Yoder v. Barnhardt, 2003 WL 137575 (7th Cir. 2003)
A federal appeals court issued a ruling suggesting that ministers who opt out of Social Security by filing a timely Form 4361 will not be able to claim years later that they qualify for Social Security retirement benefits on the ground that their exemption application was filed after the deadline expired and should never have been approved by the IRS.
Section 1402(g) of the tax code permits self employed members (whether ministers or laypersons) of certain religious faiths to exempt themselves from Social Security coverage if the meet several conditions, including the following: (1) the member belongs to a recognized religious sect that is opposed to the acceptance of Social Security benefits; (2) the member adheres to the sect's teachings relating to Social Security coverage; (3) the member files an exemption application (Form 4029); and (4) the member waives his right to all Social Security benefits.
A layman (Owen) applied for exemption from self-employment taxes by filing a Form 4029 with the IRS. His application was approved. Several years later, Owen sued the Social Security Administration (SSA), claiming that his application for exemption should never have been approved because it was not timely, and therefore he was entitled to Social Security retirement benefits. At the time Owen filed his application, the tax code mandated that such an application had to be submitted by the deadline for filing a tax return (Form 1040) for the first year that the individual had self-employment earnings.
Owen had worked in Social Security covered employment from 1950 to 1975, in 1977, and from 1986 to 1989. He also had income from self-employment beginning in 1973, when he became a member of the Conservative Mennonite Church. As a member of the Church, Owen was conscientiously opposed to Social Security benefits and so he filed with the IRS in 1981 an application for an exemption from paying self-employment tax. As part of this application, Owen agreed to waive all Social Security benefits. He stated on the application that he first became subject to self-employment tax in 1974. The IRS approved his application in 1981 and granted him the exemption to cover all years thereafter. Owen contends that the SSA was aware that the application was untimely because he did not apply for the exemption before the filing deadline for the first tax year in which he earned self-employment income.
After the IRS granted Owen the exemption he never again paid taxes on self-employment income. After he turned 65 in 1999, Owen applied for benefits with the SSA. The SSA denied his claim for benefits because he had been exempted from self-employment tax and had waived his right to Social Security benefits in his exemption application (Form 4029). Owen sued the SSA in an attempt to obtain his retirement benefits. He argued that his exemption (which included a waiver of all Social Security benefits) was invalid, and should not have been approved by the IRS, because he filed it after the deadline expired. A federal appeals court rejected Owen's claim. It noted that Owen "made a knowing waiver of his Social Security benefits in return for a tax exemption …. For over twenty years [he] did not pay self-employment tax and did not notify the IRS nor the SSA about the 'mistake' in granting his application. The government kept its part of the agreement, and Owen must keep his."
Application
. This case suggests that ministers who opt out of Social Security by filing a timely Form 4361 will not be able to claim years later that they qualify for Social Security retirement benefits on the ground that their exemption application was filed after the deadline expired and should never have been approved by the IRS.
