Seventh Circuit denies plaintiffs’ standing to challenge parsonage allowance

Group’s leaders did not claim the income exemption.

Finding the plaintiffs lacked standing, the Seventh Circuit vacated a district court’s holding that the Sec. 107(2) “parsonage” rental allowance income exclusion for ministers violates the Constitution and remanded the case with instructions to dismiss it for lack of jurisdiction.

Facts: Freedom From Religion Foundation Inc., which is a group composed of atheists and agnostics, and its two co-presidents, Annie Laurie Gaylor and Dan Barker, sued the IRS in district court, claiming that Sec. 107(2) violates the First Amendment because it conditions a tax benefit on religious affiliation. The organization paid Gaylor and Barker a housing allowance as part of their salaries, but neither of them sought to exclude it from income on which they paid taxes.

Issues: Sec. 107(2) provides that in the case of a “minister of the gospel,” gross income does not include a rental allowance paid as part of the taxpayer’s compensation, to the extent that the taxpayer uses it to rent or provide a home, including furnishings, appurtenances, and utilities. The Tax Court has interpreted “minister of the gospel” for this purpose as including “the equivalent of ‘ministers’ in other religions” (Salkov, 46 T.C. 190, 194 (1966)).

The Supreme Court has held that, to have standing, a plaintiff must show that he or she has suffered (or is imminently threatened with) (1) a concrete and particularized “injury in fact” (2) that is fairly traceable to the challenged action of the defendant and (3) that is likely to be redressed by a favorable judicial decision. In the district court, the plaintiffs argued that they had standing because they were injured by being denied a benefit (a tax exemption) that is conditioned on religious affiliation.

The IRS argued that the plaintiffs lacked standing because they had never attempted to claim the exemption and therefore they did not suffer an injury in fact. The district court held that since the individual plaintiffs could not plausibly qualify for the exemption, it would serve no legitimate purpose to require them to claim it and “wait for the inevitable denial of the claim.” The district court further found that since Gaylor and Barker belonged to Freedom From Religion and its purpose was related to the claims of the case, the organization had standing as well (Freedom From Religion Foundation, Inc., No. 11-cv-626-bbc (W.D. Wis. 11/21/13); see also “Tax Matters: District Court Rules ‘Parsonage Allowance’ Unconstitutional,” JofA, March 2014, page 64).

Holding: Without addressing the parsonage allowance’s constitutionality, the Seventh Circuit held that the plaintiffs could not show they had suffered a concrete and particularized injury in fact and so lacked standing to challenge it. It found that the plaintiffs had not been denied a benefit conditioned upon a religious affiliation because they never requested the benefit, and in the absence of a request for a benefit, there could not be a denial. The appeals court rejected the district court’s conclusion that the plaintiffs did not need to request the exemption to have standing, finding that this conclusion was not supported by Supreme Court precedent.

• Freedom From Religion Foundation, Inc., No. 14-1152 (7th Cir. 11/13/14)

By Paul Bonner, a JofA senior editor.