The income tax exemption for parsonage allowances is again in doubt.
A federal court says the exclusion is unconstitutional because the exemption for clergy housing allowances is akin to support of religion by the federal government, since only members of the clergy are able to get the tax break (Gaylor, D.C., Wis.).
The decision will be appealed by several churches that intervened in the case.
This isn’t the first time this exclusion has been challenged. A related lawsuit was filed seven years ago. In that litigation, the same federal district court ruled that the exclusion was unconstitutional, but an appeals court later tossed the case on procedural grounds. The plaintiffs fixed those issues and went back to court.
The ruling doesn’t affect another tax break for members of the clergy: The fair rental value of a residence furnished as part of their pay package isn’t taxable.