Among the many tax benefits that religious clergy get is that any housing allowance that they are given is exempt from taxes. But if they buy a house and then use that allowance to pay the mortgage they can then, like the rest of us, deduct that mortgage interest from any taxable income that they might have. This is a form of double dipping.
The Freedom From Religion Foundation (FFRF) sued that this was a benefit that was denied to the heads of non-religious non-profits like theirs. They did not really want the benefit themselves but felt that no one should get it. They won the case in the federal district court in 2013 but the verdict was overturned at the Appeals Court level in 2014 on the grounds that the heads of the FFRF did not have standing to sue since they had not actually applied to the IRS for the benefit and been denied. Thus they had not suffered any tangible harm. I wrote about this case back in 2014.
The benefit of the tax exemption to the clergy is enormous. The congressional Joint Committee on Taxation has reported that the exemption amounts to $700 million a year in lost revenue. Religion News Service calculated the allowance increases the take-home pay of some pastors by up to 10 percent. This is because churches benefit, since tax-free salaries lower their overhead. Christianity Today found that 84 percent of senior pastors receive a housing allowance of $20,000 to $38,000 in added (but not reported) compensation to their base salary.
“The manner in which our housing allowance has been used borders on clergy malpractice,” William Thornton, a Georgia pastor and blogger, told Forbes magazine in 2013. “A growing subset of ministers who are very highly paid and who live in multimillion dollar mansions are able to exclude hundreds of thousands of dollars from income taxation.”
Clergy are permitted to use the housing allowance not just for rent or mortgage, but for home improvements, including maintenance, home improvements and repairs, dishwashers, cable TV and phone fees, paint, towels, bedding, home décor, even personal computers and bank fees. They may be exempt from taxable income up to the fair market rental value of their home, particularly helping well-heeled pastors. The subsidy extends to churches, which can pay clergy less, as tax-free salaries go further.
The judge has not as yet implemented the order and it will likely be stayed pending the conclusion of the appeals process. You can be sure that all religious organizations will unite to fight this decision all the way to the Supreme Court. Religions love their tax exemptions more than anything else.