                        T.C. Memo. 1999-370



                      UNITED STATES TAX COURT



      JOHN MICHAEL AND JANICE HILL BRANNON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24597-91.                 Filed November 5, 1999.



     John Michael Brannon, pro se.

     Horace Crump, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION


     CARLUZZO, Special Trial Judge:   Respondent determined

deficiencies in petitioners' Federal income taxes in the amounts

of $622, $863, and $3,040 for the taxable years 1987, 1988, and

1989, respectively.
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     The issue for decision for each year in issue is whether

income earned as a Methodist minister by John Michael Brannon is

subject to the tax on self-employment income.    The resolution of

the issue depends upon whether Mr. Brannon submitted a timely

application for exemption from the tax on self-employment income,

which in turn depends upon whether the services he performed as a

licensed local pastor in the United Methodist Church constitute

the performance of services by a minister of a church within the

meaning of section 1402.    Unless otherwise indicated, section

references are to the Internal Revenue Code in effect for the

years in issue.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

Petitioners are husband and wife.    They filed a timely joint

Federal income tax return for each year in issue.    At the time

the petition was filed, petitioners resided in Pike Road,

Alabama.   References to petitioner are to John Michael Brannon.

     On August 1, 1983, while enrolled as a student at Huntington

College, petitioner was licensed as a student local pastor for

the United Methodist Church (the Church).     He was assigned to the

Trinity-Weoka Church in the Alabama-West Florida Conference

(Trinity-Weoka), which remained in his charge at least through

1990.   Between 1985 and 1988, petitioner was enrolled at Emory

University Chandler School of Theology seminary in Atlanta.
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Petitioner was licensed and served as the local pastor (as

compared to a student local pastor) for Trinity-Weoka from 1985

to 1987.    On May 25, 1987, he was ordained a deacon in the

Church; in June 1990, he was ordained an elder.

     Local pastors are divided into three categories:    (1) Full

time; (2) part time; and (3) student.    The distinctions are not

relevant to the issue before us and need not be discussed.     A

local pastor is defined by the Church as

     a person licensed by the district Committee on Ordained
     Ministry to perform all the duties of a pastor,
     including the Sacraments of Baptism and Holy Communion
     as well as the service of marriage (where state laws
     allow), burial, confirmation, and membership reception,
     while assigned to a particular charge.

     The ordained ministry of the Church consists of deacons and

elders.    An individual can be licensed as a local pastor even

though the individual has not been ordained a deacon or elder.

Deacons are defined by the Church as

     ministers * * * [who] have authority to conduct divine
     worship, to preach the Word, to perform the marriage
     ceremony where the laws of the state or province
     permit, and to bury the dead. When invited to do so by
     an elder, they may assist in the administration of the
     Sacraments.


Elders are "ministers who have completed their formal preparation

for the ministry of Word, Sacrament and Order".

     The authority of a local pastor is limited by both geography

and time.    Local pastors are authorized to act only as described
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above within the boundaries of their charge, and only as long as

they are licensed by the Church to do so.

     Petitioner's annual earnings from performing as a local

pastor the services described above exceeded $400 in 1983 and

1984.

     The application for exemption from self-employment tax

contemplated by section 1402(e) is embodied in Form 4361,

"Application for Exemption from Self-Employment Tax for Use by

Ministers, Members of Religious Orders, and Christian Science

Practitioners".   In addition to other information, an applicant

for exemption must report on that form:   (1) The date that the

applicant was "ordained, licensed, etc." (line 3); and (2) the

first 2 years after the date listed on line 3 that the applicant

had "net self-employment earnings of $400 or more, any part of

which came from services as a: minister, priest, rabbi, etc."

(line 5).

     On April 17, 1989, petitioner filed a Form 4361.   On that

form petitioner indicated that the date he was "ordained,

licensed, etc." was May 25, 1987 (the date that he was ordained a

deacon).    He reported that 1988 and 1989 were the first 2 years

after the date of his ordination in which he had "net self-

employment earnings of $400 or more, any part of which came from

services as a: minister, priest, rabbi, etc."   Relying upon the

information reported on the form, on April 9, 1990, respondent
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granted petitioner's application for exemption from self-

employment tax.

     Included with petitioners' Federal income tax return for

each year in issue is a Schedule C on which petitioners reported

the earnings and expenses attributable to petitioner's ministry

as follows:

                        1987               1988      1989

Gross receipts      $12,150              $13,783   $19,400
Car & truck exp.      4,511                4,786     4,993
Educ. exp.            1,523                  440       -0-
Net profit            6,116                8,557    14,407


Petitioners did not treat the net profit for any year as net

earnings from self-employment.

     In the notice of deficiency, respondent determined that the

services that petitioner provided as a minister during each year

in issue were provided as an employee of the Church and that the

income and expenses attributable to those services must be

reported accordingly.   Respondent also determined that the income

that petitioner earned as a minister was subject to the tax on

self-employment income.   Other adjustments made in the notice of

deficiency are not in dispute.

                               OPINION

     Although petitioner's employment status as a Methodist

minister was at one time in dispute, the parties now agree that

the services that petitioner performed as a minister during the
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years in issue were performed as an employee of the Church.    See

Weber v. Commissioner, 103 T.C. 378 (1994), affd. 60 F.3d 1104

(4th Cir. 1995).   They disagree, however, over whether the tax on

self-employment income is applicable to the income that

petitioner earned as a minister during those years.

     In addition to other taxes, an individual's self-employment

income is subject to a tax imposed pursuant to section 1401.

Subject to irrelevant exceptions, self-employment income is

defined as the "net earnings from self-employment derived by an

individual * * * during any taxable year."   Sec. 1402(b).    "Net

earnings from self-employment" include the gross income earned by

an individual from any trade or business, less deductions

attributable to that trade or business.   See sec. 1402(a).   The

phrase "trade or business" as used for purposes of the tax on

self-employment income has the same meaning as under section 162,

which allows a taxpayer to deduct ordinary and necessary expenses

paid or incurred in carrying on any trade or business.    See sec.

1402(c).

     Although an individual can be in the trade or business of

being an employee, see O'Malley v. Commissioner, 91 T.C. 352,

363-364 (1988), and Primuth v. Commissioner, 54 T.C. 374, 377

(1970), generally the income earned by an individual who performs

services as an employee is not considered to be income earned in

a trade or business for purposes of the tax on self-employment
                                 - 7 -


income.   See sec. 1402(c)(2).   There are exceptions to this

general rule, however, and one of the exceptions is relevant

here.   The income earned by an individual in the performance of

services as an employee/minister of a church is subject to the

tax on self-employment income unless the individual files a

timely application for exemption.    See sec. 1402(c)(2)(D),

(c)(4), (e).   To be effective, the application must be timely,

and the time limitations set forth in the statute are mandatory

and strictly enforced.   See Wingo v. Commissioner, 89 T.C. 922,

930 (1987); sec. 1.1402(e)-3A, Income Tax Regs.

     For the years involved here, an application for exemption is

timely only if the "duly ordained, commissioned, or licensed

minister" files the application before the due date of the return

for the second taxable year for which the minister has net

earnings from self-employment of $400 or more, any part of which

was derived from the performance of services in the minister's

ministry.   See sec. 1402(e)(2).

     Petitioner's application for exemption from the self-

employment tax was filed on April 17, 1989.    Petitioners argue

that the application, which was approved based upon the

information reported thereon, was timely because petitioner did

not perform services as a minister until he was ordained a deacon

on May 25, 1987.   According to petitioners, providing services as

a licensed local pastor in previous years did not constitute the
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performance of services as a minister within the meaning of

section 1402 because the authority of a local pastor is not as

extensive as the authority of an ordained deacon.

     Respondent disagrees and argues that the services that

petitioner performed as a local pastor in 1983 and 1984

constituted the performance of services as a "licensed" minister,

even though petitioner was not yet an "ordained" minister.

Because petitioner earned more than $400 from the performance of

such services in those years (a point that is not in dispute),

respondent maintains that the application was not timely because

it was not filed by the due date of petitioner's 1984 Federal

income tax return.

     Petitioners' argument that the period for filing the

application for exemption did not begin to run until the date of

his ordination, is incorrect.   The phrase "duly ordained,

commissioned, or licensed minister", as used in the relevant

statutory scheme, is a disjunctive phrase.   The statute applies

if the individual is either an ordained minister, a commissioned

minister, or a licensed minister.   See Wingo v. Commissioner,

supra at 933; Salkov v. Commissioner, 46 T.C. 190, 197 (1966).

     Whether an individual performs services as an ordained,

commissioned, or licensed minister depends upon the type of

services performed, not just on the official title of the person

performing those services.   Consequently, we focus upon the
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services that petitioner performed as a licensed local pastor

during 1983 and 1984 in order to determine whether such services

constituted the performance of services as a licensed minister

within the meaning of section 1402.

     An individual acting pursuant to authority derived from his

or her status as a duly ordained, commissioned, or licensed

minister of a church, who in the exercise of his or her ministry:

(1) Presides over the ministration of sacerdotal functions; (2)

conducts religious worship; and (3) participates in the control,

conduct, and maintenance of religious organizations (including

the religious boards, societies, and other integral agencies of

such organizations), under the authority of a religious body

constituting a church or church denomination, performs services

as a minister within the meaning of section 1402.   See Wingo v.

Commissioner, supra at 931; sec. 1.1402(c)-5(b)(2), Income Tax

Regs.

     Set against these criteria, and taking into account the

respective positions of the parties, we examine what petitioner

did as a licensed local pastor in 1983 and 1984 in order to

determine whether the services he performed as such constituted

the services of a "duly ordained, commissioned, or licensed

minister" within the meaning of section 1402.

     As a licensed local pastor, petitioner was authorized by the

Church to preside over the ministration of sacerdotal functions,
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such as Baptism, Holy Communion, and marriage.   Petitioners agree

that petitioner performed these services during 1983 and 1984,

but they argue that as a local pastor petitioner was authorized

to do so only as long as his license was in effect, and only

within the boundaries of his charge.   We recognize that

petitioner's authority as a licensed local pastor was limited by

the duration of his license and the designated charge to which it

applied.   Nevertheless, subject to those limitations, during 1983

and 1984, he presided over the ministration of sacerdotal

functions and therefore for those years acted in a manner

consistent with the "performance of service by a duly ordained,

commissioned, or licensed minister" within the meaning of section

1402.

     Petitioners do not dispute that as a licensed local pastor

petitioner conducted religious worship during 1983 and 1984.

     Petitioners point out that a licensed local pastor is

considered a lay person who has no "voice or vote" on official

matters of the Church.   Consequently, they argue that during 1983

and 1984, petitioner could not, and did not, "serve in the

control, conduct and maintenance" of the Church.   Implicit in

petitioners' argument is the suggestion that petitioner's service

is measured in the context of the Church as a governing

organization.   We rejected a similar argument advanced by the
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taxpayer in Wingo v. Commissioner, supra, and concluded as follows:

     To perform services in the control, conduct, and
     maintenance of the church or organizations within the
     church, the minister need only have some participation
     in the conduct, control, and maintenance of the local
     church or denomination. [Id. at 936; emphasis
     supplied.]

During 1983 and 1984, as a licensed local pastor petitioner

served "in the control, conduct, and maintenance" of his charge,

that is, Trinity-Weoka, even though as a licensed local pastor he

might not have done so with respect to the Church as the

governing organization.

     In 1983 and 1984, as a licensed local pastor, petitioner:

(1) Presided over the ministration of sacerdotal functions; (2)

conducted religious worship; and (3) served in the control,

conduct, and maintenance of his charge within the Church.

Therefore, during those years he performed services as a minister

within the meaning of section 1402.   That being so, and because

for each of those years petitioner had net earnings of at least

$400 derived for the performance of services as a minister, to be

effective, his application for exemption from the tax on self-

employment income should have been filed prior to the due date of

his 1984 Federal income tax return.   Because it was not so filed,

respondent's determination that petitioner's earnings as a
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minister are not exempt from the tax on self-employment income

imposed by section 1401 is sustained for each year in issue.

     In closing, we respond briefly to a question raised by

petitioners at trial and repeated in their brief.   They question

how an individual could be treated as an employee (and therefore

not self-employed) for purposes of deductions allowable under

section 162, yet be treated as "self-employed" for purposes of

section 1401.   Perhaps the question results from the common

practice of referring to the tax imposed by section 1401 as the

"self-employment" tax.   That designation is somewhat misleading

because it suggests that the tax is imposed only upon individuals

who are self-employed.   Technically, as noted above, that tax is

imposed upon an individual's "self-employment income", which by

definition, includes income earned as an employee under various

circumstances, including those present in this case.

     To reflect the foregoing,

                                         Decision will be

                                    entered for respondent.
