Freedom From Religion Foundation: 7th Circuit Reminds That Standing Is Every Plaintiff's Cross to Bear

17 November 2014 Wisconsin Appellate Law Blog

There is something to be said for not paying your taxes. At least, that is one lesson that the plaintiffs may have learned from the Seventh Circuit’s opinion last Thursday in Freedom from Religion Foundation, Inc. v. Lew, No. 14-1152 (7th Cir. Nov. 13, 2014).

A Wisconsin group of agnostics and atheists, Freedom from Religion Foundation (FFRF), and its two co-presidents, filed suit challenging the constitutionality of the Internal Revenue Code’s “parsonage exemption” (located at 26 U.S.C. § 107), which exempts from gross income the rental allowance paid to (or rental value of church-owned housing provided to) a “minister of the gospel.” FFRF’s co-presidents receive a housing allowance from FFRF; but, they said, they have to include the amounts in their gross income. Since ministers do not, FFRF claimed a violation of the First Amendment. Judge Barbara Crabb of the Western District of Wisconsin agreed, holding the rental-allowance exemption an unconstitutional establishment of religion under the three-part test of Lemon v. Kurtzman, 403 U.S. 602 (1971).

In a unanimous opinion by Circuit Judge Joel Flaum, the Seventh Circuit found that the plaintiffs lack standing to sue and, therefore, vacated the district court’s decision.

As Article III of the Constitution has been interpreted, of course, if a plaintiff lacks standing there is no “case” or “controversy,” and can be no federal jurisdiction. To have standing, a plaintiff must have suffered a “concrete and particularized” injury in fact.  Simply being offended by the government’s supposed violation of the Establishment Clause could not give FFRF and its leaders standing, and taxpayers do not have standing to challenge tax credits or tax expenditures simply by virtue of being taxpayers. Instead, the plaintiffs claimed they had been denied a particular benefit – an exemption like the one ministers receive – causing them a “dollars-and-cents” injury (not just a philosophical or spiritual one).

The Seventh Circuit rejected this argument because FFRF’s co-presidents actually were never denied a benefit, having never asked for the exemption to be applied to them. Instead, they had paid income taxes on their housing-allowance pay and not asked for an exemption. Therefore, the IRS had no chance to give them the benefit (perhaps by a saving interpretation of the exemption’s language). And, as the court found, “[a] plaintiff cannot establish standing to challenge such a provision without having personally claimed and been denied the exemption.” If they had wanted to challenge the exemption, the plaintiffs should have either (1) excluded their allowance when reporting their income, to see if the IRS disallowed it, or (2) paid the taxes under protest and claimed refunds, to see if the IRS rejected it. Simply saying that one is “similarly situated” to those entitled to the benefit (here, ministers) and skipping the step of trying to secure the benefit is insufficient for Article III standing.

The district court had thought that requiring the plaintiffs to request the parsonage exemption would be a waste of time, and “unnecessary busy work,” since such a request would be futile. The Seventh Circuit said, “[E]ven if, practically speaking, the request has no chance of success,” the request and denial were necessary to establish standing. All plaintiffs (particularly in Establishment Clause cases) should believe one thing: If they do not take necessary steps to assure their standing, their lawsuit will be futile.

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