Gaylor v. Mnuchin
| Decision Date | 15 March 2019 |
| Docket Number | Nos. 18-1277 & 18-1280,s. 18-1277 & 18-1280 |
| Parties | Annie Laurie GAYLOR, et al., Plaintiffs-Appellees, v. Steven T. MNUCHIN, et al., Defendants-Appellants, and Edward Peecher, et al., Intervening Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
919 F.3d 420
Annie Laurie GAYLOR, et al., Plaintiffs-Appellees,
v.
Steven T. MNUCHIN, et al., Defendants-Appellants,
and
Edward Peecher, et al., Intervening Defendants-Appellants.
Nos. 18-1277 & 18-1280
United States Court of Appeals, Seventh Circuit.
Argued October 24, 2018
Decided March 15, 2019
Richard L. Bolton, Attorney, BOARDMAN & CLARK LLP, Madison, WI, for Plaintiffs-Appellees.
Judith A. Hagley, Teresa E. McLaughlin, Attorneys, DEPARTMENT OF JUSTICE, Tax Division, Appellate Section, Washington, DC, Gilbert Steven Rothenberg, Attorney, DEPARTMENT OF JUSTICE, Office of the Attorney General, Washington, DC, Jesse Panuccio, Attorney, DEPARTMENT OF JUSTICE, Office of the Solicitor General, Washington, DC, for Defendant STEVEN T. MNUCHIN, Secretary of the United States Department of Treasury.
Judith A. Hagley, Attorney, DEPARTMENT OF JUSTICE, Tax Division, Appellate Section, Washington, DC, for Defendants DAVID J. KAUTTER, Acting Commissioner of the Internal Revenue Service and UNITED STATES OF AMERICA.
Luke William Goodrich, Joseph Charles Davis, Attorneys, BECKET FUND FOR RELIGIOUS LIBERTY, Washington, DC, for Intervenors-Appellants EDWARD PEECHER, Bishop, and PATRICK MALONE, Father.
Luke William Goodrich, Daniel Ortner, Joseph Charles Davis, Attorneys, BECKET FUND FOR RELIGIOUS LIBERTY, Washington, DC, for Intervenors-Appellants CHICAGO EMBASSY CHURCH, HOLY CROSS CHURCH and DIOCESE OF CHICAGO AND MID-AMERICA OF THE RUSSIAN ORTHODOX CHURCH OUTSIDE OF RUSSIA.
John Allen Eidsmoe, Attorney, FOUNDATION FOR MORAL LAW, INC., Montgomery, AL, for Amicus Curiae FOUNDATION FOR MORAL LAW INCORPORATED.
Nathan Lewin, Attorney, LEWIN & LEWIN, Washington, DC, for Amicus Curiae NATIONAL JEWISH COMMISSION ON LAW AND PUBLIC AFFAIRS.
Laurence Arthur Hansen, Attorney, LOCKE LORD LLP, Chicago, IL, for Amicus Curiae CHURCH ALLIANCE, ET AL.
Luke N. Berg, Attorney, OFFICE OF THE SOLICITOR GENERAL, Wisconsin Department of Justice, Madison, WI, for Amicus Curiae STATE OF WISCONSIN.
Kimberlee Wood Colby, Attorney, CENTER FOR LAW & RELIGIOUS FREEDOM, Springfield, VA, for Amicus Curiae EVANGELICAL COUNCIL FOR FINANCIAL ACCOUNTABILITY.
Kelly J. Shackelford, Esq., Attorney, FIRST LIBERTY INSTITUTE, Plano, TX, for Amicus Curiae MEMBERS OF CONGRESS.
Alexander James Egbert, Attorney, STEPTOE & JOHNSON, Phoenix, AZ, for Amicus Curiae TAX LAW PROFESSORS.
Erik William Stanley, Attorney, ALLIANCE DEFENDING FREEDOM, Scottsdale, AZ, for Amici Curiae ALLIANCE DEFENDING FREEDOM and PACIFIC JUSTICE INSTITUTE, CONGRESSIONAL PRAYER CAUCUS FOUNDATION, NATIONAL LEGAL FOUNDATION, FORCEY BIBLE CHURCH AND INTERNATIONAL CONFERENCE OF EVANGELICAL CHAPLIN ENDORSERS.
Adam Chodorow, Attorney, Phoenix, AZ, for Amicus Curiae TAX LAW PROFESSORS.
Before Bauer, Manion, and Brennan, Circuit Judges.
Brennan, Circuit Judge.
Since the Founders crafted the Religion Clauses of the First Amendment, courts have grappled with the "play in the joints" between them. Walz v. Tax Comm. of City of N.Y. , 397 U.S. 664, 669, 90 S.Ct. 1409, 25 L.Ed.2d 697 (1970). This case calls us to do so once more. Freedom From Religion Foundation ("FFRF") claims that a longstanding tax code exemption for religious housing, 26 U.S.C. § 107(2) of the Internal Revenue Code, violates the Establishment Clause. The district court agreed. The U.S. Treasury Department and several intervening religious organizations ask us to reinstate the exemption, asserting that the survival of many congregations hangs in the balance. We must decide whether excluding housing allowances from ministers’ taxable income is a law "respecting an establishment of religion" in violation of the First Amendment.
I.
A. History of § 107(2)
The facts before us are not in dispute. The Sixteenth Amendment was ratified in 1913, authorizing Congress to levy an income tax. Congress imposed a federal income tax that same year and has levied one in various forms since. As a result, Congress and the Treasury Department needed to define taxable "income." A rule defining income that survives today in the Internal Revenue Code is the "convenience-of-the-employer" doctrine. Under that doctrine, housing provided to employees for the convenience of their employer is exempt from taxable income. Early examples
of exclusions under the doctrine include housing provided to sailors living aboard ships, workers living in camps, and hospital employees. But the convenience-of-the-employer doctrine was not made available to ministers.1 In 1921, the Treasury Department announced ministers would be taxed on the fair rental value of parsonages provided as living quarters. O.D. 862, 4 C.B. 85 (1921).
Congress reacted quickly and enacted a statute to exclude church-provided parsonages from the taxable income of ministers. The Treasury Department interpreted this statute to apply only to housing provided in-kind; cash housing allowances were included in income. I.T. 1694, C.B. II-1, at 79 (1923). This continued for decades until in the 1950s several ministers successfully challenged the limitation to in-kind housing.2 Congress then enacted 26 U.S.C. § 107, which provides:
In the case of a minister of the gospel, gross income does not include—
(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home ...
Section 107(1) reauthorized the in-kind parsonage exemption in place since the 1920s. Section 107(2) authorized the IRS to also exempt cash allowances from ministers’ taxable income.3
B. District Court Proceedings
FFRF describes itself as a "nonprophet nonprofit" organization that "[t]akes legal action challenging entanglement of religion and government, government endorsement or promotion of religion."What Does the Foundation Do? , FREEDOM FROM RELIGION FOUNDATION , https://ffrf.org/faq/item/15001-what-does-the-foundation-do (last visited March 10, 2019). Seeking to challenge both § 107(1) and § 107(2), FFRF paid its co-presidents Annie Gaylor and Dan Barker a portion of their salaries in the form of a housing allowance. FFRF also paid this housing allowance to a former president of the organization, Anne Nicol Gaylor ("Nicol Gaylor").4 FFRF, Gaylor, Barker, and Nicol Gaylor, none of whom meet the IRS’s definition of "minister," then sued the Treasury Department, claiming § 107 violates the First Amendment because it conditions a tax benefit on religious affiliation. We dismissed this challenge for lack of standing because FFRF and its employees never applied for § 107(1) or § 107(2) exemptions, so they were never denied them. Freedom From Religion Foundation, Inc. v. Lew , 773 F.3d 815, 825 (7th Cir. 2014) (" Lew ").
In response, Gaylor and Barker filed amended tax returns for 2012 and 2013 claiming refunds for their housing allowances
under § 107(2) ; Nicol Gaylor did the same for 2013. The IRS erroneously issued refunds to Gaylor and Barker for 2013 but made no decisions on plaintiffs’ other claims. After more than six months without IRS action on plaintiffs’ claims, FFRF and its employees brought this suit. The IRS then denied the 2012 refund claims because none of the claimants were ministers.
The Treasury Department moved to dismiss FFRF’s § 107(1) challenge for lack of subject matter jurisdiction. The district court granted the motion for the same reasons we articulated in Lew : FFRF’s employees never claimed a § 107(1) exemption. FFRF does not appeal that ruling. Later, the district court permitted several pastors who receive housing allowances and their associated religious organizations to intervene to defend § 107(2).5
The Treasury Department and intervenors moved for summary judgment. The district court denied their motions and instead granted summary judgment to FFRF and its employees. The court held that FFRF and its employees had standing to challenge § 107(2), and that that statute violates the Establishment Clause of the First Amendment. Gaylor v. Mnuchin , 278 F.Supp.3d 1081, 1104 (W.D. Wis. 2017). The court held that § 107(2) violated the secular purpose prong of the test set forth in Lemon v. Kurtzman , 403 U.S. 602, 91 S.Ct. 2105, 29 L.Ed.2d 745 (1971), and ruled that the statute’s true purpose was to "provide aid to a group of religious persons." Gaylor , 278 F.Supp.3d at 1099. The court rejected the argument that § 107(2) avoids excessive government entanglement with religion, because in the court’s view "concerns about entanglement [do not] justify preferential treatment for religious persons." Id. The Treasury Department and the intervenors appeal.
II.
Neither the Treasury Department nor the intervenors dispute the district court’s ruling that FFRF has standing to challenge § 107(2). Nevertheless, even if the issue has not been raised, if there is no Article III standing our court must dismiss the suit. Diedrich v. Ocwen Loan...
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