Clergy – Part 1


Church Law and Tax 1989-11-01 Recent Developments

Clergy – Taxes

Can a self-proclaimed minister who receives no compensation for her ministerial services deduct “business expenses” associated with her ministry on Schedule C? No, ruled the United States Tax Court. The taxpayer was a member of the Jehovah’s Witnesses, and was considered to be a “minister” by her sect. All members of the Jehovah’s Witnesses become ministers if they have been baptized for six months and are exemplary members. Being a minister does not entitle a person to perform sacerdotal functions. The taxpayer traveled door-to-door to preach the teachings of her sect. She also attended a convention of Jehovah’s Witnesses in another state. On her federal income tax returns for the years in question the taxpayer reported her profession as a “minister” though the only job for which she received compensation was as a computer assistant at the FBI headquarters. She reported no income on Schedule C, though she did claim several thousands of dollars in expenses for the years in question on Schedule C as travel and transportation expenses incurred in the performance of her ministry. The IRS disallowed these deductions as business expenses on the ground that a taxpayer cannot deduct “business expenses” unless he or she is engaged in a trade or business, and that the taxpayer in question was not be engaged in a trade or business since she received no compensation for her services. The Tax Court agreed: “Section 162 provided for a deduction for expenses incurred in a trade or business or expenses incurred for the production of income. This section requires that a taxpayer harbor an actual and honest objective of making a profit …. [The taxpayer] was not in the trade or business of being a minister of the Jehovah’s Witness faith. She received no compensation and had no objective of receiving compensation.” The court acknowledged that the income tax regulations specify that “unreimbursed expenses made incident to the rendition of services” to a tax-exempt organization “may constitute a deductible contribution” if properly substantiated. However, the court observed that the taxpayer had failed to claim a charitable contribution for the expenses she incurred in performing her “ministerial” services on behalf of her sect, and accordingly no deduction was available. Thornton v. Commissioner, 57 T.C.M. 1119 (1989).

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