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The Tax Court held that although a pastor took a vow of poverty, payments for his well-being and living expenses made by his church on his behalf were included in his income. The court noted that poverty vows only exempt ministers from federal income tax liability where the minister remits money received from third parties to his church, not where the minister seeks to exclude payments received from the church itself. White v. Comm'r, T.C. Memo. 2016-168.

Background

Ronald White has been a pastor for over 30 years. In 1983, he established the World Evangelism Outreach Church (WEOC) in DeFuniak Springs, Florida. As WEOC's pastor, White ministered from the pulpit and at nursing homes, helped build churches on foreign soil, established a feeding program for children, and supported widows and orphanages.

In 2001, White recommended to WEOC's board of advisers that the church be restructured to include a corporation sole as an office of the church. The board of advisers unanimously agreed with the recommendation, and later that year a domestic nonprofit corporation sole of WEOC registered as "The Office of Presiding Head Apostle, of Ronald Wayne White" was created.

In November 2001, White signed a document entitled "Vow of Poverty" detailing that he agreed to divest his property and future income to WEOC and in turn WEOC would provide for his physical, financial, and personal needs. WEOC then established an apostolic bank account, and granted White signatory authority over the account for his use.

White did not file an income tax return for 2006, 2007, 2008, and 2009. The IRS prepared a substitute for return for each year and determined that White had unreported income for payments various entities made directly to him or on his behalf.

Analysis

Before the Tax Court, White acknowledged that for the years at issue WEOC or its related entities made payments on his behalf for his personal expenses, but argued that his vow of poverty insulated him from being taxed on the compensation he received for his services to WEOC.

It appeared to the court that White was relying on the IRS's original official public pronouncement regarding the vow of poverty, O.D. 119, which was published in 1919. In part, the court said, O.D. 119 stated that "A clergyman is not liable for any income tax on the amount received by him during the year from the parish of which he is in charge, provided that he turns over to the religious order of which he is a member, all the money received in excess of his actual living expenses, on account of the vow of poverty which he has taken." The court observed that Rev. Rul. 77-290 had superseded O.D. 119 and provides that income earned by a member of a religious order on account of services performed directly for the order or for the church with which the order is affiliated and remitted back to the order in conformity with the member's vow of poverty is not includible in the member's gross income.

The court also noted that it had previously held - in Cortes v. Comm'r, T.C. Memo. 2014-181, Rogers v. Comm'r, T.C. Memo. 2013-177, and Gunkle v. Comm'r, T.C. Memo. 2012-305 - that a vow of poverty does not insulate a pastor from tax liability when the pastor receives funds directly from his church in exchange for services rendered if the pastor does not remit those funds to the church in accordance with his vow of poverty, has control over the funds, and uses the funds for personal expenditures.

The court stated that the critical element in the instant case was that White did not remit his income to WEOC pursuant to his vow of poverty. The court observed that White had signatory authority over the church's apostolic bank account and the payments made on his behalf served only to benefit White in meeting his living expenses. The court found that White's reliance on O.D. 119 was misguided, and that his case was not distinguishable from its holdings in Cortes, Rogers, and Gunkle. Accordingly, the court determined that White's vow of poverty did not exempt him from federal income taxes.

For a discussion of ministers' employment tax reporting obligations, including the vow of poverty exception, see Parker Tax ¶15,560.

Richard Camp, CPA, PA blogs and all other multimedia content is provided for informational and educational purposes only and should not be construed as financial tax, accounting, legal, consulting or any other type of advice regarding any specific facts and circumstances, nor should they be construed as advertisements for financial services. Because accounting standards, tax law, and technologies are constantly changing, content in this blog could contain outdated information.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this website (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this website (or in any attachment).

Richard Camp, CPA, PA blogs and all other multimedia content is provided for informational and educational purposes only and should not be construed as financial tax, accounting, legal, consulting or any other type of advice regarding any specific facts and circumstances, nor should they be construed as advertisements for financial services. Because accounting standards, tax law, and technologies are constantly changing, content in this blog could contain outdated information.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this website (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this website (or in any attachment).

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Richard Camp, CPA, PA blogs and all other multimedia content is provided for informational and educational purposes only and should not be construed as financial tax, accounting, legal, consulting or any other type of advice regarding any specific facts and circumstances, nor should they be construed as advertisements for financial services. Because accounting standards, tax law, and technologies are constantly changing, content in this blog could contain outdated information.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this website (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this website (or in any attachment).