Thompson v. Commissioner

GEORGE THOMPSON, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 10897–09L. Filed March 4, 2013.

P filed a petition for review pursuant to I.R.C. sec. 6330 in

response to R’s determination to proceed with collection. P

sought a collection alternative of a partial payment install-

ment agreement with a monthly payment of $3,000. The

Internal Revenue Manual provides guidance for determining

how much a taxpayer should be able to pay in a partial pay-

ment installment agreement and how much should be set

aside for the taxpayer’s necessary living expenses. The

Internal Revenue Manual provides that in a partial payment

installment agreement a taxpayer is allowed only necessary

expenses; conditional expenses are not allowed. In computing

the necessary expenses, P included tithing to his Church and

expenses for his children’s college. P claims that both tithing

and his children’s college expenses are necessary expenses.

Held: It was not an abuse of discretion for R to classify P’s

tithing as a conditional expense under the Internal Revenue

Manual. Held, further, classifying P’s tithing as a conditional

expense does not violate P’s rights under the Free Exercise

Clause of the First Amendment. Held, further, classifying P’s

tithing as a conditional expense was not a violation of the

Religious Freedom Restoration Act of 1993. Held, further, it

was not an abuse of discretion for R to classify P’s children’s

college expenses as a conditional expense under the Internal

Revenue Manual. Held, further, R’s determination is sus-

tained.

Robert S. Schwartz, Peter M. Burke, and Monica Vir, for

petitioner.

Carrie L. Kleinjan and Kirsten E. Brimer, for respondent.

RUWE, Judge: This proceeding was commenced in response

to a Notice of Determination Concerning Collection Action(s)

Under Section 6320 and/or 6330. 1 The issues for decision are

1 All

section references are to the Internal Revenue Code (Code) in effect

at all relevant times, and all Rule references are to the Tax Court Rules

Continued

173

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00001 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

174 140 UNITED STATES TAX COURT REPORTS (173)

whether it was an abuse of discretion for the settlement

officer to reject petitioner’s contention that: (1) petitioner’s

monthly tithing to his Church and (2) his monthly payments

for his children’s college expenses should be excluded from

the monthly amount available to satisfy his unpaid tax liabil-

ities. Petitioner contends that respondent’s failure to allow

for his tithing obligations violates the Free Exercise Clause

of the First Amendment to the Constitution and the Reli-

gious Freedom Restoration Act of 1993, Pub. L. No. 103–141,

sec. 3, 107 Stat. 1488 (current version at 42 U.S.C. sec.

2000bb–1(a) and (b) (2006)).

FINDINGS OF FACT

At the time the petition was filed, petitioner resided in

New Jersey. Petitioner is the president of Compliance

Innovations, Inc., which is owned by a trust. Petitioner and

his wife are the trustees.

Petitioner has been a member of the Church of Jesus

Christ of Latter-Day Saints (Church) his entire life and has

regularly contributed 10% of his monthly income to the

Church. Petitioner is actively involved in the Church and

holds a position as a shift coordinator in the Church’s

Manhattan Temple. Additionally, petitioner is a stake

scouting coordinator for the Church and is responsible for

overseeing six scout troops in different congregations in New

Jersey. Petitioner was not compensated by the Church for his

shift coordinator or stake scouting coordinator responsibil-

ities.

At the time petitioner submitted his Form 433–A, Collec-

tion Information Statement for Wage Earners and Self-

Employed Individuals, he was married and had five children.

At that time, petitioner had a child enrolled in Brigham

Young University and a child enrolled in Sacred Heart

University.

CDP Period Section 6672 Penalties

On January 7, 2008, respondent assessed trust fund

recovery penalties pursuant to section 6672 against peti-

tioner for employment tax liabilities owed by Compliance

Innovations, Inc., of $45,615.67, $23,091.60, $37,269.90, and

of Practice and Procedure, unless otherwise indicated.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00002 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 175

$45,217.77 for the periods ending December 31, 2004, June

30 and September 30, 2005, and June 30, 2007. 2 We will

refer to these tax penalties as petitioner’s CDP period tax

penalties.

Respondent sent petitioner a Letter 1058, Final Notice of

Intent to Levy and Notice of Your Right to a Hearing, dated

June 4, 2008, advising him that respondent intended to levy

to collect the unpaid CDP period tax penalties and that peti-

tioner could request a hearing with respondent’s Office of

Appeals. Respondent sent petitioner a Letter 3172, Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under

IRC 6320, dated June 19, 2008, advising him that a notice

of Federal tax lien (NFTL) had been filed with respect to his

unpaid CDP period tax penalties and that he could request

a hearing with respondent’s Office of Appeals. Petitioner

timely submitted Forms 12153, Request for a Collection Due

Process or Equivalent Hearing, in which he did not contest

the amounts of the underlying CDP period tax penalties. By

letter dated August 26, 2008, respondent’s settlement officer 3

acknowledged receipt of petitioner’s collection due process

(CDP) hearing request.

Petitioner’s Non-CDP Period Tax Liabilities

Respondent had previously assessed trust fund recovery

penalties pursuant to section 6672 against petitioner for

employment tax liabilities owed by Compliance Innovations,

Inc., for the periods ending December 31, 1999, and June 30

and September 30, 2000. Additionally, respondent had pre-

viously assessed income tax liabilities owed by petitioner and

his wife for the taxable years 1992, 1995, 1996, 1999, and

2 Under sec. 6672 ‘‘the officers or employees of the employer responsible

for effectuating the collection and payment of trust-fund taxes who will-

fully fail to do so are made personally liable to a ‘penalty’ equal to the

amount of the delinquent taxes.’’ Slodov v. United States, 436 U.S. 238,

244–245 (1978). The taxes withheld from employees and collected by em-

ployers are commonly referred to as ‘‘trust-fund taxes’’ because the Code

provides that the collected taxes are deemed to be a ‘‘special fund in trust

for the United States.’’ Sec. 7501(a). The purpose of sec. 6672 is to assure

payment of the taxes collected by employers. Slodov v. United States, 436

U.S. at 248.

3 Settlement officer is a position within respondent’s Office of Appeals.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00003 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

176 140 UNITED STATES TAX COURT REPORTS (173)

2000. 4 These penalties and taxes were unpaid. Petitioner

had previously entered into a partial payment installment

agreement with respondent, on or about August 8, 2006, for

payment of the non-CDP period tax liabilities and penalties.

Subsequently, respondent determined that petitioner had

defaulted on the partial payment installment agreement and

sent him a Notice of Defaulted Installment Agreement under

Section 6159(b)—Notice of Intent to Levy Under Section

6331(d), dated June 4, 2008. As of August 1, 2008, petitioner

owed $731,451.18 for the non-CDP period tax liabilities and

penalties.

Proceedings Before IRS Appeals

On September 19, 2008, petitioner’s counsel requested a

partial payment installment agreement that would encom-

pass all of petitioner’s tax liabilities and penalties for the

CDP and non-CDP periods. The Internal Revenue Service

(IRS) settlement officer requested that petitioner submit a

Form 433–A. Petitioner submitted the Form 433–A on Feb-

ruary 11, 2009. The Form 433–A reported that petitioner had

a monthly income of $27,633 ($331,596 per year) and

monthly expenses of $24,416 ($292,992 per year). Included in

the total monthly expenses were ‘‘other expenses’’ of $5,294,

which consisted of: (1) Church tithing expenses of $2,110; (2)

Church service expenses of $232; and (3) college expenses of

$2,952. 5 Petitioner’s counsel requested a partial payment

installment agreement whereby petitioner would pay $3,000

a month for his unpaid tax liabilities and penalties for both

the CDP and non-CDP periods. As of August 1, 2008, peti-

tioner owed $888,351.15 for his tax liabilities and penalties

for the CDP and non-CDP periods. As a result, even if we

were to assume that the balance of petitioner’s tax liabilities

and penalties would not accrue interest during the install-

ment agreement, it would take petitioner more than 24 years

to fully pay his balance.

4 We will refer to the sec. 6672 penalties for the periods ending Decem-

ber 31, 1999, and June 30 and September 30, 2000, and the income tax

liabilities for the taxable years 1992, 1995, 1996, 1999, and 2000, as peti-

tioner’s non-CDP period tax liabilities and penalties.

5 On an annual basis this equals: (1) $25,320 for Church tithing; (2)

$2,784 for Church service expenses; and (3) $35,424 for college expenses.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00004 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 177

In determining the monthly amount petitioner should pay,

the settlement officer allowed only $19,244 6 of petitioner’s

monthly expenses as necessary expenses. These consisted of:

Allowed expenses Amount

Food, clothing, and miscellaneous ...................... $2,680

Housing and utilities ........................................... 14,619

Transportation ..................................................... 1,538

Health care ........................................................... 1,122

Court-ordered alimony ........................................ 600

Life insurance ...................................................... 117

Taxes .................................................................... 28,568

Total .................................................................. 19,244

1The $4,619 allowed for housing and utilities was in excess

of the amount listed on the IRS’ national standard guide-

lines.

2These are current taxes and do not include the unpaid tax

liabilities and penalties for the CDP and non-CDP periods.

The settlement officer determined that petitioner’s claimed

‘‘other expenses’’ of $5,294 did not qualify as necessary

expenses under the guidelines of the Internal Revenue

Manual. As a result, the settlement officer determined that

petitioner could afford a partial payment installment agree-

ment with a monthly payment of $8,389. 7 Petitioner did not

agree to a partial payment installment agreement with a

monthly payment of $8,389.

Respondent then issued petitioner a Notice of Determina-

tion Concerning Collection Action(s) Under Section 6320 and/

or 6330, dated April 8, 2009, sustaining the filing of the

NFTL and the proposed levy action. Petitioner timely filed a

petition with this Court.

OPINION

Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to pay such tax within 10 days

after notice and demand for payment, then the Secretary is

authorized to collect such tax by levy upon the person’s prop-

erty. Section 6331(d) provides that, at least 30 days before

6 $230,928

annually.

7 Even

if we were to assume that interest would not accrue on the bal-

ance of petitioner’s tax liabilities and penalties, it would take petitioner

nine years to fully pay the balance with a monthly payment of $8,389.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00005 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

178 140 UNITED STATES TAX COURT REPORTS (173)

enforcing collection by way of a levy on the person’s property,

the Secretary is obliged to provide the person with a final

notice of intent to levy, including notice of the administrative

appeals available to the person.

Section 6321 provides that if any person liable to pay any

tax neglects or refuses to do so after demand, the amount

shall be a lien in favor of the United States upon all property

and rights to property, whether real or personal, belonging to

such person. Section 6323 authorizes the Commissioner to

file an NFTL. Pursuant to section 6320(a) the Commissioner

must provide the taxpayer with notice of and an opportunity

for an administrative review of the propriety of the NFTL

filing. See Katz v. Commissioner, 115 T.C. 329, 333 (2000).

Under certain circumstances a taxpayer may raise chal-

lenges to the underlying liabilities. See sec. 6330(c)(2)(B). If

a taxpayer requests a CDP hearing in response to an NFTL

or a notice of intent to levy, he may also raise at that hearing

any other relevant issue relating to the unpaid tax or the

proposed levy or lien. Secs. 6330(c)(2), 6320(c). Relevant

issues include possible alternative means of collection such

as an installment agreement. Sec. 6330(c)(2)(A)(iii).

If a taxpayer’s underlying liability is properly at issue, the

Court reviews any determination regarding the underlying

liability de novo. Goza v. Commissioner, 114 T.C. 176, 181–

182 (2000). Petitioner has the burden of proof regarding his

underlying liabilities. See Rule 142(a). A taxpayer is pre-

cluded from disputing the underlying liability if it was not

properly raised in the CDP hearing. See Giamelli v. Commis-

sioner, 129 T.C. 107, 114 (2007). Petitioner did not raise

issues regarding the existence or amounts of his underlying

tax penalties for the CDP period or his tax liabilities and

penalties for the non-CDP period in either his request for a

CDP hearing or his petition. Consequently, petitioner’s

underlying tax liabilities and penalties are not properly

before the Court.

The Court reviews administrative determinations by the

Commissioner’s Office of Appeals regarding nonliability

issues for abuse of discretion. Hoyle v. Commissioner, 131

T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. at 182.

The determination of the Office of Appeals must take into

consideration: (1) the verification that the requirements of

applicable law and administrative procedure have been met;

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00006 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 179

(2) issues raised by the taxpayer; and (3) whether any pro-

posed collection action balances the need for the efficient

collection of taxes with the legitimate concern of the person

that any collection be no more intrusive than necessary. Sec.

6330(c)(3); see Lunsford v. Commissioner, 117 T.C. 183, 184

(2001). The settlement officer based her determination on the

factors required by section 6330(c)(3).

The Court does not make an independent determination of

what would be an acceptable collection alternative. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff ’d, 469

F.3d 27 (1st Cir. 2006); Lipson v. Commissioner, T.C. Memo.

2012–252, at *9. The extent of our review is to determine

whether the settlement officer’s decision was arbitrary, capri-

cious, or without sound basis in fact or law. See Murphy v.

Commissioner, 125 T.C. at 320. If the settlement officer fol-

lowed all statutory and administrative guidelines and pro-

vided a reasoned, balanced decision, the Court will not

reweigh the equities. See Lipson v. Commissioner, at *9

(citing Fifty Below Sales & Mktg., Inc. v. United States, 497

F.3d 828, 830 (8th Cir. 2007)).

Section 6159 authorizes the Commissioner to enter into

written agreements allowing taxpayers to pay tax in install-

ment payments if he deems that the ‘‘agreement will facili-

tate full or partial collection of such liability.’’ The decision

to accept or reject installment agreements lies within the

discretion of the Commissioner. 8 See Kuretski v. Commis-

sioner, T.C. Memo. 2012–262, at *9; sec. 301.6159–1(a),

(c)(1)(i), Proced. & Admin. Regs. The Commissioner has cre-

ated guidelines for settlement officers to follow in deter-

mining the terms of a partial payment installment agree-

ment for a taxpayer who cannot fully pay his liability but can

pay some of it. See, e.g., Internal Revenue Manual (IRM) pt.

5.14.2.1 (Sept. 26, 2008).

In evaluating a taxpayer’s ability to pay, the Commissioner

classifies a taxpayer’s expenses into two categories: (1) nec-

essary expenses and (2) conditional expenses. Pixley v.

Commissioner, 123 T.C. 269, 272 (2004); IRM pt. 5.14.2.1.1(4)

(Sept. 26, 2008). ‘‘The total necessary expenses establish the

8 Petitioner does not meet the requirements of sec. 6159(c), which if met

would require respondent to enter into a full payment installment agree-

ment.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00007 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

180 140 UNITED STATES TAX COURT REPORTS (173)

minimum a taxpayer and family needs to live.’’ IRM pt.

5.15.1.7(1) (May 9, 2008). If a taxpayer requests a partial

payment installment agreement, then the taxpayer is

allowed only necessary expenses; conditional expenses are

not allowed. See id. pt. 5.14.2.1.1(4).

Issue 1. Tithing

This issue involves whether petitioner’s asserted religious

obligation to tithe can trump his obligation to pay substan-

tial amounts of delinquent penalties and taxes in a reason-

ably prompt manner. Petitioner introduced evidence,

including a biblical passage from the Old Testament, to sup-

port his position. See Malachi 3:8–10. This brings to mind

another biblical passage suggesting an answer to this type of

dilemma: ‘‘Render therefore to Caesar the things that are

Caesar’s, and to God the things that are God’s.’’ Matthew

22:21. However, even this formulation presents the dilemma

of determining which things fall into the two respective cat-

egories. While we may be incapable of determining what

belongs to God, we believe that we can, and must, decide

what is Caesar’s. Therefore, we will consider this issue using

the latter approach based on existing procedures and prece-

dents.

Petitioner argues that the settlement officer abused her

discretion by classifying his tithing as a conditional expense

in determining the amount he could afford to pay in a partial

payment installment agreement. Petitioner makes three

separate arguments. First, petitioner argues that given his

positions in the Church, tithing is required by the Internal

Revenue Manual to be treated as a necessary expense.

Second, petitioner argues that classifying his tithing as a

conditional expense is a violation of his rights under the Free

Exercise Clause of the First Amendment. Third, petitioner

argues that classifying his tithing as a conditional expense is

a violation of the Religious Freedom Restoration Act of 1993.

Respondent disagrees with each of petitioner’s arguments.

We will discuss each of petitioner’s arguments in turn.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00008 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 181

A. Necessary vs. Conditional Expenses Under the Internal

Revenue Manual

An expense must satisfy the necessary expense test to be

considered a necessary expense. See IRM pt. 5.15.1.7. The

necessary expense test has two prongs, one of which must be

satisfied in order for an expense to be considered a necessary

expense. The expense must provide for either (1) the tax-

payer’s health and welfare or (2) the taxpayer’s production of

income. See id.

Petitioner did not receive compensation for his positions in

the Church. As a result, his tithing payments are not for the

production of income. Petitioner has failed the second prong

of the necessary expense test. Therefore, to be considered a

necessary expense the tithing payments must satisfy the first

prong of the necessary expense test; i.e., provide for peti-

tioner’s ‘‘health and welfare’’. See id. pt. 5.15.1.7(1).

Petitioner relies on a part of the Internal Revenue Manual

that specifically discusses whether a minister’s 9 tithing is an

allowable expense. It states that a minister’s tithe will be

considered a necessary expense if it is a ‘‘condition of employ-

ment or meets the necessary expense test.’’ Id. pt. 5.15.1.10

(May 9, 2008). The Internal Revenue Manual states that the

amount tithed must be ‘‘the amount actually required and

does not include a voluntary portion’’, id. ex. 5.15.1–1 Q&A

(1) (May 9, 2008), and instructs the settlement officer to

review the minister’s employment contract, id. pt. 5.15.1.10.

1. Employment

Petitioner argues that the tithes are necessary expenses

because tithing is a condition of petitioner’s ‘‘employment’’

with the Church, notwithstanding the fact that petitioner

received no financial remuneration for his positions with the

Church. Respondent disagrees.

Petitioner testified that he is ‘‘employed’’ by the Church as

a shift coordinator and stake scouting coordinator. At trial

petitioner testified that he must tithe in order to maintain

these positions with the Church. Petitioner produced a letter

9 For

purposes of analyzing petitioner’s argument we will assume, with-

out deciding, that petitioner’s positions in the Church qualify him as a

minister within the meaning of the Internal Revenue Manual. Respondent

has not contested this.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00009 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

182 140 UNITED STATES TAX COURT REPORTS (173)

from a bishop in his Church that stated petitioner would

have to resign his positions with the Church if he did not

tithe. 10 Petitioner acknowledged that if he was released from

these positions his family’s financial welfare would not be

affected.

Petitioner argues that the term ‘‘employment’’ in the

Internal Revenue Manual is not limited to compensated

employment and can include uncompensated employment.

Petitioner cites a dictionary which defines employment as an

‘‘[a]ctivity in which one engages and employs his time and

energies’’. Webster’s Third New International Dictionary 743

(2002). Respondent cites a different dictionary that defines

employment as ‘‘[w]ork for which one has been hired and is

being paid by an employer.’’ Black’s Law Dictionary 566 (8th

ed. 2004).

We note that no case has specifically decided whether the

term ‘‘employment’’ as used in IRM pt. 5.15.1.10 is limited to

compensated employment or can include uncompensated

employment. IRM pt. 5.15.1.10 provides that expenses can

meet the requirements for being a necessary expense if they

provide for the health and welfare of the taxpayer or they are

for the production of income and instructs settlement officers

to review the minister’s employment contract. Employment is

generally connected with the production of income. The parts

in the Internal Revenue Manual allowing charitable con-

tributions made as a ‘‘condition of employment’’ apply to a

broad range of people including ministers, business execu-

tives, and employees. See id. ex. 5.15.1–1 Q&A (1). Peti-

tioner’s interpretation of the Internal Revenue Manual would

seem to allow the expenses associated with any uncompen-

sated activity as a necessary expense. This would make no

sense.

On the other hand, the Commissioner’s compelling interest

in collecting taxes would be harmed if a minister, or any

other taxpayer, loses his entire income as a result of the

Commissioner not allowing a taxpayer to tithe a portion of

his income if tithing is required to receive the income. As a

result, the Internal Revenue Manual instructs settlement

10 This letter was admitted into evidence without objection. We accept

this statement for petitioner’s case, but we make no finding that this is

the official position of the Church.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00010 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 183

officers to review the minister’s employment contract to

ensure that tithing is in fact a condition of employment. The

Internal Revenue Manual’s focus on the employment contract

is consistent with the normal concept that an employment

contract increases a taxpayer’s ability to pay by providing the

taxpayer with compensated employment. The IRS policy

underpinning tax collection also supports this interpretation.

A settlement officer is concerned with collecting as much of

the outstanding tax liability as the taxpayer can afford to

pay. Thus, the most logical reading of the part in the

Internal Revenue Manual that considers whether a min-

ister’s, or any other taxpayer’s, tithing is a ‘‘condition of

employment’’ is a question that is related to determining

whether the tithing is related to the taxpayer’s production of

income. Accordingly, we hold that it was not an abuse of the

settlement officer’s discretion to interpret the phrase ‘‘condi-

tion of employment’’ as used in the Internal Revenue Manual

to be limited to ‘‘compensated employment’’.

2. Health and Welfare

Petitioner also argues that tithing is a necessary expense

because it provides for his and his family’s ‘‘health and wel-

fare’’ as that phrase is used in Internal Revenue Manual pt.

5.15.1.7(1). Respondent disagrees.

Petitioner testified that not being able to tithe would nega-

tively affect his spiritual welfare. Additionally, petitioner

testified that losing his positions with the Church would be

a blow to his and his family’s welfare. Petitioner argues that

the term ‘‘health’’ includes spiritual health and that since his

tithing uplifts his spiritual health, his tithing is a necessary

expense. Respondent disagrees.

Petitioner provided no evidence of specific spiritual benefits

that would be affected whether or not he tithed. Petitioner

cited no cases that support his argument that the phrase

‘‘health and welfare’’ in the Internal Revenue Manual encom-

passes a taxpayer’s spiritual health and welfare. Respondent

cited Freeman v. Commissioner, 320 Fed. Appx. 651, 652 (9th

Cir. 2009), aff ’g T.C. Dkt. No. 10251–06L (May 24, 2007)

(bench opinion), an unpublished opinion that affirmed a

bench opinion of this Court. Freeman was a collection due

process proceeding where the Commissioner had filed an

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00011 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

184 140 UNITED STATES TAX COURT REPORTS (173)

NFTL against the taxpayer. Id. The Commissioner had

rejected the taxpayer’s offer-in-compromise. Id. On appeal

the taxpayer argued that ‘‘the Tax Court erred by rejecting

his claim that his tax liabilities should be offset by necessary

expenses consisting of his charitable donations of $471.75 per

month, which he considers essential to his health and wel-

fare.’’ Id. The Court of Appeals for the Ninth Circuit held

that ‘‘the Tax Court did not err by concluding that these

charitable contributions do not meet the ‘necessary expense’

test during an offer in compromise under the Internal Rev-

enue Manual.’’ Id.

We find that it was reasonable for the settlement officer to

interpret the phrase ‘‘health and welfare’’ so as to not include

petitioner’s ‘‘spiritual’’ health and welfare. Indeed, it would

generally be inappropriate for the Commissioner or this

Court to make determinations concerning what is or is not

necessary for a particular person’s religious or ‘‘spiritual’’

health or welfare. See Hernandez v. Commissioner, 490 U.S.

680, 693–694 (1989), for a discussion of the problems of

entanglement between church and State if the Government

were required to delve into spiritual matters. 11 Accordingly,

we hold that it was not an abuse of the settlement officer’s

discretion to determine that petitioner’s tithing was not a

necessary expense under the Internal Revenue Manual.

B. Free Exercise of Religion

Petitioner argues that the settlement officer’s classification

of his tithing as a conditional expense violates the Free Exer-

cise Clause of the First Amendment because if he is not able

to tithe then his Church will require him to resign his min-

isterial positions with the Church. Petitioner contends that

the settlement officer’s classification of petitioner’s tithe as a

conditional expense is tantamount to the settlement officer

deciding who can be a minister in petitioner’s Church.

The First Amendment to the Constitution provides that

‘‘Congress shall make no law respecting an establishment of

religion, or prohibiting the free exercise thereof ’’. Petitioner

is correct that the Free Exercise Clause prevents the Govern-

11 ‘‘ ‘[P]ervasive

monitoring’ for ‘the subtle or overt presence of religious

matter’ is a central danger against which we have held the Establishment

Clause guards.’’ Hernandez v. Commissioner, 490 U.S. 680, 694 (1989)

(quoting Aguilar v. Felton, 473 U.S. 402, 413 (1985)).

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00012 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 185

ment from interfering in a church’s selection of its ministers.

See Hosanna-Tabor Evangelical Lutheran Church v. EEOC,

565 U.S. ll, 132 S. Ct. 694, 703 (2012) (‘‘The Establish-

ment Clause prevents the Government from appointing min-

isters, and the Free Exercise Clause prevents it from inter-

fering with the freedom of religious groups to select their

own.’’). However, the settlement officer has not interfered

with the Church’s decision of whether to keep petitioner as

a minister. Petitioner offered into evidence a letter from a

bishop in his Church that stated if he did not pay his tithe

he would be required to resign his positions with the Church.

However, petitioner overlooks the fact that it is his Church

who is requiring him to resign his positions if he does not

tithe. The settlement officer did not require petitioner to

resign his positions nor did she pressure the Church to

require petitioner to resign. The Free Exercise Clause pro-

hibits the Government from interfering in a church’s selec-

tion of its ministers. See id. at ll, 132 S. Ct. at 703. The

Free Exercise Clause does not prohibit a church from

requiring its ministers to tithe in order to maintain their

ministership. If the Church decides that petitioner must

resign his ministerial positions because he does not tithe,

then that is solely the decision of the Church.

Paying taxes ‘‘is a burden, common to all taxpayers, on

their pocketbooks, rather than a recognizable burden on the

free exercise of their religious beliefs.’’ Pixley v. Commis-

sioner, 123 T.C. at 274. ‘‘Constitutional protection of funda-

mental freedoms ‘does not confer an entitlement to such

funds as may be necessary to realize all the advantages of

that freedom.’ ’’ Id. (quoting Harris v. McRae, 448 U.S. 297,

318 (1980)). Petitioner is not entitled by the Constitution to

be relieved of paying his substantial delinquent tax liabilities

and penalties in order to pay his tithe. Requiring petitioner

to pay taxes may result in his having less money to tithe.

However, this is not a violation of the Free Exercise Clause.

See id. at 275 (the Commissioner’s classification of the tax-

payer’s tithing expenses as conditional expenses did not vio-

late the Free Exercise Clause); see also Hernandez v.

Commissioner, 490 U.S. at 700 (‘‘[P]etitioners’ claimed

exemption stems from the contention that an incrementally

larger tax burden interferes with their religious activities.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00013 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

186 140 UNITED STATES TAX COURT REPORTS (173)

This argument knows no limitation. We accordingly hold that

petitioners’ free exercise challenge is without merit.’’).

Petitioner’s position would allow religious organizations to

control vital Government functions. This is not the intention

or purpose of the Free Exercise Clause of the First Amend-

ment. Rather, it prohibits the Government from exercising

control over religious functions. Laws of general applicability

that require persons to meet certain general requirements of

citizenship, such as paying taxes, cannot be avoided by the

fact that they indirectly make it more difficult to fulfill a

purely religious duty, such as a member tithing a certain

amount to his church or making a pilgrimage to a shrine in

a foreign country. See United States v. Lee, 455 U.S. 252, 260

(1982); Pixley v. Commissioner, 123 T.C. at 274–275; Adams

v. Commissioner, 110 T.C. 137, 139 (1998), aff ’d, 170 F.3d

173 (3d Cir. 1999). ‘‘ ‘[T]he tax system could not function if

denominations were allowed to challenge the tax system’ on

the ground that it operated in a manner that violates their

religious belief.’’ Hernandez v. Commissioner, 490 U.S. at 700

(quoting United States v. Lee, 455 U.S. at 260). Accordingly,

we hold that the settlement officer did not violate petitioner’s

rights under the Free Exercise Clause by classifying his

tithing as a conditional expense.

C. Religious Freedom Restoration Act of 1993

Petitioner argues that not classifying tithing as a nec-

essary expense violates the Religious Freedom Restoration

Act of 1993 (RFRA). The RFRA provides:

(a) In general. Government shall not substantially burden a person’s

exercise of religion even if the burden results from a rule of general

applicability, except as provided in subsection (b).

(b) Exception. Government may substantially burden a person’s exer-

cise of religion only if it demonstrates that application of the burden to

the person—

(1) is in furtherance of a compelling government interest; and

(2) is the least restrictive means of furthering that compelling govern-

mental interest.

[42 U.S.C. sec. 2000bb–1(a) and (b)(1) and (2) (2006).]

Petitioner argues that a partial payment installment agree-

ment with a $3,000 monthly payment would have been the

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00014 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 187

least restrictive means of collecting his tax liabilities and

penalties. 12

The Commissioner has a compelling interest in collecting

taxes and in administering the tax system, which petitioner

concedes. See Adams v. Commissioner, 110 T.C. at 139

(‘‘[M]andatory participation in the Federal income tax

system, irrespective of religious belief, is a compelling

governmental interest.’’); see also Hernandez v. Commis-

sioner, 490 U.S. at 699–700 (the Government has a ‘‘ ‘broad

public interest in maintaining a sound tax system,’ free of

‘myriad exceptions flowing from a wide variety of religious

beliefs’ ’’ (quoting United States v. Lee, 455 U.S. at 260)).

For purposes of this case we will assume, without deciding,

that the refusal to allow tithing as a necessary expense

substantially burdens petitioner’s exercise of religion. 13

Thus, we must decide whether the settlement officer abused

her discretion by failing to use the least restrictive means of

furthering the Government’s compelling interest in collecting

petitioner’s tax liabilities. The parties cite no cases that have

decided whether the Commissioner’s refusal to allow tithing

expenses in the context of entering into an installment agree-

ment violates the RFRA. This appears to be an issue of first

impression.

The RFRA does not require the Government to diminish its

compelling interest; it is required only to use the least

restrictive means to further its compelling interest. See 42

U.S.C. sec. 2000bb–1(b)(2). The fact that there is a less

restrictive means than that used by respondent does not vio-

late the RFRA if the less restrictive means requested by peti-

tioner does not further respondent’s compelling interest.

12 We

note that petitioner wrongly characterizes the settlement officer’s

required monthly payment of $8,389 as part of a full payment installment

agreement. The settlement officer offered petitioner a partial payment in-

stallment agreement with a monthly payment of $8,389. As previously ex-

plained, an $8,389 monthly payment for petitioner’s tax liabilities and pen-

alties would not have resulted in full payment. See supra p. 177.

13 Respondent does not agree that classifying petitioner’s tithing as a

conditional expense is a substantial burden on petitioner’s exercise of reli-

gion. However, on brief respondent provides little argument or analysis to

support this position and focuses primarily on the Government’s compel-

ling interest and arguing that he has met the least restrictive means re-

quirement.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00015 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

188 140 UNITED STATES TAX COURT REPORTS (173)

The Commissioner has a compelling governmental interest

in expeditiously collecting taxes. See Adams v. Commissioner,

110 T.C. at 139; see also United States v. Lee, 455 U.S. at 260

(‘‘Because the broad public interest in maintaining a sound

tax system is of such a high order, religious belief in conflict

with the payment of taxes affords no basis for resisting

tax.’’); United States v. Philadelphia Yearly Meeting of the

Religious Soc’y of Friends, 322 F. Supp. 2d 603, 610 (E.D. Pa.

2004) (‘‘[T]he Government needs a speedy, cheap, and certain

means of collecting delinquent taxes.’’).

The Commissioner’s interest in expeditiously collecting

taxes is especially compelling given the specific facts of this

case. Petitioner has a long history of not paying his income

tax liabilities. As of the date of trial petitioner still had not

paid his income tax liabilities for the taxable years 1992,

1995, 1996, 1999, and 2000. Additionally, respondent has

assessed trust fund recovery penalties under section 6672

against petitioner for seven different tax periods. Trust fund

recovery penalties are assessed against any ‘‘person required

to collect, truthfully account for, and pay over any tax

imposed by this title who willfully fails to collect such tax,

or truthfully account for and pay over such tax, or willfully

attempts in any manner to evade or defeat any such tax or

payment thereof ’’. Sec. 6672(a); see Thompson v. Commis-

sioner, T.C. Memo. 2012–87, 2012 Tax Ct. Memo LEXIS 88,

at *6. We note that one of the trust fund recovery penalties

was for a tax period that occurred after petitioner had

entered into a previous installment agreement with

respondent. Given petitioner’s history of not paying his own

income taxes, his willfully failing to collect and/or pay over

taxes that should have been withheld from the wages of the

corporation’s employees, and his default on a previous

installment agreement, respondent has a compelling interest

in collecting petitioner’s substantial tax liabilities and pen-

alties as soon as possible.

The Commissioner’s compelling interest in collecting taxes

necessarily implies a compelling interest in collecting a tax-

payer’s tax liability in a timely manner. See Flora v. United

States, 362 U.S. 145, 154 (1960) (‘‘ ‘It is essential to the honor

and orderly conduct of the government that its taxes should

be promptly paid’.’’ (quoting Cheatham v. United States, 92

U.S. 85, 89 (1876))); Phillips v. Commissioner, 283 U.S. 589,

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00016 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 189

596 (1931); United States v. Philadelphia Yearly Meeting of

the Religious Soc’y of Friends, 322 F. Supp. 2d at 610; see

also Browne v. United States, 22 F. Supp. 2d 309, 311–312

(D. Vt. 1998), aff ’d, 176 F.3d 25 (2d Cir. 1999). Petitioner’s

request for a partial payment installment agreement with a

monthly payment of $3,000 would not fully pay his tax liabil-

ities and penalties in a timely manner. Respondent’s compel-

ling interest in collecting taxes in a timely manner would not

be furthered if respondent was required to allow petitioner to

tithe to his Church instead of paying the substantial tax

liabilities and penalties he owes to the Government.

Although petitioner’s request is less restrictive than the par-

tial payment installment agreement offered by the settle-

ment officer, it does not satisfy respondent’s compelling

interest and is therefore not a satisfactory ‘‘least restrictive’’

alternative that respondent must accept. 14

The Commissioner has created guidelines in the Internal

Revenue Manual for settlement officers to follow in deter-

mining the terms of a partial payment installment agree-

ment. See IRM pt. 5.14.2.1.1. The settlement officer followed

these guidelines in creating the terms of the partial payment

installment agreement offered to petitioner. The settlement

officer did not abuse her discretion by failing to use the least

restrictive means to further respondent’s compelling interest

of collecting petitioner’s significant tax liabilities and pen-

alties in a timely manner.

We hold that the classification of petitioner’s tithing as a

conditional expense: (1) conformed to the guidelines in the

Internal Revenue Manual; (2) was not a violation of peti-

tioner’s rights under the Free Exercise Clause; and (3) did

not violate the RFRA.

14 We note that ‘‘voluntary compliance is the least restrictive means by

which the IRS furthers the compelling governmental interest in uniform,

mandatory participation in the federal income tax system.’’ Browne v.

United States, 176 F.3d 25, 26 (2d Cir. 1999). The partial payment install-

ment agreement that petitioner requested covered 12 different tax periods

going back to 1992. Petitioner had the opportunity to voluntarily pay the

penalties and taxes for each of the 12 tax periods covered by his proposed

partial payment installment agreement when they were initially due. He

failed to do so.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00017 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

190 140 UNITED STATES TAX COURT REPORTS (173)

Issue 2. College Expenses

On Form 433–A petitioner reported monthly college

expenses of $2,952. 15 Petitioner argues it was an abuse of

discretion for the settlement officer to not allow his children’s

college expenses as a necessary expense. Respondent con-

tends that his children’s college expenses are conditional

expenses.

In a partial payment installment agreement only necessary

expenses are allowed. See id. pt. 5.14.2.1.1(4). The Internal

Revenue Manual discusses both college expenses and edu-

cation expenses.

IRM ex. 5.15.1–1 Q&A (2) provides:

Question. A taxpayer has a child in an expensive university. She has

already paid the university $25,000 for tuition and housing for the

school year, and she intends to pay another $25,000 next July for the

following school year. Should this expense be allowed?

Answer. Yes, if the taxpayer can pay the liability plus accruals within

five years. Otherwise, the expense will not be allowable. * * *

Petitioner would not fully pay his tax liabilities within five

years under the terms of the partial payment installment

agreements proposed by either petitioner or the settlement

officer. Therefore, the college expenses would not be a nec-

essary expense under IRM ex. 5.15.1–1 Q&A (2).

IRM pt. 5.15.1.10 provides that educational expenses are

necessary ‘‘[i]f it is required for a physically or mentally chal-

lenged child and no public education providing similar serv-

ices is available.’’ Respondent argues that IRM pt. 5.15.1.10

applies only to expenses for primary or secondary schooling,

and does not apply to college expenses. Petitioner argues that

the language of IRM pt 5.15.1.10 does not explicitly limit

educational expenses to primary or secondary schooling;

therefore, it was an abuse of discretion for the settlement

officer to not allow his children’s college expenses as a nec-

essary expense in computing the amount that petitioner had

available to pay his delinquent tax liabilities. Petitioner has

not cited any case that supports his interpretation that IRM

pt. 5.15.1.10 applies to college expenses. 16

15 $35,424

per year.

16 We

note that it ‘‘is a well-settled principle that the Internal Revenue

Manual does not have the force of law, is not binding on the IRS, and con-

fers no rights on taxpayers.’’ McGaughy v. Commissioner, T.C. Memo.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00018 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 191

The Internal Revenue Manual specifically provides the

requirements for college expenses to be allowed as a nec-

essary expense. See IRM ex. 5.15.1–1 Q&A (2). It would not

be logical for the Internal Revenue Manual to provide two

different tests that can produce two different results for the

same expense. Since the Commissioner specifically provided

a test for college expenses it would be reasonable to conclude

that the term ‘‘education expenses’’ referred to in IRM pt.

5.15.1.10 does not include within its meaning college

expenses. If we accepted petitioner’s interpretation, we would

then need to decide whether the two tests in the Internal

Revenue Manual form a conjunctive or disjunctive test. In

other words, does a taxpayer need to satisfy both tests for

college expenses to be a necessary expense, or does the tax-

payer need to satisfy only one of the tests?

IRM pt. 5.15.1.10 provides that educational expenses can

be considered a necessary expense if ‘‘no public education

providing similar services is available.’’ If we interpret IRM

pt. 5.15.1.10 to apply to college expenses, then expenses for

a private college could be a necessary expense while expenses

for a public college would per se never be a necessary

expense. This makes no sense. IRM pt. 5.15.1.10 is under-

standable when it is interpreted to apply only to primary or

secondary schooling. Public primary and secondary schools

are usually paid for by the State and local governments, not

the parents of the children who attend them. However, pri-

vate primary and secondary schools are normally paid for by

the parents of the children attending the schools. Private pri-

mary and secondary schools can be expensive. The most

reasonable interpretation of IRM pt. 5.15.1.10 is that a tax-

payer must demonstrate that there is not a free public pri-

mary or secondary school that he could send his child to. If

there were a free public primary or secondary school that

could provide educational services to the mentally challenged

child, then the settlement officer would not allow the tax-

payer to pay tuition to a private primary or secondary school

in lieu of paying the taxes he owes to the Government. We

2010–183, 2010 Tax Ct. Memo LEXIS 215, at *20; see United States v.

Caceres, 440 U.S. 741 (1979); Fargo v. Commissioner, 447 F.3d 706, 713

(9th Cir. 2006), aff ’g T.C. Memo. 2004–13; United States v. Horne, 714

F.2d 206, 207 (1st Cir. 1983).

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00019 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

192 140 UNITED STATES TAX COURT REPORTS (173)

find respondent’s position that IRM pt. 5.15.1.10 applies to

only expenses for primary and secondary education, and does

not apply to expenses for college, to be reasonable. 17 The

settlement officer’s use of that interpretation was not an

abuse of discretion.

Petitioner briefly argues that Form 433–A requires the

settlement officer to allow his children’s college expenses.

Form 433–A states that ‘‘[w]e generally do not allow you to

claim tuition for private schools, public or private college

* * * [h]owever, we may allow these expenses, if you can

prove that they are necessary for the health and welfare of

you or your family or for the production of income.’’ First, we

note that Form 433–A does not have the force of law and con-

fers no rights on taxpayers. See Pomeroy v. United States,

864 F.2d 1191, 1194–1195 (5th Cir. 1989) (‘‘ ‘[P]rocedures or

rules adopted by the IRS are not law.’ ’’ (quoting Keado v.

United States, 853 F.2d 1209, 1214 (5th Cir. 1988)));

McGaughy v. Commissioner, T.C. Memo. 2010–183, 2010 Tax

Ct. Memo LEXIS 215, at *20. Second, we note the discre-

tionary nature of the wording of Form 433–A: ‘‘we may allow

these expenses’’. Form 433–A clearly states that the expenses

may not be allowed, and that discretion to allow the expenses

lies with the IRS. We hold that Form 433–A does not require

the settlement officer to classify petitioner’s college expenses

as a necessary expense.

Conclusion

We hold that the determination to proceed with collection

was not an abuse of the settlement officer’s discretion, and

the proposed collection action is sustained.

In reaching our decision, we have considered all arguments

made by the parties, and to the extent not mentioned or

addressed, they are irrelevant or without merit.

17 Petitioner claimed that each of his five children had a ‘‘neurological

disability’’ which required them to attend Brigham Young University. Even

if he had established this, it would not make any difference in our analysis

with respect to the allowability of college expenses.

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00020 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE

(173) THOMPSON v. COMMISSIONER 193

To reflect the foregoing,

Decision will be entered for respondent.

f

VerDate Nov 24 2008 11:28 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00021 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\THOMPSON JAMIE