An atheist group has dropped its attempt to strip American pastors of their tax exemption for housing.

The Freedom from Religion Foundation will not appeal an appeals court decision that said the federal government is allowed to exempt priests, pastors, rabbis, and other religious instructors from paying taxes on the housing they receive, ending an eight-year legal battle. The suit threatened to cost clergymen $1 billion if successful, but Chicago's Seventh Circuit Court of Appeals rejected the foundation's argument that such a tax break violated the Constitution's establishment clause. The three judge panel, citing previous Supreme Court rulings, found that, "Providing a tax exemption does not ‘connote sponsorship, financial support, and active involvement of the [government] in religious activity.'"

"Its principal effect is neither to endorse nor to inhibit religion, and it does not cause excessive government entanglement," the court ruled unanimously in March.

The Freedom from Religion Foundation had until Thursday evening to appeal the suit to the Supreme Court, but allowed it to expire rather than challenge the ruling further. The foundation filed the suit after several officers attempted to have their own income exempted and argued they were discriminated against when they failed to qualify as a minister. Foundation co-president Annie Laurie Gaylor said in an email to the Washington Free Beacon that the foundation stands by the merits of the suit. She blamed the make-up of the Supreme Court following President Trump's appointments of Justices Neil Gorsuch and Brett Kavanaugh for the decision to not pursue the case further.

"We have full confidence in the legal merits of our challenge of the discriminatory pastoral housing allowance privileges," Gaylor said. "We did not, however, have confidence in the current Supreme Court."

The Appeals Court faulted the foundation for failing to provide historical evidence demonstrating that any tax break should be seen as a government endorsement of religion. State and local governments in the United States have been giving churches tax exemptions out of deference to their charitable missions, and the federal government began adopting such policies as early as 1802, according to the court.

"FFRF offers no evidence that provisions like § 107(2) were historically viewed as an establishment of religion," the ruling said. "The government and intervenors, and amici curiae supporting their position, have provided substantial evidence of a lengthy tradition of tax exemptions for religion."

Religious liberty groups were pleased to see the suit dropped. The Becket Fund for Religious Liberty, a pro-bono law firm that joined the case on behalf of several churches, said the suit threatened to impose a $1 billion burden on clergymen. It would have particularly harmed small churches in low-income neighborhoods. Pastor Chris Butler of the predominantly African-American Chicago Embassy Church, who was represented by Becket, called the end of the case "a victory for all houses of worship."

"This is a victory for all houses of worship that serve needy communities across the country," Pastor Butler said in a release. "I am grateful that my church can still be a home for South Side Chicago's at-risk youth, single mothers, unemployed, homeless, addicted, victims of gang violence and others on the streets."

Luke Goodrich, vice president and senior counsel at Becket, faulted the plaintiffs for ignoring the extensive carveouts in the tax code that benefit workers of all stripes and said it is misleading to claim only clergy enjoy special privileges granted by the IRS.

"The tax code has long exempted housing allowances for ministers under the same principle that it exempts housing for soldiers, diplomats, peace corps workers, prison wardens, nonprofit presidents, oil executives, school superintendents, teachers, nurses, fisherman, and many more," Goodrich said. "The court rightly recognized that providing this kind of equal treatment to churches is perfectly constitutional, and churches should be allowed to serve the neediest members of their communities without the tax man breathing down their necks."

Other religious liberty activists said they do not expect the fight to end with the Seventh Circuit. Terry Schilling, executive director of the American Principles Project, welcomed the conclusion of the suit, but said he expects atheist groups to continue chasing religion from the public square.

"Church tax exemptions, including for housing allowances, have a long history in this country, and the argument that these are somehow unconstitutional is absurd," Schilling said. "No doubt this will not stop the left from continuing to push the legal envelope in the future as they try to eradicate religion from the public square. But fortunately today, sanity has again prevailed."

Gaylor said the group feared that its appeal would have been rejected by the Supreme Court or, if it were accepted, "put the kibosh on future challenges." Gaylor, who led the suit, was "dismayed" to see it come to an end before reaching the High Court. She said she hopes to see a future attempt to bring an end to the exemption.

"We have (secular) faith that someday the Supreme Court composition will again favor the Establishment Clause and be willing to scrutinize this preferential code and declare it unconstitutional," she said. "By leaving this at the Seventh Circuit level, the Freedom From Religion Foundation is making it possible for another challenge to be taken in the future, and we hope to be part of that."