A retired minister or rabbi who receives compensation for past services, such as withdrawals from an employer-sponsored retirement plan, may designate a portion of the compensation as a clergy housing allowance, and this amount is excluded from taxable income to the extent it is used for expenses directly related to providing a home.
The allowance cannot exceed the fair rental value of the home, furnishings, appurtenances, and utilities.
The Court reversed the decision, ruling that the plaintiff did not have standing; therefore the tax-free status remained unchanged.
[24][25] On March 15, 2019, the United States Court of Appeals for the Seventh Circuit ruled on the law exempting clergy housing allowances from income tax, saying that its effect was to "neither to endorse nor to inhibit religion".
[26] The Court of Appeals stated that while any sort of financial interaction between a religious entity and the government may be considered a degree of entanglement, but the Establishment Clause of the United States Constitution is violated only with excessive entanglement.