Minister's Vow of Poverty by Itself Not Sufficient to Exempt Income from Tax

The taxpayer in White v. Commissioner, TC Memo 2016-167 looked back to a 1919 IRS ruling in support of his position that his payments from a church was not taxable to him due to having taken a vow of poverty.  In what isa citation form that most taxpayer likely have never seen, the taxpayer cited O.D. 119, 1919-1 CB 82.

As the Tax Court noted:

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.”

While some may be thinking this might be one of those where someone is “ordained” in a “church” of their own creation, this is not the case here—this case does involve someone with a long history of church work.

As the opinion notes:

Petitioner has been a pastor for over 30 years. In 1983 petitioner established the World Evangelism Outreach Church (WEOC) in DeFuniak 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.

However, the taxpayer did decide his relationship with the church should be restructured.  As the opinion continues:

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.”

The Tax Court, however, did not agree that in his situation that a minister who takes a vow of poverty and receives payments from the church for his support is exempt from taxation.  The Court noted that the 1919 ruling he cited was superseded by a 1977 Revenue Ruling which the Court notes:

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 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. See Pollard v. Commissioner, 783 F.2d at 1065-1066; Cortes v. Commissioner, at *9-*10; Rogers v. Commissioner, at *9-*10.