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Court protects ministers from $1B tax lawsuit Ruling rejects atheist group’s lawsuit, protects longstanding tax exemption for ministers

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Ryan Colby 202-349-7219

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WASHINGTON, D.C. – An appeals court today protected Pastor Chris Butler, a leader of a South Side Chicago congregation, and religious leaders across the country from nearly $1 billion per year in new taxes. In Gaylor v. Mnuchin, an atheist group sued the IRS to end the parsonage allowance, a federal tax provision that allows churches, mosques, and synagogues to provide faith leaders a tax-free housing allowance to help them live in the communities they serve (Learn more in this 3 min. video). The Chicago-based U.S. Court of Appeals for the Seventh Circuit unanimously rejected the atheists’ challenge, ruling that the tax exemption is constitutional.

In 2016 the atheist group Freedom From Religion Foundation (FFRF) sued the IRS, demanding that it end the parsonage allowance and begin imposing almost $1 billion in new taxes per year on churches nationwide. Pastor Chris of Chicago Embassy Church and several other religious leaders who rely on the parsonage allowance, represented by Becket, intervened in the case. In 2017, the district court ruled the parsonage allowance was unconstitutional. But Becket appealed to the Seventh Circuit, which today ruled that the parsonage allowance “is simply one of many per se rules” that “allow hundreds of thousands of employees (including ministers) to receive tax-exempt housing every year,” and that it is consistent with the nation’s “lengthy tradition of tax exemptions for religion, particularly for church-owned properties.”

“This ruling is a victory not just for my church but for the needy South Side Chicago community we serve – our youth, our single mothers, our homeless, our addicted, and our victims of gang violence,” said Pastor Chris Butler of the Chicago Embassy Church. “I am grateful that I can continue serving them and living side by side with them to make our neighborhood a safer, more peaceful place.”

Pastor Chris is the leader of a predominantly African-American congregation, and devotes his life to mentoring at-risk youth, decreasing neighborhood crime, and caring for the homeless in Chicago’s poorest neighborhoods. His church can’t afford to pay him a full salary, but it offers him a small housing allowance, so he can afford to live near his church and the community he serves. For over 60 years, federal law has recognized that housing allowances shouldn’t be taxed as income under the same tax principle that exempts housing allowances for hundreds of thousands of secular workers—including teachers, business leaders, military service members, and many more. This tax exemption also keeps the IRS from becoming entangled in religious matters.

“The tax code treats ministers the same as hundreds of thousands of nonreligious workers who receive tax-exempt housing for their jobs—that’s not special treatment, it’s equal treatment,” said Luke Goodrich, vice president and senior counsel at Becket. “The court rightly recognized that striking down the parsonage allowance would devastate small, low-income houses of worship in our neediest neighborhoods and would cause needless conflict between church and state.”

Becket represents Pastor Chris Butler and Bishop Edward Peecher of Chicago Embassy Church, Father Patrick Malone of Holy Cross Anglican Church, and the Diocese of Chicago and Mid-America of the Russian Orthodox Church Outside of Russia.