On September 13, 2011, the Freedom from Religion Foundation ("FFRF") and three of its members filed a lawsuit against the United States of America, the Secretary of the Treasury, and the Commissioner of the Internal Revenue Service. Plaintiffs brought suit in the United States District Court for the Western District of Wisconsin under 28 U.S.C. § 2201 and the Administrative Procedure Act, 5 U.S.C. § 702, seeking declaratory and injunctive relief. Plaintiffs challenged the constitutionality of 26 U.S.C. § 107, which provides a tax exemption for certain housing expenses of "ministers of the gospel" (the "parsonage exception").
Specifically, plaintiffs claimed that, both on its face and as administered by the IRS and the Treasury, the parsonage exception violated the Establishment Clause of the First Amendment to the U.S. Constitution by providing preferential tax benefits conditioned on religious affiliation. Further, the individual plaintiffs claimed that this discriminatory treatment on the basis of religious criteria violated their equal protection rights under the Due Process Clause.
FFRF is a non-profit membership organization that advocates for the separation of church and state. The three individual plaintiffs each received a portion of their salary from FFRF in the form of a housing allowance, but, as they were not practicing religious clergy, they did not qualify for the parsonage exception. None of the plaintiffs claimed the parsonage exception on their tax returns or filed a claim for refund after payment.
On December 23, 2011, defendants filed a Motion to Dismiss on the basis that the District Court lacked jurisdiction. Defendants claimed that plaintiffs lacked standing because they had not alleged a direct, personal injury to themselves as a result of enforcement of the parsonage exception. Plaintiffs countered that they had been injured, because the statute did not permit them to claim the housing expense exemption. Defendants also claimed that the District Court lacked jurisdiction because plaintiffs did not allege that the United States had waived its sovereign immunity from suit.
Plaintiffs filed an amended complaint on January 13, 2012. Defendants moved to dismiss the amended complaint on February 24, 2012 on largely the same grounds.
On June 28, 2012, the District Court (Judge Barbara B. Crabb) ordered plaintiffs to show cause for why the case should not be dismissed on sovereign immunity grounds. Judge Crabb noted that the Administrative Procedure Act provides a general waiver of sovereign immunity where an individual seeks review of agency action, but that plaintiffs had not identified an agency action, only the act of Congress.
Plaintiffs responded on July 16, 2012 and moved to amend their complaint. Judge Crabb granted plaintiffs' Motion to Amend and denied defendants' Motion to Dismiss on August 29, 2012. With regard to the issue of sovereign immunity, Judge Crabb found that any failure by plaintiffs to comply with the Administrative Procedure Act could be resolved by amending the case caption. The case caption was amended to name as defendants Timothy Geithner (Secretary of the Department of the Treasury) and Douglas Shulman (Commissioner of the Internal Revenue Service) in their official capacities, as they headed the agencies responsible for administering the parsonage exception. With regard to standing, plaintiffs identified their injury as unequal treatment due to the fact that "ministers of the gospel" could receive the parsonage tax exemption but plaintiffs could not. Judge Crabb held that plaintiffs had standing because it was clear from the face of the statute that plaintiffs were not entitled to the parsonage exemption, and their standing was not contingent on making a futile claim to the IRS.
On June 28, 2013, defendants filed a Motion for Summary Judgment, which Judge Crabb granted in part and denied in part on November 22, 2013. Judge Crabb granted the motion with respect to plaintiffs' initial challenge to § 107(1), a section of the parsonage exception which applies to in-kind housing provided to a minister; the plaintiffs conceded they did not have standing to bring this claim. Judge Crabb denied the motion as to plaintiffs' challenge to § 107(2), a section of the parsonage exception which applies to rental allowances paid to ministers. On its own motion, the District Court then granted summary judgment to plaintiffs as to §107(2). First, Judge Crabb found that plaintiffs had standing to sue because it was clear from the face of the statute that they were excluded from an exemption granted to others based on religious affiliation. Second, Judge Crabb held that § 107(2) violates the Establishment Clause because the exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise. Judge Crabb enjoined defendants from enforcing § 107(2), to take effect at the conclusion of any appeals.
Defendants filed a notice of appeal on January 24, 2014. The case was argued on September 9, 2014 and the United States Court of Appeals for the Seventh Circuit decided the case on November 13, 2014 (2014 WL 5861632). The Court of Appeals held that plaintiffs did not have standing to challenge § 107(2). The Court of Appeals found that plaintiffs had not been injured because they were never denied a benefit conditioned on religious affiliation; since they never asked for the parsonage exception, they were never denied it. The Court of Appeals vacated the District Court's judgment and remanded with instructions to dismiss for want of jurisdiction.Samantha Kirby - 11/18/2014