Federal district court - Parsonage allowance violates Establishment Clause 

November 26: A U.S. federal district court held that the parsonage allowance under section 107(2) of the Internal Revenue Code violates the Establishment Clause of the U.S. Constitution. Freedom From Religion Foundation, Inc. v. Lew, 11-cv-626-bbc (W.D. Wis. November 11, 2013).

Read the decision [PDF 242 KB]


Section 107(2) (the “parsonage allowance” provision) generally excludes from gross income, in the case of a “minister of the gospel,” the rental allowance paid to that person as part of that person’s compensation, to the extent used to rent or provide a home.

The First Amendment to the U.S. Constitution provides, in relevant part, that “Congress shall make no law respecting an establishment of religion” (i.e., the “Establishment Clause”).

Court’s decision

A federal district court in Wisconsin found that section 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.

The court also found that the plaintiffs had standing to challenge section 107(2) because:

  • The statute denied them an exemption that others receive
  • The injury was “fairly traceable” to the conduct of defendants (i.e., the Treasury Secretary and IRS Commissioner who are responsible for implementing the tax code)
  • The injury was redressable by a declaration that section 107(2) is unconstitutional and an order enjoining its enforcement

For more information, contact:

Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

+1 (202) 533-3084

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