Case: Freedom from Religion Foundation v. Geithner

On October 16, 2009, the Freedom From Religion Foundation and several individuals filed a complaint in the Eastern District of California against Secretary of the Treasury Timothy Geithner, IRS Commissioner Douglas Shulman, and California Franchise Tax Board Executive Selvi Stanislaus for violating the Establishment Clause of the First Amendment of the U.S. Constitution. Plaintiffs sought a declaration under 28 U.S.C. § 2201 that 26 U.S.C. §§107 and 265(a)(6) violated the Establishment Clause by providing preferential tax benefits to ministers of the gospel.

Section 107 provides a tax exclusion for the rental value of a home furnished to a minister as part of his compensation or the rental allowance paid to him as part of his compensation. In order to qualify for this exclusion, the home or rental allowance must be provided as remuneration for services which are "ordinarily the duties of a minister of the gospel." Section 265(a)(6) allowed a minister of the gospel to claim deductions for residential mortgage interest and property taxes. Plaintiffs requested that the Court enjoin any allowance or grant of tax benefits for ministers of the gospel under §§107 and 265(a)(6). Plaintiffs also sought an injunction against the California Franchise Tax Board for sections 17131.6 and 17280(d)(2) of the California Revenue and Taxation Code, which provided similar tax benefits to ministers of the gospel.

On October 22, 2009, an individual named pastor and 100 unnamed ministers moved to intervene in the action. On December 2, 2009, the District Court (Judge William B. Shubb) denied the requests to intervene on grounds the movants' interests were adequately represented by the federal defendants, and that they failed to show independent grounds for jurisdiction. Freedom From Religion Foundation, Inc. v. Geithner, 262 F.R.D. 527 (2009).

The federal defendants and Selvi Stanislaus filed separate Motions to Dismiss on February 26, 2010. On May 21, 2010, Judge Shubb granted Stanislaus' motion to dismiss with respect to plaintiffs' claims under the California constitution and plaintiffs' claims challenging California Revenue and Taxation Code section 17280(d)(2), and denied the motion in all other respects. Judge Shubb further denied the federal defendants' motion to dismiss with respect to plaintiff's claim challenging Internal Revenue Code § 107 and granted the motion with respect to plaintiff's claim challenging Internal Revenue Code § 265(a)(6).

The Pastors appealed the denial of the Motion to Intervene to the 9th Circuit. On May 9, 2011, the 9th Circuit affirmed the District Court's denial of the motion for intervention as of right but vacated the denial of the motion for permissive intervention. The 9th Circuit explained that the District Court did not apply the correct legal rule; the Pastors were not required to make any further showing of independent jurisdictional grounds.

On May 26, 2011, the federal defendants filed a motion challenging plaintiffs' standing in light of Arizona Christian School Tuition Organization v. Winn, 131 S.Ct. 1436 (2011). On May 27, 2011, Selvi Stanislaus filed a motion for judgment on the pleadings on the same grounds. In Arizona Christian School Tuition Organization v. Winn, filed on April 4, 2011, the Supreme Court held that taxpayers lacked standing to bring an Establishment Clause claim on Arizona's tuition tax credit.

On June 17, 2011, the parties jointly submitted a Stipulation of Dismissal to the Court and the matter was dismissed without prejudice on June 20, 2011.