjoyed only on a case-by-case basis after satisfying certain requirements. In Cohen, the Court addressed a local ordinance that allowed churches to operate nursery schools and day care centers without first obtaining the special-use permit that secular organizations were required to obtain. 8 F.3d at 487. Citing Walz and Amos, this Court held that the ordinance was a permissible accommodation of religion because it served the “secular purpose of minimizing governmental meddling in religious affairs” and “avoids intrusive inquiry into religious belief and practice.” Id. at 491-493. So too with § 107(2).

There is no basis for the District Court's related suggestion that the constitutionality of § 107(2) is contingent on the Government's “provid[ing] likely scenarios in which [entanglement problems] would occur.” (App34.) Courts have held that avoiding potential entanglement problems is a legitimate secular purpose; likely scenarios of entanglement are not required. See Amos, 483 U.S. at 335-336 (endorsing a categorical exemption for religious organizations rather than one limited to its religious activities, because “it is a significant burden on a religious organization to require it . . . to predict which of its activities a secular court will consider religious”); Cohen, 8 F.3d at 490 (endorsing categorical exemption for churches because “it is not up to legislatures (or to courts for that matter) to say what activities are sufficiently 'religious'” before deeming a rule satisfied); Medina, 877 F.3d at 1230-1231 (upholding ERISA's categorical church-plan exemption based on its “plausible” secular purpose of “avoid[ing] unnecessary entanglement with religion”). As these courts recognize, the Government may prophylactically exempt all religious entities without inquiring into whether, absent the exemption, each and every entity would in fact experience an entanglement problem. Such exemptions fall into the “play in the joints” between the Religion Clauses recognized in Walz and Amos. See also Alicea-Hernandez v. Catholic Bishop of Chicago, 320 F.3d 698, 703 (7th Cir. 2003) (eschewing “role to determine whether the Church had a secular or religious reason” for certain activity).

Indeed, inquiring into whether the minister is provided housing for the church's convenience, and into what church business is performed in the minister's home, would raise some of the same concerns that prompted the categorical ministerial exception adopted by the Supreme Court in Hosanna-Tabor and applied by this Court. Like that ministerial exception, which minimizes governmental interference “in the internal management of churches,” Schleicher, 518 F.3d at 474-475, § 107 minimizes governmental evaluation of church activities that take place in the parsonage, as well as inquiries regarding the church's convenience vis-a-vis its minister. Just as the ministerial exception does in the employment context, see Hosanna-Tabor, 565 U.S. at 188, § 107 accommodates the church-minister employment relationship in the tax context.

In any event, the convenience-of-the-employer requirement codified in §§ 119 and 280A(c)(1), if applied to ministers, could not avoid evaluating the church-minister relationship or drawing lines between the minister's religious and secular activities. It is the essential focus of that requirement to evaluate the purpose and nature of the employee's activities in the home and how they align with the employer's interests. This evaluation presents the specter of governmental attempts to separate to what extent the minister's duties and use of his home involves religious matters from those that are arguably secular. The “Supreme Court has been especially sensitive to an entanglement which requires the state to distinguish between and thus determine what is religious and what is secular.” Surinach v. Pesquera de Busquets, 604 F.2d 73, 78 (1st Cir. 1979). See Amos, 483 U.S. at 335-336. This Court likewise has endorsed measures that avoid this inquiry altogether. See Alicea-Hernandez, 320 F.3d at 703; Cohen, 8 F.3d at 490. Because it obviates such scrutiny, § 107(2) is salutary.

Some commentators who have analyzed § 107 in the broader context of the Code's other housing-related benefits have concluded that the categorical exemption is constitutional as a neutral provision that tailors a generally available tax benefit to avoid Establishment Clause concerns raised by the church-minister context. As Professor Bittker has explained, the “blanket exclusion” under § 107 “does not 'prefer' religion but merely reduces the administrative burden of applying [the Code's convenience-of-the-employer doctrine] to clergymen.” Bittker, above, at 1292 n.18; see Barham, above, at 420 (observing that § 107 is constitutional because it provides tax benefits that are “very similar” to housing-related benefits provided elsewhere in “the Code,” unlike the provision invalidated in Texas Monthly); Legg, above, at 271 (concluding that “the parsonage exclusions are constitutional when (necessarily) viewed as one element of a larger congressional plan to extend tax relief to recipients of employer-provided housing as a principal feature of their employment”); Zelinsky, Do Religious Tax Exemptions Entangle in Violation of the Establishment Clause? The Constitutionality of the Parsonage Allowance Exclusion, 33 Cardozo L. Rev. 1633, 1663 (2012) (concluding that “Section 107 is a constitutionally permissible means of managing the entanglement problems inherent in the income tax treatment of housing provided to” ministers).

In short, whether or not “all ministers” use “their home for church purposes” (App25) is beside the point. “History and common sense teach” that parsonages frequently are used for church purposes, and the provision of a blanket exclusion for cash parsonage allowances under § 107(2) ensures “government neutrality” by avoiding the Government's monitoring of a minister's use of his or her home. Cohen, 8 F.3d at 491. See, e.g., Williamson, 224 F.2d at 380; Immanuel Baptist Church, 497 P.2d at 760; Eveland, 182 N.W. at 319; A8-32, 40-43. The fact that the benefit may apply to ministers who perform the “'exact same jobs'” as secular employees in no way undermines the secular purpose and effect of § 107(2), as the District Court wrongly supposed (App26 (citation omitted)). As this Court has explained, the “legitimate purpose of minimizing governmental interference with the decision making processes of a religious organization can extend to seemingly secular activities of the organization. Amos makes precisely this point.” Cohen, 8 F.3d at 490; see Amos, 483 U.S. at 335-339 (upholding, against Establishment Clause challenge, law that exempted religious organization from anti-discrimination laws even as to employees engaged in secular rather than religious activities).

3. Texas Monthly is not controlling because it is distinguishable in crucial respects

In concluding that § 107(2) violates the Establishment Clause, the District Court relied almost solely on the Texas Monthly opinion. (App14-15.) Far from being “dispositive” (App16), Texas Monthly is readily distinguishable.

First, in contrast to the situation in Texas Monthly, where only religious publications could avoid the tax on periodical sales, here, all taxpayers are permitted to exclude, or deduct, the costs of housing provided by the employer for its convenience (§ 119) or by the employee for the employer's convenience (§§ 162 and 280A(c)(1)). Section 107 provides tax benefits similar to those provided in §§ 119 and 280A(c)(1), but tailors the benefit to avoid entanglement with the church-minister relationship. Section 107's “exclusions are similar to the property tax exemption at issue in Walz because the exclusions flow to ministers as a part of a larger congressional policy of not taxing qualifying employer-provided housing.” Legg, above, at 288. And “[u]nlike Texas Monthly's narrowly tailored religious publication exemption, the parsonage exclusions in § 107 are part of a larger scheme that more closely aligns with the employer discrimination exception at issue in Amos.” Id. at 290. When § 107(2) is examined as merely one component of a larger, integrated tax code, Congress has by no means provided a tax benefit to religious organizations and “no one else” (App1), as occurred in Texas Monthly and the other cases cited by the District Court (App15-16).

Second, unlike § 107(2), which has a long history and effect of eliminating discrimination against ministers and minimizing entanglement between church and state, the religion-specific exemption in Texas Monthly lacked any secular purpose or effect. An objective observer could only conclude that the government was endorsing the subject of the tax exemption — the promotion of a religious message. Here, in sharp contrast, by eliminating discrimination and entanglement problems, § 107(2) would be understood by an objective observer to “alleviate a special burden on religious exercise.” (App2.)

Finally, § 107(2) does not require the Government to determine whether “some message or activity is consistent with 'the teaching of the faith,'” as was true in Texas Monthly, 489 U.S. at 20. To the contrary, it precludes such questions from arising by eliminating inquiries into the extent to which the minister's home is used for religious rather than secular purposes.

CONCLUSION

Because the decades-old exclusion in § 107(2) is well justified under prevailing Establishment Clause jurisprudence, the Court should reject plaintiffs' challenge to its constitutionality and reverse the judgment of the District Court as it relates to § 107(2).

Respectfully submitted,

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

TRAVIS A. GREAVES
Deputy Assistant Attorney General

Judith A. Hagley

GILBERT S. ROTHENBERG (202) 514-3361
TERESA E. MCLAUGHLIN (202) 514-4342
JUDITH A. HAGLEY (202) 514-8126

Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Judith.A.Hagley@usdoj.gov Appellate.Taxcivil@usdoj.gov

Of Counsel:

SCOTT C. BLADER
United States Attorney

APRIL 2018

FOOTNOTES

1“Doc.” references are the documents in the original record, as numbered by the Clerk of the District Court. “A” and “App” references are to appellants' separately bound record appendix and the appendix bound with this brief, respectively. Unless otherwise indicated, all “§ ” references are to the Internal Revenue Code (26 U.S.C.), as currently in effect. Pertinent statutes are set forth in the Statutory Addendum.

2To meet the criteria of § 119, the taxpayer must establish that the housing is provided (i) on the employer's “business premises,” (ii) “for the convenience of the employer,” and (iii) “as a condition of [the employee's] employment” such that the employee is “required to accept the lodging in order to enable him properly to perform the duties of his employment.” Treas. Reg. § 1.119-1(b) (26 C.F.R.).

3Although § 107 “is phrased in Christian terms” to apply to a “minister of the gospel,” “Congress did not intend to exclude those persons who are the equivalent of 'ministers' in other religions.” Salkov v. Commissioner, 46 T.C. 190, 194 (1966) (holding that a Jewish cantor was a “minister of the gospel”). The Commissioner interprets “religion” broadly to include “beliefs (for example, Taoism, Buddhism, and Secular Humanism) that do not posit the existence of a Supreme Being.” Internal Revenue Manual § 7.25.3.6.5(2) (Feb. 23, 1999). We use the term “church” in this brief to denote any religious organization.

4The IRS erroneously issued refunds to Barker and Gaylor for the year 2013. (App5-6, 12; Doc. 67 at 2 n.2.)

5The convenience-of-the-employer rationale for excluding housing furnished in kind was at first recognized only in Treasury rulings and regulations, but was ultimately codified by Congress in 1954 as § 119. See Kowalski, 434 U.S. 77.

6Prior to 1976, the costs associated with the business use of the taxpayer's residence were deductible on the same terms as any other “ordinary and necessary” business expense. E.g., Revenue Act of 1921, § 214(a)(1); § 162. In 1976, however, Congress enacted § 280A, which must be satisfied, in addition to qualifying as an ordinary and necessary expense of the taxpayer's trade or business under § 162, in order to deduct such expenses. Section 280A(c)(1) requires the residence to be used “for the convenience of [the] employer,” just as the employer-furnished housing must be so used in order to qualify for the coordinate exclusion under § 119.

7Although Professor Bittker adverted only to § 119 at this point, the same logic would also apply to claims of deductions for the minister's use of the home for church business under §§ 162 and 280A(c)(1), which are likewise infused with the employer's convenience and business exigency requirements.

8Questioning the relevance of § 280A(c)(1) to this inquiry, the District Court noted that the provision “did not even exist when Congress enacted § 107(2)” in 1954. (App35.) That observation, however, misses the mark. Although § 280A was enacted as a reform measure in 1976 to impose certain additional restrictions on the deduction of trade or business expenses relating to the home, such tax benefits had been available long before § 280A was enacted under § 162 and its predecessor provisions. See, above, n.6.

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    Annie L. Gaylor et al. v. Steven T. Mnuchin et al.
  • Court
    United States Court of Appeals for the Seventh Circuit
  • Docket
    No. 18-1277
    No. 18-1280
  • Institutional Authors
    United States Department of Justice
  • Cross-Reference

    Appealing Gaylor v. Mnuchin, No. 3:16-cv-00215 (W.D. Wis. 2017).

  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2018-17184
  • Tax Analysts Electronic Citation
    2018 TNT 78-35
    2018 EOR 5-65
  • Magazine Citation
    The Exempt Organization Tax Review, May 2018, p. 371
    81 Exempt Org. Tax Rev. 371 (2018)
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