Timely Topics

A federal district court has ruled unconstitutional one of the most important tax benefits available to ministers: the minister's housing allowance. A summary of the case follows. The ruling threatens to have a dramatic effect on how churches compensate ministers. An estimated 44,000 ministers, priests, rabbis, imams and others use this allowance. The tax exemption permits them to exclude eligible expenses from income for federal income tax purposes, up to the fair rental value of the home when designated in advance as a housing allowance. Eligible expenses for homeowners include mortgage payments (principal and interest), property taxes and insurance, utilities, appliances and furniture (purchase or rental cost and repairs), and structural repairs and remodeling. Alternatively, eligible rental expenses include rent, furnishings, utilities and insurance. In aggregate, the after-tax benefit is worth an estimated $700 million per year. The average impact on ministers is disputed, but may be in the range of five to ten percent of their income. It is too soon to know whether the Obama administration will appeal the ruling. While keeping a close eye on this case, religious institutions should continue to designate housing allowances for ministerial employees for 2014. For related questions, please feel free to contact qualified counsel.

Court Strikes Ministerial Housing Allowance Exemption

In Freedom from Religion Foundation v. Lew, No. 11-cv-626-bbc, 2013 WL 6139723 (W.D. Wis. Nov. 22, 2013), the court ruled in violation of the Establishment Clause and enjoined at the conclusion of all appeals Internal Revenue Code Section 107(2), which excludes from gross income a minister's "rental allowance paid to him as part of his compensation." The court found that the plaintiffs, who are atheists, had standing to file a facial challenge to section 107(2) because they are excluded from the exemption as "ministers of the gospel" as not performing "sacerdotal" functions, conducting "worship," or acting as "spiritual" leaders under the authority of the "church." Relying primarily upon Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989), the court determined that a tax exemption granted solely to religious persons is unconstitutional.

The court ruled that the tax exemption lacks a secular purpose, results in preferential treatment for religious over secular messages and conveys a message of religious endorsement. The court rejected the defendants' argument that the exemption is merely an accommodation of religion on the grounds that the mere payment of a generally applicable tax does not qualify as a substantial burden on free exercise. "Defendants do not identify any reason why a requirement on ministers to pay taxes on a housing allowance is more burdensome for them than for the many millions of others who must pay taxes on income used for housing expenses." The court also rejected the theory that a mere tax exemption does not implicate the same constitutional concerns as a subsidy.

Last, the court was unimpressed with the defendants' argument that the exemption actually eliminates discrimination because it was intended to balance a different exemption (§119) benefiting ministers who live in parsonages and the "convenience of the employer doctrine" benefiting military members, seamen and others. The court ruled that assisting a subset of religious persons is not constitutional either.

Key Cases

Court of Appeals Enjoins Contraceptive Coverage Mandate

In Korte v. Sebelius, Nos. 12-3841, 13-1077, 2013 WL 5960692 (7th Cir. Nov. 8, 2013), the court of appeals reversed lower district courts and held that: (1) closely held for-profit corporations are "persons" who may assert claims under the Religious Freedom Restoration Act (RFRA); (2) the contraceptive coverage mandate in the Patient Protection and Affordable Care Act (ACA) substantially burdens their religious exercise; and (3) the government failed to adequately justify the burden. Judge Rovner dissented, arguing that the majority bestowed highly personal rights to religious exercise on entities without facility of thought, conscience or belief.

Plaintiff Korte & Luitjohan Contractors, Inc. is a construction company in Illinois with roughly 90 full-time employees. Cyril and Jane Korte discovered their insurance policy covers contraception and they wanted to investigate alternatives consistent with their Catholic faith but the contraceptive mandate precluded it. Co-plaintiff Grote Industries, Inc. has roughly 1,148 full-time employees including 464 in the United States and manufactures vehicle safety systems in Indiana. Consistent with the Catholic faith of the Grote family, its healthcare plan did not cover contraception until the mandate kicked in. The court of appeals ruled that both the corporations and their owners as shareholders with a direct, personal interest in the cause of action had standing to challenge the mandate, and that the Anti-Injunction Act does not preclude the lawsuit because their claim is not primarily to restrain collection of a tax but to seek relief from a regulatory mandate.

RFRA precludes the federal government from putting substantial burdens on "a person's exercise of religion." The government argued that for-profit corporations are not persons by analogy to Title VII and the Americans with Disabilities Act (ADA). The court disagreed on several grounds: (1) in the absence of a definition of "person" in RFRA, the Dictionary Act (which is the default act for the U.S. Code) defines a person to include a corporation; (2) even the government recognizes that some corporations have religious exercise rights (e.g., churches and integrated auxiliaries) and exempts them; (3) RFRA applies comprehensively to the U.S. Code, whereas Title VII and the ADA are particular legislative applications of the church autonomy doctrine to employment law; (4) RFRA codifies pre-Smith free exercise jurisprudence that extended religious exemptions to individuals engaged in profit-making activity; and (5) the U.S. Supreme Court has held that corporations may claim many constitutional rights including free speech rights.

The court ruled that the mandate imposes a substantial burden on the companies' religious exercise by imposing upon them ruinous fines unless they violate their religious conviction that they must not provide contraceptive coverage. The court criticized the government's argument that the burden on corporate exercise is too attenuated because it is up to the companies' employees to decide whether to use the insurance coverage. The court ruled that it was not up to civil authority to decide whether the indirectness of the burden resolves its moral incompatibility with Catholic doctrine: "The contraception mandate forces them to do what their religion tells them they must not do. That qualifies as a substantial burden on religious exercise, property understood."

Last, the court ruled that the government failed to shoulder the burden of demonstrating that the mandate "is the least restrictive means of furthering [a] compelling government interest." The court identified two public interests: public health and gender equality. The court ruled that by stating them so generally, "the government guarantees that the mandate will flunk the test." It was skeptical that these interests were akin to other recognized compelling interests, but even giving the government the benefit of the doubt, the millions exempt under the ACA make it impossible for the government to prove the mandate is the least restrictive means of achieving its public purposes. Moreover, there are many other ways to increase access to contraception without violating plaintiffs' convictions, according to the court.

District Court Rules Religious Organization Accommodation in ACA Inadequate

In Zubik v. Sebelius, Nos. 13cv1459, 13cv0303, 2013 WL 6118696 (W.D. Pa. Nov. 21, 2013), the court granted an injunction against the contraceptive coverage mandate in the ACA to the plaintiffs, not-for-profit Catholic organizations involved in good works (e.g., Catholic Charities). The plaintiffs argued that they could not qualify for the religious employer exception to the mandate due to a required self-certification. In their view, signing the self-certification form initiates and facilitates coverage (albeit without direct expense to them) for contraceptive products, services and counseling by their health insurer contrary to their religion. It was as if, the plaintiffs argued, they gave a knife to someone knowing he planned to kill another with it.

The government argued that "merely sign[ing] a piece of paper" could not amount to a "substantial burden" on religious exercise, but the court disagreed. "Although the 'accommodation' legally enables Plaintiffs to avoid directly paying for the portion of the health plan that provides contraceptive products ... [t]he court concludes that plaintiffs have a sincerely held belief that 'shifting responsibility' does not absolve or exonerate them from the moral turpitude created by the 'accommodation.'" Additional evidence of the substantial burden, according to the court, is that it would have the effect of dividing the Catholic Church against itself. Whereas houses of worship would qualify for total exemption without the self-certification, the plaintiffs with the very same religious beliefs and accountable to the same bishop could not.

The court ruled that the government's interests used to justify the infringement — the promotion of public health and assuring that women have equal access to healthcare services — are not of the highest order and cannot overbalance the plaintiff's legitimate claims to the free exercise of religion. In light of the many exemptions to the ACA, the court also concluded that the government failed to adduce evidence that establishes that it used the least restrictive means to meet the stated compelling government interests.

Court Affirms Dismissal of Professors' Lawsuit against Religious College

In Winbery v. Louisiana College, No. 13-339, 2013 WL 5926210 (La.App. 3d Cir. Nov. 6, 2013), the court affirmed the trial court's determination that it lacks subject matter jurisdiction over a lawsuit filed by former college professors against a Baptist college for defamation, retaliation and breach of contract due to the excessive entanglement with religion that it would require. The court agreed that a proper resolution could not be made without interpreting or choosing between competing religious principles or doctrines. However, the court also affirmed the trial court's determination that the ministerial exception doctrine does not apply to the lawsuit because the college is not a "church" and the plaintiffs are not "ministers."

Court Dismisses Intrachurch Presbyterian Dispute for Lack of Jurisdiction

In Seafler v. Smith, No. 13-0532, 2013 WL 6152963 (W.Va. Nov. 22, 2013), the court affirmed the dismissal of the petitioners' lawsuit to determine whether: (1) they are members of a Presbyterian church; (2) one of the petitioners is still a trustee of the church; and (3) the church is a member of the Presbyterian Church in America (PCA), because these "are unquestionably matters of religious doctrine and internal church operations over which the circuit court and this court have no jurisdiction." The petitioners also requested relief under West Virginia Code §35-1-11 to stop the respondents from conveying or encumbering the church's property, but the court ruled that this claim "would necessarily require an inquiry into subject matter that is solely within the province of the church," because only church "members" may bring the claim.

Statute Barring Sex Between Clergy and Parishioner Constitutional

In State v. Wenthe, No. A12-0263, 2013 WL 5928458 (Minn. Nov. 6, 2013), the court held that a statutory provision (Minn. Stat. §609.344, subd. 1(l)(i) (2012)) barring sexual conduct between a clergy member and a parishioner during the course of a single meeting in which the parishioner seeks or receives spiritual counsel does not facially violate the Establishment Clause, and ruled that it was not unconstitutional as applied to the defendant, resulting in his criminal conviction and sentence. The court found that the statute: (1) has a secular purpose; (2) does not interfere with the practice of any particular religious doctrine or only certain religions; and (3) does not single out clergy members because of their affiliation with a religious group, as opposed to recognizing the existence of a power imbalance between clergy members and their parishioners. The court also rejected the defendant's argument that the statute interferes with a civil right to have a sexual relationship with a friend on the grounds that the statute criminalizes exclusively the behavior of clergy members who use their position to enter into such a relationship with vulnerable persons. Last, the court found that the statute does not create an excessive entanglement with religion, because it applies neutral principles of law and regulates only secular aspects of the clergy-parishioner relationships. The court ruled that it was not improper to require courts to decide whether the advice given by a clergy member was of a religious or spiritual nature. With respect to the statute's application in this case, the court also ruled that the evidence used to convict the defendant was not based on religious doctrine.

Termination of Public School Teacher Affirmed for Refusing to Remove Religious Materials

In Freshwater v. Mt. Vernon City Sch. Dist. Bd. of Educ., No. 2012-0613, 2013 WL 6067987 (Oh. Nov. 19, 2013), the court affirmed termination of a public school teacher, recognized by his peers for outstanding instruction, for good and just cause not due to the teacher's disobedience of a school district's invalid order to remove his Bible from display on his desk, but from orders requiring removal of religious materials displayed by the teacher in the classroom for reasons other than the exercise of his religion. The court found that the teacher kept his personal Bible inconspicuously on his desk, the school district sought to regulate this conduct solely because it was religiously motivated, the regulation infringed the teacher's free exercise rights and the school district had no compelling reason for its actions under the Establishment Clause. In contrast, the court ruled that the teacher's refusal to remove other items from his classroom such as a poster of George W. Bush and Colin Powell praying was unrelated to the teacher's religious exercise. He added these items to his room to make a point and the refusal to remove them was blatant insubordination. Justice Pfeifer dissented with respect to this latter ruling. Justices O'Donnell, Pfeifer and Kennedy also dissented on the grounds this dispute was not about insubordination at all, but the teacher's treatment of evolution, creationism and intelligent design in the classroom. The majority recognized the debate, but declined to decide whether the teacher had acted lawfully in this respect.

Sikh's Authorization to Bear Kirpan Scrutinized

In Tagore v. United States, No. 12-20214, 2013 WL 6008901 (5th Cir. Nov. 13, 2013), the court ruled that the Internal Revenue Service did not engage in religious discrimination against a Sikh employee when it would not let the employee enter a federal building wearing a kirpan (a Sikh ceremonial sword). However, the court remanded the plaintiff's claim under the RFRA for analysis whether the burden on the plaintiff furthers a compelling governmental interest. The court found that the IRS is not authorized to determine the security requirements of federal buildings and that, even if it was, Title VII requires the employer to bear no more than a de minimis cost to accommodate the plaintiff. But under RFRA, the government must do more than make a categorical or sweeping justification that the security of federal buildings requires the prohibition. The government must explain with particularity why applying the prohibition to the plaintiff, given his security clearance, frequency of visits, method of concealment and degree of attachment to the person's body, furthers a compelling governmental interest.

Religious Institutions in the News

The U.S. Supreme Court agreed to review two cases involving the contraceptive coverage mandate: Sebelius v. Hobby Lobby Stores, Inc. and Conestoga Wood Specialties v. Sebelius.
http://www.nytimes.com/2013/11/27/us/justices-take-companies-cases-challenging-contraception-rule.html?_r=0

http://www.washingtonpost.com/politics/supreme-court-to-review-contraceptive-coverage-mandate/2013/11/26/e9627f5a-56bc-11e3-8304-caf30787c0a9_story.html

The Employment Non-Discrimination Act (ENDA), extending workplace protection to gay, bisexual and transgender workers, passed the Senate.
http://www.washingtontimes.com/news/2013/nov/7/senate-passes-non-discrimination-bill/

http://www.washingtonpost.com/politics/senate-set-to-approve-gay-rights-bill/2013/11/07/05717e4a-47c1-11e3-a196-3544a03c2351_story.html

Pope Francis laid out a blueprint for his papacy in Evangelii Gaudium.
http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_en.html

http://www.huffingtonpost.com/2013/11/26/pope-francis-evangelii-gaudium_n_4342964.html

Topics:  Affordable Care Act, Clergy Members, Contraceptive Coverage Mandate, Contraceptives, Deductions, Exemptions, Healthcare, Hobby Lobby, Religion, Religious Institutions, RFRA

Published In: Civil Procedure Updates, Constitutional Law Updates, Education Updates, Health Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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