The Western District of Wisconsin recently issued a decision that makes the parsonage exemption unconstitutional as a violation of the Establishment Clause of the US Constitution.
This ruling is controversial and hotly opposed by many. 
The parsonage exemption is found at IRC Section 107, and allows a “minister of the gospel” to exclude 1) the rental value of a home furnished to him as part of his compensation, or 2) the rental allowance paid to him as compensation to the extent used for housing and to the extent it does not exceed the fair rental valued of the home.
The Court’s problem with the parsonage exemption is: “… it violates the well-established principle under the First Amendment that ‘[a]bsent the most unusual circumstances, one’s religion ought not affect one’s legal rights or duties or benefits.’”
Here the Court thinks that ministers have preferential treatment over others. The Court quoted the Texas Monthly v. Bullock case related to a sales tax preference: “Every tax exemption constitutes a subsidy that affects nonqualifying taxpayers, forcing them to become indirect and vicarious ‘donors.’”
Undoubtedly, this case will be appealed. It will be interesting to watch what the courts decide.
