A taxpayer did not pay federal income taxes or self-employment taxes for six years. He was audited by the Internal Revenue Service (IRS) and was assessed back taxes and penalties. The IRS rejected his defense that he was “functioning as a church."
On appeal, the US Tax Court agreed with the IRS. The Court observed:
No provision in [the tax code] exempts an individual functioning as a church from the obligation to pay tax on his taxable income. Ministers may be entitled to exclude the rental value of a parsonage from gross income . . . but they are taxable on the income they earn from ministering . . . and section 501(c)(3) exempts religious organizations from income tax. But, again, there is no exemption from the . . . income tax for income earned by individuals from religious activities.
Imposition of penalties
The Court concurred with the imposition by the IRS of the following penalties ...