The Parsonage Exemption

Abstract

The parsonage exemption allows “ministers of the gospel” to exclude the value of housing benefits from income, whether received in-kind or as a cash allowance. Critics argue that the provision violates the First Amendment’s Establishment Clause, while supporters contend that it does not single religion out for a cognizable benefit. Alternately, supporters claim that is a permissible accommodation for religion under the First Amendment’s Free Exercise Clause. This Article fills an important gap in the debate by offering a nuanced explanation of how the parsonage exemption and other housing provisions function within the tax code. Placing the exemption in its proper context makes clear that the parsonage exemption (1) operates as a unique subsidy for religious actors, (2) involves significantly more church-state entanglement than would its elimination; (3) violates core tax principles of horizontal and vertical equity; and (4) differs significantly from other exemptions for religious actors.