Argued
October 24, 2018
Appeals from the United States District Court for the Western
District of Wisconsin. No. 16-cv-215 - Barbara B. Crabb,
Judge.
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 (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-l, 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. Kurizman,
403 U.S. 602 (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
Servicing, LLC, 839 F.3d 583, 588 (7th Cir. 2016). We
evaluate standing to determine whether FFRF resolved the
deficiencies we noted in Lew.
To
establish Article III standing, plaintiffs must show they
have suffered "(1) a concrete and particularized
'injury in fact' (2) that is fairly traceable to the
challenged action of the defendant, and that is (3) likely to
be redressed by a favorable judicial decision."
Lew, 773 F.3d at 819 (citing Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61 (1992)). To challenge
the constitutionality of a tax provision, a plaintiff must
have "personally claimed and been denied the
exemption." Lew, 773 F.3d at 821.
An
essential element of "injury in fact" is that the
injury be "actual and imminent, not conjectural or
hypothetical." Lujan, 504 U.S. at 561 (internal
quotations and citations omitted). When FFRF filed this
action, Gaylor and Barker had yet to be denied a refund from
their 2012 tax returns, and Nicol Gaylor had still, by the
time of the district court's decision, received no answer
to her 2013 refund request. Yet this does not necessarily
mean FFRF lacked standing. Under 26 U.S.C. § 6532(a)(1),
an income tax refund suit may be filed no earlier than six
months after the refund claim was submitted. A statute cannot
"'lower the threshold for standing below the minimum
requirements imposed by the Constitution,' but Congress
does have the power to 'enact statutes creating legal
rights, the invasion of which creates standing, even though
no injury would exist without the statute.'"
Sterk v. Redbox Automated Retail LLC, 770 F.3d 618,
623 (7th Cir. 2014) (quoting Kyles v. J.K. Guardian Sec.
Servs., Inc., 222 F.3d 289, 294 (7th Cir. 2000)).
The
district court concluded it was reasonable to interpret
§ 6532(a)(1) as rendering a claim "effectively
denied if the IRS does not render a decision within six
months." Gaylor, 278 F.Supp.3d at 1087. We
agree. As the district court noted, preventing a claimant
from filing a refund suit until the IRS responded to the
claim "would allow the IRS to deprive a party of
standing indefinitely by withholding a decision."
Id. at 1088. Several courts of appeals have cited
the six-month filing requirement approvingly. See, e.g.,
Fletcher v. United States, 452 Fed.Appx. 547, 552 (5th
Cir. 2011) ("[B]efore a taxpayer can bring a refund
suit, he or she must... wait until either the IRS denies the
claim or six months have expired since filing the
administrative claim."); Dumont v. United
States, 345 Fed.Appx. 586, 590 (Fed. Cir. 2009)
("[A] suit... cannot be instituted until either the IRS
denies the claim or six months pass without its taking
action."); Sorenson v. Sec'y of Treasury of
U.S., 752 F.2d 1433, 1438 (9th Cir. 1985),
aff'd, 475 U.S. 851 (1986) ("The former
section prohibits the courts from entertaining any refund
suit filed before the expiration of six months from the date
the claim for refund is filed ... ."); see also
Lew, 773 F.3d at 821 n.3 ("The plaintiffs could
have ... paid income tax on their housing allowance, claimed
refunds from the IRS, and then sued if the IRS rejected
or failed to act upon their claims.") (emphasis
added).
Gaylor,
Barker, and Nicol Gaylor have properly alleged a
"concrete, dollars-and-cents injury." Lew,
773 F.3d at 821. "[T]hey have incurred a cost or been
denied a benefit on account of their religion [or lack
thereof]," Arizona Christian Sch. Tuition Org. v.
Winn, 536 U.S. 125, 130 (2011), which confers Article
III standing. Because its members have standing and the
contested issue is germane to its organizational purpose,
FFRF has organizational standing to sue as well. See
Sierra Club v. United States E.P.A., 774 F.3d 383,
388-89 (7th Cir. 2014) ("'An organization has
standing to sue if (1) at least one of its members would
otherwise have standing; (2) the interests at stake in the
litigation are germane to the organization's purpose; and
(3) neither the claim asserted nor the relief requested
requires an individual member's participation in the
lawsuit."') (quoting Sierra Club v. Franklin
Cty. Power of III. LLC, 546 F.3d 918, 924 (7th Cir.
2008)).
III.
This
case comes to us after a grant of summary judgment, so we
assess the parties' claims de novo. Freedom from
Religion Found., Inc. v. Concord Cmty. Sch., 885 ...