SACRAMENTO The lawsuit in federal court challenging the tax exemption for pastors' housing allowance has been dropped.
The challenge to the clergy housing allowance tax exclusion was dismissed June 17, in the Federal District Court for the Eastern District of California in Sacramento.
The lawsuit was originally filed by the Freedom from Religion Foundation by Richard Bolton and Michael Newdow in October 2009 challenging Section 107 of the Internal Revenue Code.
Section 107 states that "In the case of a minister of the gospel," gross taxable income does not include the rental value of a home furnished as part of compensation or, notably, the housing allowance paid as part of compensation.
The plaintiffs dropped the case voluntarily due to legal standing. According to a U.S. Supreme Court decision in 2011 on the issue of standing, the plantiffs can challenge a statute only if they have been directly impacted. The plaintiffs were not directly impacted by Section 107 of the Internal Revenue Code the section that governs the housing allowance exclusion which means that they do not have the standing to challenge it.
Clergy have been allowed to deduct their housing allowance since the 1950s. For most churches, a housing allowance has taken the place of providing a home or parsonage to augment clergy's often-meager salaries.
"This is the most recent challenge to the minister's housing allowance exclusion," said O.S. Hawkins, president of GuideStone Financial Resources. "We remain committed to making known to Congress the importance of the minister's housing allowance and will continue to work with other church pension boards in Washington to keep this important tax benefit for ministers."
The minister's housing allowance is among the most important tax benefits available to ministers. Section 107 of the Internal Revenue Code allows "ministers of the gospel" to exclude some or all of their ministerial income as designated by their church or church-related employer as a housing allowance from income for federal income tax purposes.
Bolton, attorney for the plaintiffs, told the Modesto Bee that they anticipate refiling the lawsuit shortly after they make some changes.
While there are no further challenges to the housing allowance exclusion in process, Hawkins says his organization will remain vigilant.
BP news was used in this report.