Atheists and Agnostics Lack Standing to Challenge the Parsonage Allowance
November 2014Atheists and Agnostics Lack Standing to Challenge the Parsonage Allowance
The Court of Appeals for the Seventh Circuit ruled on November 13, 2014 that the Freedom from Religion Foundation (the “Foundation”) and its two co-presidents lack standing to challenge the constitutionality of the “parsonage allowance” of section 107,which provides a tax benefit to “ministers of the gospel” by excluding certain housing-related compensation from gross income. The case is significant because it illustrates the hurdles that taxpayers must be overcome in order to challenge the constitutionality of a federal tax statute. The decision also shows the plaintiffs a way to overcome the standing issue, so a court very likely will eventually have to address the constitutionality of the allowance.
The parsonage allowance
Section 107 excludes from the gross income of “a minister of the gospel” (i) the rental value of a home furnished to him as part of his compensation or (ii) the rental allowance paid to him as part of his compensation, subject to certain limitations. The IRS and the courts have interpreted the term “minister of the gospel” to include rabbis and cantors as well as un-ordained but commissioned or licensed members of a religious denomination who perform substantially all of the religious functions within the practice of the denomination.
The Establishment Clause
The First Amendment to the U.S. Constitution states in part that “Congress shall make no law respecting an establishment of religion . . .” This provision is known as the “Establishment Clause” and its contours have been developed by the Supreme Court in series of cases. Thus, the Court has decided that an exemption from property taxes provided by New York State to certain religious and charitable organizations did not violate the Establishment Clause. However, a Texas sales tax exemption limited to religious publications did violate the clause.
The doctrine of standing
The jurisdiction of the U.S. federal courts is limited by the U.S. Constitution to “cases and controversies.” In order to bring a case to court, a plaintiff must show he has “standing” to bring the case, i.e., there must be a showing of a real case or controversy. When a plaintiff lacks standing, his complaint will not be heard by a court. The doctrine of standing has been developed by the Supreme Courts in a series of cases. The Supreme Court has said that a plaintiff has standing when three conditions are satisfied:
First, the plaintiff must have suffered an "injury in fact" -- an invasion of a legally-protected interest which is (a) concrete and particularized [citations omitted] and (b) "actual or imminent, not ‘conjectural' or ‘hypothetical,'" [citations omitted]. Second, there must be a causal connection between the injury and the conduct complained of -- the injury has to be fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court. [Citations omitted] Third, it must be "likely," as opposed to merely "speculative," that the injury will be "redressed by a favorable decision."
Facts of the Case
The Foundation is an organization of atheists and agnostics. The Foundation’s website states that it “works as an umbrella for those who are free from religion and are committed to the cherished principle of separation of state and church.” The two individual plaintiffs were co-presidents of the Foundation who received a portion of their compensation in the form of a housing allowance. These individuals included the full amount of their compensation (including the housing allowance) on their U.S. federal income tax returns. They did not claim the exemption allowed by section 107.
The Reasoning of the Court
The opinion of the Seventh Circuit discusses in detail the requirements for showing “injury in fact” in the context of the Establishment Clause and thus establish standing. The court discusses three means of establishing standing. First, a requirement to act or view a religious symbol may establishing standing. For example, being required to recite a prayer in school or view a religious symbol may be sufficiently harmful to establish standing. The court said that the plaintiffs could not rely on this means of establishing standing as section 107 does not require the plaintiffs to see or do anything.
Second, although mere status as a taxpayer may not establish standing, a plaintiff may challenge particular government appropriations that could violate the Establishment Clause. However, a taxpayer lacks standing to challenge mere “tax expenditures” included in the Internal Revenue Code. Section 107 is a tax expenditure and not an “appropriation”. Thus, the plaintiffs could not rely on this means of establishing standing.
Finally, a taxpayer may establish standing by showing that he has incurred a cost or been denied a benefit on account of his religion. In this case, the plaintiffs argued they were denied the benefits of section 107(2) because they were atheists or agnostics.
The Seventh Circuit found that the plaintiffs also lacked standing under this third test and dismissed their case. For the court, it was not enough that section 107 did not extend to atheists and agnostics. In order for the plaintiffs to have standing, they would have had to file a tax return claiming the benefits of section 107 and have been denied the benefit by the IRS. The court states:
In other words, the mere fact that the tax code conditions the availability of a tax exemption on religious affiliation does not give a plaintiff standing to challenge that provision of the code. A plaintiff cannot establish standing to challenge such a provision without having personally claimed and been denied the exemption.
The plaintiffs now have clear directions as to how to establish standing. As the Foundation’s goal is to promote the separation of church and state, in time the courts will very likely have to consider the constitutionality of section 107. In the author’s view, a court could very well find that section 107 violates the Establishment Clause by relying on the reasoning of the Supreme Court in Texas Monthly. The Hartford Institute for Religious Research estimates are that there are approximately 350,000 religious congregations in the United States. Thus, if section 107 were struck down, many would be affected and there would be pressure on the Congress to craft a similar provision that did not violate the Establishment Clause.
 Freedom from Religion Foundation, Inc. et al. v. Lew, 7th Cir., No. 14-01152 (Nov. 13 2014). Walz v. Tax Commissioner of New York City, 397 U.S. 664 (1970). Texas Monthly, Inc. v. Bob Bullock, 489 U.S. 1 (1989). U.S. Constitution, Article III, section 2 provides:
The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority;--to all cases affecting ambassadors, other public ministers and consuls;--to all cases of admiralty and maritime jurisdiction;--to controversies to which the United States shall be a party;--to controversies between two or more states;--between a state and citizens of another state;--between citizens of different states;--between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects [emphasis added]. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560,61 (1992).KEYWORD: Standing
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