The opinion
T.C. Memo. 2016-167
UNITED STATES TAX COURT
RONALD W. WHITE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2616-13. Filed September 12, 2016.
Scott W. Gross, for petitioner.
Thomas Alan Friday, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PARIS, Judge: In a notice of deficiency dated November 6, 2012,
respondent determined Federal income tax deficiencies and additions to tax as
follows:1
1
Unless otherwise indicated, all section references are to the Internal
(continued...)
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[*2] Additions to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
2006 $32,853 $7,391.93 $8,213.25 $1,554.75
2007 9,234 2,077.65 2,308.50 420.24
2008 8,096 1,821.60 1,740.64 260.16
2009 52,027 11,706.08 8,064.19 1,245.64
After concessions,2 the issue for decision is whether petitioner’s vow of
poverty causes him to be exempt from liability for Federal income tax and self-
employment taxes.
FINDINGS OF FACT
Some of the facts are stipulated and are so found. The stipulation of facts
and the exhibits attached thereto are incorporated herein by this reference.
Petitioner resided in Florida at the time he timely filed his petition.
Petitioner has been a pastor for over 30 years. In 1983 petitioner
established the World Evangelism Outreach Church (WEOC) in DeFuniak
1
(...continued)
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
2
The parties have agreed that the amounts of unreported income at issue are
significantly lower than the amounts set forth in the statutory notice of deficiency,
as discussed infra p. 4. In addition, the parties have agreed that if the Court finds
that there is a deficiency, the additions to tax under secs. 6651(a)(1) and (2) and
6654 would be computational.
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[*3] Springs, Florida. During the years at issue petitioner was the pastor of
WEOC. As WEOC’s pastor, petitioner 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 petitioner recommended to WEOC’s board of advisers that WEOC
be restructured to include a corporation sole as an office of the church. The board
of advisers unanimously agreed with petitioner’s recommendation, and on October
5, 2001, a domestic nonprofit corporation sole of WEOC registered as “The Office
of Presiding Head Apostle, of Ronald Wayne White” was created in the State of
Nevada. Although the corporation sole was registered as a Nevada entity, WEOC
continued to operate in Florida.
On November 27, 2001, petitioner 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. By resolution, WEOC resolved in part that “[t]he church accepts * * *
[petitioner’s] declaration and * * * will provide all his needs as Apostle of this
church ministry * * * [WEOC] shall pay his housing, all ministry expenses, and
any other needs necessary for his care.” WEOC established an apostolic bank
account, and petitioner had “signatory authority over this account for his use.”
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[*4] Petitioner did not file a Federal income tax return for any of the years at
issue, nor did he file a timely certificate of exemption from self-employment tax in
accordance with section 1402(e). Respondent prepared a substitute for return for
each year at issue and issued a notice of deficiency determining that petitioner had
unreported income for payments various entities made directly to him or on his
behalf.3 Before trial the parties agreed that the only amounts of unreported income
still at issue were $46,642, $18,430, $16,824, and $26,865 for 2006, 2007, 2008,
3
The notice of deficiency determined that petitioner had unreported income
from the following entities: LeShea Enterprises, LLC, an entity in which
petitioner owned 5%; Majesty Communications, LLC, WEOC’s religious
television station; Ronald Wayne White, A Corporation Sole of WEOC; G & J
Holding, a retirement trust in which petitioner is a trustee; and Gulf TV, LLC, an
entity owned by petitioner and his mother. The record does not reflect whether
entities other than Majesty Communications, LLC, and Ronald Wayne White, A
Corporation Sole, were related to WEOC. The unreported income as set forth in
the notice of deficiency is as follows:
Entity 2006 2007 2008 2009
LeShea Enterprises, LLC $7,961.80 $7,132.23 $3,123.47 $7,354.11
Majesty Communications,
LLC 54,975.27 26,186.69 26,291.29 23,863.00
Ronald Wayne White, A
Corporation Sole 37,988.26 5,636.12 5,636.12 21,949.16
G & J Holding 100,080.00
Gulf TV, LLC 2,721.71
Totals 100,925.33 38,955.04 35,050.88 155,967.98
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[*5] and 2009, respectively. The parties did not provide the Court with a
breakdown detailing the source of the unreported income still at issue, but at trial
and on brief the parties agreed that the unreported income still at issue represents
payments that WEOC or entities related to WEOC made on petitioner’s behalf.
Petitioner does not dispute that WEOC or its related entities made those payments
on his behalf for his personal expenditures. The only remaining issue is whether
petitioner’s vow of poverty insulates him from paying Federal income tax and self-
employment tax on those amounts.
OPINION
I. Burden of Proof
Generally, the Commissioner’s determinations set forth in a notice of
deficiency are presumed correct, and the taxpayer bears the burden of showing the
determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). When a case involves unreported income, the U.S. Court of Appeals for
the Eleventh Circuit, to which an appeal in this case would lie absent a stipulation
to the contrary, has held that the Commissioner’s determination of unreported
income is entitled to a presumption of correctness only if the determination is
supported by minimal evidentiary foundation linking the taxpayer to an income-
producing activity. See Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir.
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[*6] 1993), aff’g T.C. Memo. 1991-636. Once the Commissioner produces
evidence linking the taxpayer to an income-producing activity, the presumption of
correctness applies and the burden of production shifts to the taxpayer to rebut that
presumption by establishing that the Commissioner’s determination is arbitrary or
erroneous. Id.
Petitioner does not dispute that WEOC or its related entities paid the
amounts at issue on his behalf. Respondent has established the requisite minimal
evidentiary foundation by linking petitioner and his activities as a pastor to the
payments WEOC or its related entities made on his behalf. Therefore, petitioner
has the burden of proof.
II. Gross Income and Vow of Poverty
Petitioner acknowledges that WEOC or its related entities made payments
on his behalf for his personal expenses. Petitioner’s primary contention is that his
vow of poverty insulates him from being taxed on the compensation he received
for his services to WEOC.
Section 61(a) defines gross income as “all income from whatever source
derived”, including compensation for services. This definition includes all
accessions to wealth, clearly realized, and over which the taxpayers have complete
dominion. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). A
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[*7] taxpayer has dominion and control when the taxpayer is free to use the funds
at will. Rutkin v. United States, 343 U.S. 130, 137 (1952). The use of funds for
personal purposes indicates dominion and control, even over an account titled in
the name of a church or other religious organization. Cortes v. Commissioner,
T.C. Memo. 2014-181, at *8 (citing Gardner v. Commissioner, T.C. Memo. 2013-
67, at *13).
Petitioner acknowledges in his brief that this Court has dealt with factually
similar cases in the past in Cortes v. Commissioner, T.C. Memo. 2014-181, Rogers
v. Commissioner, T.C. Memo. 2013-177, and Gunkle v. Commissioner, T.C.
Memo. 2012-305, aff’d, 753 F.3d 502 (5th Cir. 2014). This Court has previously
held that a vow of poverty does not insulate a pastor from tax liability even 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. See Cortes v. Commissioner, at *8-*10; Rogers v. Commissioner, at
*8-*9; Gunkle v. Commissioner, at *7-*10.
Petitioner argues that the Court’s decisions in Cortes, Rogers, and Gunkle
contain flawed reasoning and do not directly address the issue at hand--that is,
whether a pastor of a church who executes a vow of poverty to his church and
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[*8] receives payments for his well-being from that church is insulated from tax
liability. Petitioner asserts that many of the cases cited by this Court in reaching
its conclusions in Cortes, Rogers, and Gunkle are inapplicable because they
address situations where taxpayers earn money from a third party (not the religious
order) and then assign that money to a religious order in accordance with their
vows of poverty. In such a situation, the U.S. Court of Appeals for the Eleventh
Circuit has stated that payments or benefits received in exchange for services
rendered by individuals not on behalf of a separate and distinct principal are
taxable to the individuals. See Pollard v. Commissioner, 786 F.2d 1063, 1065
(11th Cir. 1986), aff’g T.C. Memo. 1984-536.
Petitioner’s argument, however, is misguided. The Court has previously
noted that cases in which a taxpayer receives money from a third party (a party
other than the religious order) and remits that money to the religious order in
accordance with his vow of poverty are factually distinguishable from cases in
which a taxpayer executes a vow of poverty to a religious order and receives
money directly from the religious order. See Cortes v. Commissioner, at *9;
Rogers v. Commissioner, at *8-*9.
Petitioner did not receive a salary from a third party. Petitioner provided
services to WEOC and received compensation directly from WEOC in the form of
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[*9] payments WEOC or its related entities made on his behalf. Petitioner asserts
that because he received the money directly from WEOC or its related entities
after he signed a vow of poverty, it is not taxable.
Petitioner appears to rely on the Internal Revenue Service’s original official
public pronouncement regarding the vow of poverty, O.D. 119, which was
published in 1919. See O.D. 119, 1919-1 C.B. 82. In part, O.D. 119 stated: “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.”
Again, petitioner’s argument is misguided. Rev. Rul. 77-290, 1977-2 C.B. 26,
supersedes O.D. 119. Rev. Rul. 77-290, supra, states 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. As was the case with the taxpayers in Cortes and Rogers,
the critical difference in this case is that petitioner did not remit income to WEOC
pursuant to his vow of poverty. Petitioner had signatory authority over the WEOC
apostolic bank account, and the payments WEOC made on his behalf served only
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[*10] to benefit petitioner in meeting his living expenses. The compensation
petitioner received from WEOC--in the form of payments WEOC or its related
entities made on his behalf--must be included in his gross income.4 See Pollard v.
Commissioner, 783 F.2d at 1065-1066; Cortes v. Commissioner, at *9-*10;
Rogers v. Commissioner, at *9-*10.
III. Self-Employment Tax
Section 1401 imposes a tax on an individual’s self-employment income,
which is defined as the “net earnings from self-employment” derived by an
individual during a taxable year. Sec. 1402(b). “Net earnings from self-
employment” is the gross income derived by an individual from any trade or
business carried on by that individual less than deductions attributable to that trade
or business. Sec. 1402(a). Pursuant to section 1402(c)(4), a “duly ordained,
commissioned, or licensed minister of a church in the exercise of his ministry” is
engaged in carrying on a trade or business unless the minister is exempt from self-
4
As noted supra pp. 4-5, although the parties agreed that the unreported
income still at issue represents payments that WEOC or its related entities made
on petitioner’s behalf, the parties did not provide the Court with a breakdown
detailing the source of the income. The source of the unreported income--whether
it represents amounts WEOC or its related entities paid to petitioner or on his
behalf or amounts that a third party (an entity other than WEOC or its related
entities) paid to petitioner or on his behalf--would not affect the Court’s holding in
this case because petitioner did not remit the income back to WEOC pursuant to
his vow of poverty.
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[*11] employment tax pursuant to section 1402(e). Unless an exemption
certificate is timely filed, the minister is liable for self-employment tax on income
derived from the ministry.5 Sec. 1402(e)(3). The time limitation imposed by
section 1402(e)(3) is mandatory and is to be complied with strictly. Wingo v.
Commissioner, 89 T.C. 922, 930 (1987); Rogers v. Commissioner, at *7.
Petitioner did not file a timely application for exemption from self-employment
tax for any of the years at issue. Petitioner therefore does not qualify for an
exemption from self-employment tax.
The Court has considered all of the arguments made by the parties, and to
the extent they are not addressed herein, they are considered unnecessary, moot,
irrelevant, or without merit.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.
5
The operative document used to apply for this exemption is Form 4361,
Application for Exemption From Self-Employment Tax for Use by Ministers,
Members of Religious Orders and Christian Science Practitioners.