Back in 2014 the Seventh Circuit Court of Appeals sidestepped the question of whether the allowance of an exclusion for a housing allowance for a minister of the gospel under IRC §107(2) was barred by the U.S. Constitution. But the method the panel used to sidestep left an obvious route for the issue to come back—and now it has returned to the Courts.
Originally in the case of Freedom from Religion Foundation, Inc. v. Lew, 114 AFTR 2d, ¶2014-5425 issued in November of 2014 the panel found that the organization suing to bar ministers from receiving an exclusion from income for housing allowances did not show any harm to the organization. The panel noted that the organization had not attempted to receive a similar exclusion for its employees from the IRS. So, it was the organization that voluntarily treated the payments as taxable to its employees rather than the IRS denying that treatment.
At the time I had noted that the obvious next step was for the organization to ask for such treatment and then come back to Court if the IRS did not allow the claim. The case of Gaylor, et al v. Mnuchin, et al, W.D. Wisconsin, Case No. 3:16-cv-00215 brings the matter back to the courts. And, in fact, the case is back before the very trial judge that, in the original case, had found that IRC §107(2) violated the U.S. Constitution. Not surprisingly, since the Seventh Circuit never actually dealt with that question (disposing of the case on a standing issue), the judge came to the same conclusion this time.
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