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Court strikes clergy's tax-free housing in suit affecting nation

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By The Associated Press
Saturday, Nov. 23, 2013, 7:24 p.m.

MADISON, Wis. — A federal judge has struck down a law that gives clergy tax-free housing allowances in a decision that could have far-reaching financial ramifications for pastors across the nation.

In her decision Friday, U.S. District Judge Barbara Crabb in Wisconsin wrote that 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 Wisconsin State Journal reported.

The Madison-based Freedom From Religion Foundation filed the lawsuit against Treasury Secretary Jacob Lew and acting Internal Revenue Service Commissioner Daniel Werfel. Treasury spokeswoman Victoria Esser and IRS spokesman Grant Williams referred questions on Saturday to the Department of Justice, which is representing Lew and Werfel.

Under the law, passed by Congress in 1954, ministers don't pay income taxes on compensation that is designated part of a housing allowance.

The Freedom From Religion Foundation says that allows a clergy member to use the untaxed income to purchase a home, and then, in a practice known as “double dipping,” deduct interest paid on the mortgage and property taxes.

“It's a really big deal,” said Annie Laurie Gaylor, co-president of the foundation. “A church currently could pay a minister $50,000 but designate $20,000 of it a housing allowance so that only $30,000 would be taxed as salary.”

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