T.C. Memo. 1996-290
UNITED STATES TAX COURT
JAMES M. McGAFFIN III and DEBORAH McGAFFIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2490-94. Filed June 24, 1996.
James M. and Deborah McGaffin, pro sese.
Lisa K. Hartnett, for respondent.
MEMORANDUM OPINION
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7443A(b) and Rules 180, 181, and 182.1
Respondent determined a deficiency in petitioners' 1991
Federal income tax in the amount of $4,531. The sole issue for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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decision is whether petitioner James M. McGaffin, a minister, is
exempt from self-employment tax because he properly filed an
application for exemption under section 1402(e).2
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by reference. At the time the petition was filed in this
case, petitioners resided in Omaha, Nebraska. All references to
petitioner are to James M. McGaffin.
Background
Petitioner began practicing as a licensed minister in 1984
and was subsequently ordained in 1988. Petitioners filed a joint
individual income tax return for the year 1984 indicating their
respective occupations to be "pastor" and housewife. The return
reported self-employment income in excess of $400 some of which
was earned by petitioner through the performance of services as a
minister. There was no Form 4361, Application For Exemption From
Self-Employment Tax, for use by ministers, attached to the return
for the year 1984. Petitioners did attach to their 1984 return a
Schedule SE, Computation of Social Security Self-Employment Tax.
On the schedule they did not check the box following line 2, Part
I, Schedule SE, to indicate earnings as a minister that were
exempt from self-employment tax.
2
The parties have stipulated to the amount to which the
self-employment tax applies if petitioner is not exempt.
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Petitioner continued to perform services as a minister in
the year 1985. Petitioners' joint individual income tax return
for the year 19853 includes a Schedule SE on which the box
following line 2, Part I, is checked, indicating that "you are
exempt from self-employment tax on your earnings as a minister
* * * because you filed Form 4361." The Schedule SE for 1985
lists only the net profit amount reported on a Schedule C and
excludes over $10,000 in payments to petitioner from Omaha
Victory Church for his services as a minister.
In the early part of 1991, petitioners' Federal income tax
returns for tax years 1989 and 1990 came under examination by
respondent. During this examination there arose a dispute
between petitioners and respondent over whether petitioner had on
file with respondent a valid exemption Form 4361 with respect to
petitioner's earnings from his ministry.
On February 4, 1992, respondent received and filed a Form
4361 dated September 19, 1991, that petitioners had submitted.
Petitioners insisted that they had previously attached a Form
4361 to their 1985 tax return and advised respondent that the
filing of the "new" exemption form was merely a "protective
3
Respondent entered into evidence a certified copy of Form
4340, Certificate of Assessments and Payments, for petitioners'
Form 1040 for the year 1985. Respondent's record of assessments
and payments shows the filing date for the 1985 return to be
June 9, 1986. An addition to tax due to late filing was assessed
and paid on July 11, 1986.
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election". The February 1992 Form 4361 was determined to be
untimely and was disapproved by the IRS on March 23, 1992.
Eventually, petitioners' Federal income tax return for the
year 1991 also came under examination by respondent. In the year
1991, petitioner earned and reported $32,069 from Word Outreach
Center for services performed as a minister. On their joint
individual Federal income tax return for 1991, however,
petitioners did not report self-employment tax on any of the
income received in connection with petitioner's services as a
minister. Respondent searched her records and found no
application for exemption other than the Form 4361 disapproved on
March 23, 1992. Having found no approved application for
exemption from self-employment tax, respondent determined that
the entire $32,069 received by petitioner during 1991 from Word
Outreach Center is subject to self-employment tax.
Discussion
Petitioners argue that they are exempt from self-employment
tax on petitioner's earnings as a minister. Respondent's
position is that petitioners have not timely filed for or
received an approved exemption from self-employment taxes. The
determinations of respondent are presumed to be correct, and
petitioners bear the burden of proving otherwise. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 1401(a) imposes on the self-employment income of
every individual a tax for old-age, survivors and disability
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insurance. Beginning with taxable years ending after 1967,
ordained ministers are automatically subject to the self-
employment tax with respect to services performed by them. Sec.
1402(c); see Peverill v. Commissioner, T.C. Memo. 1986-354.
Provided certain requirements are met, section 1402(e)
exempts from the self-employment tax, the self-employment income
of certain ministers and others. Under section 1402(e)(1), a
minister must file an application for exemption "in such form and
manner, and with such official, as may be prescribed by
regulations". The application must be filed no later than the
due date of the return (including any extension) for the second
taxable year for which the applicant had net earnings from self-
employment of at least $400, any part of which was from services
as a minister. Sec. 1402(e)(3).
Section 1.1402(e)-2A(b), Income Tax Regs., specifies that
the application must be made on Form 4361, in triplicate, with
the specified office of the Internal Revenue Service, within the
prescribed time limit.
The time limitations of section 1402(e) are mandatory and
must be complied with strictly. Treadway v. Commissioner, T.C.
Memo. 1984-153; Allinson v. Commissioner, T.C. Memo. 1979-405.
At trial petitioners testified that the appropriate Form 4361 was
timely filed by the due date of the return for the second taxable
year of petitioner's earnings from performing services as a
minister. According to petitioner, he filled out a Form 4361 on
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the evening of April 15, 1986, and the original form was attached
to and mailed with the 1985 tax return just before midnight.4
Respondent, on the other hand, introduced evidence showing that
petitioners' 1985 Federal income tax return was not filed until
June 9, 1986, incurring a late filing addition to tax that was
paid.
While we are inclined to believe that petitioner filed a
Form 4361 with the 1985 return, we find the documentary evidence
of respondent on the date of filing of the 1985 return to be more
persuasive than petitioners' memory of the date of filing.
Petitioners have failed to carry their burden to show that a
Form 4361 was timely filed and approved. Accordingly, no portion
of the income earned by petitioner is exempt from the tax on
self-employment income, and respondent's determination is
sustained.
Decision will be entered
for respondent.
4
Due to the late hour of preparation of the form and the
absence of a copy machine, we are informed, petitioners are
unable to produce a copy of the Form 4361 that was attached to
the return.