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Valued Clients,

As some of you may know the Internal Revenue Code 107(2) allowing church workers to deduct certain housing items against federal and state income taxes was challenged by the Freedom From Religion Foundation and ruled unconstitutional in the fall of 2017 by the Seventh Circuit Court.

An appeal was filed in early 2018 and oral arguments were completed in the fall.

On March 15th of 2019 the United States Court of Appeals for the Seventh Circuit, comprised of three judges, rendered its opinion. The full brief is attached. The summary opinion of the court was:

Freedom From Religion Foundation claims § 107(2) [the clergy housing allowance] renders unto God that which is Caesar’s. But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter. We conclude § 107(2) is constitutional. The judgment of the district court is REVERSED.

Housing allowance through code 107(2) continues to be allowable. We will wait to see if the FFRF appeals its case to the Supreme Court.

Clergy Housing Allowance Decision