• Key point: Many ministers would be considered by the civil courts to be employees for federal income tax reporting purposes.
• A federal appeals court affirmed a Tax Court decision finding a Methodist minister to be an employee rather than self-employed for federal income tax reporting purposes. The court adopted the Tax Court’s decision as its own. This decision is reviewed fully in a feature article appearing in the November-December 1994 issue of this newsletter. One of the three judges dissented from the court’s ruling. The dissenting judge observed:
The majority adopts the opinion of the Tax Court, finding [the pastor] to be an employee of the United Methodist Church for federal income tax purposes, but does not justify the different result reached by the Tax Court, on the same day it decided the instant case, in concluding that a Pentecostal pastor with Methodist roots, he having attended both Emory University and Emory and Henry College, was an independent contractor, entitled to deduct his trade and business expenses in full. Shelley v. Commissioner, T.C. Memo. 1994-432 (1994). I do not agree that there is justification, and I would therefore reverse the Tax Court’s decision on the ground of inconsistency.
Both [pastors] were paid a salary by their local churches, as to which ministers are clearly independent contractors, because a minister’s local congregation is the ultimate consumer of his services. Moreover, the Internal Revenue Code treats all ordained ministers as self-employed for purposes of social security tax collection. After reviewing the facts of the two cases, I cannot find any other material, permissible consideration that distinguishes [the pastors] sufficient to justify the differential tax treatments imposed by the Tax Court in these two cases …. Having reviewed the facts of both cases, I believe that the differences between [the two pastors’ relationships with their church or denomination] are either immaterial or are based on impermissible doctrinal considerations, or both.
The critical issue in this case is the level of control over the conduct of ministers exercised by the Methodist Church. To a large extent, the facts relied upon by the Tax Court to support its finding of control are elements of religious doctrine as set out in the Book of Discipline of the United Methodist Church, which is a doctrinal authority generally establishing the laws, policies, and precepts of the Church. Thus, the Book of Discipline is guided by religious conviction and religious law, not by employment relationships, and its strictures should be considered impermissible or immaterial in determining the employment status of a religious minister. In other words, the fact that Rev. Weber was answerable in numerous ways to the Annual Conference or others as set out in the Book of Discipline does not reflect an employment relationship any more than does his belief that he is answerable to God.
Moreover, many of the facts relied upon by the Tax Court in this case are immaterial or minimally probative of his employment status, and are in any event impossible to distinguish from those involved in [the Shelley case] sufficiently to justify a different outcome. For example, that Rev. Weber was ultimately guaranteed a salary by the Annual Conference is hardly relevant in the light of the fact that his salary was actually paid by his local congregation. The fact that Rev. Weber could be disciplined, relocated, or terminated by the Annual Conference is substantially a question of religious doctrine rather than employment status; and, in any event, it is materially indistinguishable from the constraints imposed upon Rev. Shelley, who could be decertified and placed on probation by [his Conference] for failure to comply with the International Pentecostal Holiness Church Manual, a work similar in authority and purpose to the Book of Discipline. Finally, various benefits provided to Rev. Weber by the United Methodist Church are at best minimally relevant to [his] employment status with the United Methodist Church in the light of the ultimate fact that he was paid and provided benefits by his local congregation. Once again, moreover, the benefits provided to Rev. Weber are hardly distinguishable from those available to Rev. Shelley, who the Tax Court found to be an independent contractor.
Because the tax code treats all ordained religious ministers as self-employed for social security tax collection purposes, because Rev. Weber was paid by his local congregation, and because no material facts sufficiently distinguish [the two cases] I would hold the Tax Court to its own most recent decision in Shelley and reverse the finding that Rev. Weber is an employee for income tax purposes.
The dissenting judge failed to recognize that the Weber case was a regular opinion of the Tax Court, meaning that it was a decision by all 34 judges. On the other hand, the Shelley case was a memorandum decision of the Court, meaning that it was a ruling by only 1 judge. Regular opinions, such as the Weber case, have much greater precedential value than memorandum opinions, since they are decisions by the full Court. Weber v.Commissioner, F.3d (4th Cir. 1995).
See Also: Status—Employee or Self-Employed
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