T.C. Memo. 1999-370
UNITED STATES TAX COURT
JOHN MICHAEL AND JANICE HILL BRANNON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24597-91. Filed November 5, 1999.
John Michael Brannon, pro se.
Horace Crump, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CARLUZZO, Special Trial Judge: Respondent determined
deficiencies in petitioners' Federal income taxes in the amounts
of $622, $863, and $3,040 for the taxable years 1987, 1988, and
1989, respectively.
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The issue for decision for each year in issue is whether
income earned as a Methodist minister by John Michael Brannon is
subject to the tax on self-employment income. The resolution of
the issue depends upon whether Mr. Brannon submitted a timely
application for exemption from the tax on self-employment income,
which in turn depends upon whether the services he performed as a
licensed local pastor in the United Methodist Church constitute
the performance of services by a minister of a church within the
meaning of section 1402. Unless otherwise indicated, section
references are to the Internal Revenue Code in effect for the
years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. They filed a timely joint
Federal income tax return for each year in issue. At the time
the petition was filed, petitioners resided in Pike Road,
Alabama. References to petitioner are to John Michael Brannon.
On August 1, 1983, while enrolled as a student at Huntington
College, petitioner was licensed as a student local pastor for
the United Methodist Church (the Church). He was assigned to the
Trinity-Weoka Church in the Alabama-West Florida Conference
(Trinity-Weoka), which remained in his charge at least through
1990. Between 1985 and 1988, petitioner was enrolled at Emory
University Chandler School of Theology seminary in Atlanta.
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Petitioner was licensed and served as the local pastor (as
compared to a student local pastor) for Trinity-Weoka from 1985
to 1987. On May 25, 1987, he was ordained a deacon in the
Church; in June 1990, he was ordained an elder.
Local pastors are divided into three categories: (1) Full
time; (2) part time; and (3) student. The distinctions are not
relevant to the issue before us and need not be discussed. A
local pastor is defined by the Church as
a person licensed by the district Committee on Ordained
Ministry to perform all the duties of a pastor,
including the Sacraments of Baptism and Holy Communion
as well as the service of marriage (where state laws
allow), burial, confirmation, and membership reception,
while assigned to a particular charge.
The ordained ministry of the Church consists of deacons and
elders. An individual can be licensed as a local pastor even
though the individual has not been ordained a deacon or elder.
Deacons are defined by the Church as
ministers * * * [who] have authority to conduct divine
worship, to preach the Word, to perform the marriage
ceremony where the laws of the state or province
permit, and to bury the dead. When invited to do so by
an elder, they may assist in the administration of the
Sacraments.
Elders are "ministers who have completed their formal preparation
for the ministry of Word, Sacrament and Order".
The authority of a local pastor is limited by both geography
and time. Local pastors are authorized to act only as described
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above within the boundaries of their charge, and only as long as
they are licensed by the Church to do so.
Petitioner's annual earnings from performing as a local
pastor the services described above exceeded $400 in 1983 and
1984.
The application for exemption from self-employment tax
contemplated by section 1402(e) is embodied in Form 4361,
"Application for Exemption from Self-Employment Tax for Use by
Ministers, Members of Religious Orders, and Christian Science
Practitioners". In addition to other information, an applicant
for exemption must report on that form: (1) The date that the
applicant was "ordained, licensed, etc." (line 3); and (2) the
first 2 years after the date listed on line 3 that the applicant
had "net self-employment earnings of $400 or more, any part of
which came from services as a: minister, priest, rabbi, etc."
(line 5).
On April 17, 1989, petitioner filed a Form 4361. On that
form petitioner indicated that the date he was "ordained,
licensed, etc." was May 25, 1987 (the date that he was ordained a
deacon). He reported that 1988 and 1989 were the first 2 years
after the date of his ordination in which he had "net self-
employment earnings of $400 or more, any part of which came from
services as a: minister, priest, rabbi, etc." Relying upon the
information reported on the form, on April 9, 1990, respondent
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granted petitioner's application for exemption from self-
employment tax.
Included with petitioners' Federal income tax return for
each year in issue is a Schedule C on which petitioners reported
the earnings and expenses attributable to petitioner's ministry
as follows:
1987 1988 1989
Gross receipts $12,150 $13,783 $19,400
Car & truck exp. 4,511 4,786 4,993
Educ. exp. 1,523 440 -0-
Net profit 6,116 8,557 14,407
Petitioners did not treat the net profit for any year as net
earnings from self-employment.
In the notice of deficiency, respondent determined that the
services that petitioner provided as a minister during each year
in issue were provided as an employee of the Church and that the
income and expenses attributable to those services must be
reported accordingly. Respondent also determined that the income
that petitioner earned as a minister was subject to the tax on
self-employment income. Other adjustments made in the notice of
deficiency are not in dispute.
OPINION
Although petitioner's employment status as a Methodist
minister was at one time in dispute, the parties now agree that
the services that petitioner performed as a minister during the
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years in issue were performed as an employee of the Church. See
Weber v. Commissioner, 103 T.C. 378 (1994), affd. 60 F.3d 1104
(4th Cir. 1995). They disagree, however, over whether the tax on
self-employment income is applicable to the income that
petitioner earned as a minister during those years.
In addition to other taxes, an individual's self-employment
income is subject to a tax imposed pursuant to section 1401.
Subject to irrelevant exceptions, self-employment income is
defined as the "net earnings from self-employment derived by an
individual * * * during any taxable year." Sec. 1402(b). "Net
earnings from self-employment" include the gross income earned by
an individual from any trade or business, less deductions
attributable to that trade or business. See sec. 1402(a). The
phrase "trade or business" as used for purposes of the tax on
self-employment income has the same meaning as under section 162,
which allows a taxpayer to deduct ordinary and necessary expenses
paid or incurred in carrying on any trade or business. See sec.
1402(c).
Although an individual can be in the trade or business of
being an employee, see O'Malley v. Commissioner, 91 T.C. 352,
363-364 (1988), and Primuth v. Commissioner, 54 T.C. 374, 377
(1970), generally the income earned by an individual who performs
services as an employee is not considered to be income earned in
a trade or business for purposes of the tax on self-employment
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income. See sec. 1402(c)(2). There are exceptions to this
general rule, however, and one of the exceptions is relevant
here. The income earned by an individual in the performance of
services as an employee/minister of a church is subject to the
tax on self-employment income unless the individual files a
timely application for exemption. See sec. 1402(c)(2)(D),
(c)(4), (e). To be effective, the application must be timely,
and the time limitations set forth in the statute are mandatory
and strictly enforced. See Wingo v. Commissioner, 89 T.C. 922,
930 (1987); sec. 1.1402(e)-3A, Income Tax Regs.
For the years involved here, an application for exemption is
timely only if the "duly ordained, commissioned, or licensed
minister" files the application before the due date of the return
for the second taxable year for which the minister has net
earnings from self-employment of $400 or more, any part of which
was derived from the performance of services in the minister's
ministry. See sec. 1402(e)(2).
Petitioner's application for exemption from the self-
employment tax was filed on April 17, 1989. Petitioners argue
that the application, which was approved based upon the
information reported thereon, was timely because petitioner did
not perform services as a minister until he was ordained a deacon
on May 25, 1987. According to petitioners, providing services as
a licensed local pastor in previous years did not constitute the
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performance of services as a minister within the meaning of
section 1402 because the authority of a local pastor is not as
extensive as the authority of an ordained deacon.
Respondent disagrees and argues that the services that
petitioner performed as a local pastor in 1983 and 1984
constituted the performance of services as a "licensed" minister,
even though petitioner was not yet an "ordained" minister.
Because petitioner earned more than $400 from the performance of
such services in those years (a point that is not in dispute),
respondent maintains that the application was not timely because
it was not filed by the due date of petitioner's 1984 Federal
income tax return.
Petitioners' argument that the period for filing the
application for exemption did not begin to run until the date of
his ordination, is incorrect. The phrase "duly ordained,
commissioned, or licensed minister", as used in the relevant
statutory scheme, is a disjunctive phrase. The statute applies
if the individual is either an ordained minister, a commissioned
minister, or a licensed minister. See Wingo v. Commissioner,
supra at 933; Salkov v. Commissioner, 46 T.C. 190, 197 (1966).
Whether an individual performs services as an ordained,
commissioned, or licensed minister depends upon the type of
services performed, not just on the official title of the person
performing those services. Consequently, we focus upon the
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services that petitioner performed as a licensed local pastor
during 1983 and 1984 in order to determine whether such services
constituted the performance of services as a licensed minister
within the meaning of section 1402.
An individual acting pursuant to authority derived from his
or her status as a duly ordained, commissioned, or licensed
minister of a church, who in the exercise of his or her ministry:
(1) Presides over the ministration of sacerdotal functions; (2)
conducts religious worship; and (3) participates in the control,
conduct, and maintenance of religious organizations (including
the religious boards, societies, and other integral agencies of
such organizations), under the authority of a religious body
constituting a church or church denomination, performs services
as a minister within the meaning of section 1402. See Wingo v.
Commissioner, supra at 931; sec. 1.1402(c)-5(b)(2), Income Tax
Regs.
Set against these criteria, and taking into account the
respective positions of the parties, we examine what petitioner
did as a licensed local pastor in 1983 and 1984 in order to
determine whether the services he performed as such constituted
the services of a "duly ordained, commissioned, or licensed
minister" within the meaning of section 1402.
As a licensed local pastor, petitioner was authorized by the
Church to preside over the ministration of sacerdotal functions,
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such as Baptism, Holy Communion, and marriage. Petitioners agree
that petitioner performed these services during 1983 and 1984,
but they argue that as a local pastor petitioner was authorized
to do so only as long as his license was in effect, and only
within the boundaries of his charge. We recognize that
petitioner's authority as a licensed local pastor was limited by
the duration of his license and the designated charge to which it
applied. Nevertheless, subject to those limitations, during 1983
and 1984, he presided over the ministration of sacerdotal
functions and therefore for those years acted in a manner
consistent with the "performance of service by a duly ordained,
commissioned, or licensed minister" within the meaning of section
1402.
Petitioners do not dispute that as a licensed local pastor
petitioner conducted religious worship during 1983 and 1984.
Petitioners point out that a licensed local pastor is
considered a lay person who has no "voice or vote" on official
matters of the Church. Consequently, they argue that during 1983
and 1984, petitioner could not, and did not, "serve in the
control, conduct and maintenance" of the Church. Implicit in
petitioners' argument is the suggestion that petitioner's service
is measured in the context of the Church as a governing
organization. We rejected a similar argument advanced by the
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taxpayer in Wingo v. Commissioner, supra, and concluded as follows:
To perform services in the control, conduct, and
maintenance of the church or organizations within the
church, the minister need only have some participation
in the conduct, control, and maintenance of the local
church or denomination. [Id. at 936; emphasis
supplied.]
During 1983 and 1984, as a licensed local pastor petitioner
served "in the control, conduct, and maintenance" of his charge,
that is, Trinity-Weoka, even though as a licensed local pastor he
might not have done so with respect to the Church as the
governing organization.
In 1983 and 1984, as a licensed local pastor, petitioner:
(1) Presided over the ministration of sacerdotal functions; (2)
conducted religious worship; and (3) served in the control,
conduct, and maintenance of his charge within the Church.
Therefore, during those years he performed services as a minister
within the meaning of section 1402. That being so, and because
for each of those years petitioner had net earnings of at least
$400 derived for the performance of services as a minister, to be
effective, his application for exemption from the tax on self-
employment income should have been filed prior to the due date of
his 1984 Federal income tax return. Because it was not so filed,
respondent's determination that petitioner's earnings as a
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minister are not exempt from the tax on self-employment income
imposed by section 1401 is sustained for each year in issue.
In closing, we respond briefly to a question raised by
petitioners at trial and repeated in their brief. They question
how an individual could be treated as an employee (and therefore
not self-employed) for purposes of deductions allowable under
section 162, yet be treated as "self-employed" for purposes of
section 1401. Perhaps the question results from the common
practice of referring to the tax imposed by section 1401 as the
"self-employment" tax. That designation is somewhat misleading
because it suggests that the tax is imposed only upon individuals
who are self-employed. Technically, as noted above, that tax is
imposed upon an individual's "self-employment income", which by
definition, includes income earned as an employee under various
circumstances, including those present in this case.
To reflect the foregoing,
Decision will be
entered for respondent.