                                  T.C. Memo. 2016-167



                            UNITED STATES TAX COURT



                     RONALD W. WHITE, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2616-13.                              Filed September 12, 2016.



      Scott W. Gross, for petitioner.

      Thomas Alan Friday, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      PARIS, Judge: In a notice of deficiency dated November 6, 2012,

respondent determined Federal income tax deficiencies and additions to tax as

follows:1


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

  [*2]                                          Additions to tax
  Year      Deficiency      Sec. 6651(a)(1)      Sec. 6651(a)(2)          Sec. 6654
  2006       $32,853            $7,391.93          $8,213.25              $1,554.75
  2007         9,234             2,077.65            2,308.50               420.24
  2008         8,096             1,821.60            1,740.64               260.16
  2009        52,027            11,706.08            8,064.19              1,245.64

      After concessions,2 the issue for decision is whether petitioner’s vow of

poverty causes him to be exempt from liability for Federal income tax and self-

employment taxes.

                                FINDINGS OF FACT

      Some of the facts are stipulated and are so found. The stipulation of facts

and the exhibits attached thereto are incorporated herein by this reference.

Petitioner resided in Florida at the time he timely filed his petition.

      Petitioner has been a pastor for over 30 years. In 1983 petitioner

established the World Evangelism Outreach Church (WEOC) in DeFuniak

      1
      (...continued)
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
      2
        The parties have agreed that the amounts of unreported income at issue are
significantly lower than the amounts set forth in the statutory notice of deficiency,
as discussed infra p. 4. In addition, the parties have agreed that if the Court finds
that there is a deficiency, the additions to tax under secs. 6651(a)(1) and (2) and
6654 would be computational.
                                         -3-

[*3] Springs, Florida. During the years at issue petitioner was the pastor of

WEOC. As WEOC’s pastor, petitioner ministered from the pulpit and at nursing

homes, helped build churches on foreign soil, established a feeding program for

children, and supported widows and orphanages.

      In 2001 petitioner recommended to WEOC’s board of advisers that WEOC

be restructured to include a corporation sole as an office of the church. The board

of advisers unanimously agreed with petitioner’s recommendation, and on October

5, 2001, a domestic nonprofit corporation sole of WEOC registered as “The Office

of Presiding Head Apostle, of Ronald Wayne White” was created in the State of

Nevada. Although the corporation sole was registered as a Nevada entity, WEOC

continued to operate in Florida.

      On November 27, 2001, petitioner signed a document entitled “Vow of

Poverty” detailing that he agreed to divest his property and future income to

WEOC and in turn WEOC would provide for his physical, financial, and personal

needs. By resolution, WEOC resolved in part that “[t]he church accepts * * *

[petitioner’s] declaration and * * * will provide all his needs as Apostle of this

church ministry * * * [WEOC] shall pay his housing, all ministry expenses, and

any other needs necessary for his care.” WEOC established an apostolic bank

account, and petitioner had “signatory authority over this account for his use.”
                                        -4-

[*4] Petitioner did not file a Federal income tax return for any of the years at

issue, nor did he file a timely certificate of exemption from self-employment tax in

accordance with section 1402(e). Respondent prepared a substitute for return for

each year at issue and issued a notice of deficiency determining that petitioner had

unreported income for payments various entities made directly to him or on his

behalf.3 Before trial the parties agreed that the only amounts of unreported income

still at issue were $46,642, $18,430, $16,824, and $26,865 for 2006, 2007, 2008,

      3
        The notice of deficiency determined that petitioner had unreported income
from the following entities: LeShea Enterprises, LLC, an entity in which
petitioner owned 5%; Majesty Communications, LLC, WEOC’s religious
television station; Ronald Wayne White, A Corporation Sole of WEOC; G & J
Holding, a retirement trust in which petitioner is a trustee; and Gulf TV, LLC, an
entity owned by petitioner and his mother. The record does not reflect whether
entities other than Majesty Communications, LLC, and Ronald Wayne White, A
Corporation Sole, were related to WEOC. The unreported income as set forth in
the notice of deficiency is as follows:
             Entity              2006          2007         2008         2009
 LeShea Enterprises, LLC       $7,961.80 $7,132.23        $3,123.47    $7,354.11
 Majesty Communications,
  LLC                          54,975.27 26,186.69        26,291.29    23,863.00
 Ronald Wayne White, A
  Corporation Sole             37,988.26      5,636.12     5,636.12    21,949.16
 G & J Holding                                                        100,080.00
 Gulf TV, LLC                                                            2,721.71
    Totals                    100,925.33 38,955.04        35,050.88 155,967.98
                                        -5-

[*5] and 2009, respectively. The parties did not provide the Court with a

breakdown detailing the source of the unreported income still at issue, but at trial

and on brief the parties agreed that the unreported income still at issue represents

payments that WEOC or entities related to WEOC made on petitioner’s behalf.

Petitioner does not dispute that WEOC or its related entities made those payments

on his behalf for his personal expenditures. The only remaining issue is whether

petitioner’s vow of poverty insulates him from paying Federal income tax and self-

employment tax on those amounts.

                                     OPINION

I.    Burden of Proof

      Generally, the Commissioner’s determinations set forth in a notice of

deficiency are presumed correct, and the taxpayer bears the burden of showing the

determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). When a case involves unreported income, the U.S. Court of Appeals for

the Eleventh Circuit, to which an appeal in this case would lie absent a stipulation

to the contrary, has held that the Commissioner’s determination of unreported

income is entitled to a presumption of correctness only if the determination is

supported by minimal evidentiary foundation linking the taxpayer to an income-

producing activity. See Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir.
                                         -6-

[*6] 1993), aff’g T.C. Memo. 1991-636. Once the Commissioner produces

evidence linking the taxpayer to an income-producing activity, the presumption of

correctness applies and the burden of production shifts to the taxpayer to rebut that

presumption by establishing that the Commissioner’s determination is arbitrary or

erroneous. Id.

      Petitioner does not dispute that WEOC or its related entities paid the

amounts at issue on his behalf. Respondent has established the requisite minimal

evidentiary foundation by linking petitioner and his activities as a pastor to the

payments WEOC or its related entities made on his behalf. Therefore, petitioner

has the burden of proof.

II.   Gross Income and Vow of Poverty

      Petitioner acknowledges that WEOC or its related entities made payments

on his behalf for his personal expenses. Petitioner’s primary contention is that his

vow of poverty insulates him from being taxed on the compensation he received

for his services to WEOC.

      Section 61(a) defines gross income as “all income from whatever source

derived”, including compensation for services. This definition includes all

accessions to wealth, clearly realized, and over which the taxpayers have complete

dominion. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). A
                                        -7-

[*7] taxpayer has dominion and control when the taxpayer is free to use the funds

at will. Rutkin v. United States, 343 U.S. 130, 137 (1952). The use of funds for

personal purposes indicates dominion and control, even over an account titled in

the name of a church or other religious organization. Cortes v. Commissioner,

T.C. Memo. 2014-181, at *8 (citing Gardner v. Commissioner, T.C. Memo. 2013-

67, at *13).

       Petitioner acknowledges in his brief that this Court has dealt with factually

similar cases in the past in Cortes v. Commissioner, T.C. Memo. 2014-181, Rogers

v. Commissioner, T.C. Memo. 2013-177, and Gunkle v. Commissioner, T.C.

Memo. 2012-305, aff’d, 753 F.3d 502 (5th Cir. 2014). This Court has previously

held that a vow of poverty does not insulate a pastor from tax liability even when

the pastor receives funds directly from his church in exchange for services

rendered if the pastor does not remit those funds to the church in accordance with

his vow of poverty, has control over the funds, and uses the funds for personal

expenditures. See Cortes v. Commissioner, at *8-*10; Rogers v. Commissioner, at

*8-*9; Gunkle v. Commissioner, at *7-*10.

      Petitioner argues that the Court’s decisions in Cortes, Rogers, and Gunkle

contain flawed reasoning and do not directly address the issue at hand--that is,

whether a pastor of a church who executes a vow of poverty to his church and
                                         -8-

[*8] receives payments for his well-being from that church is insulated from tax

liability. Petitioner asserts that many of the cases cited by this Court in reaching

its conclusions in Cortes, Rogers, and Gunkle are inapplicable because they

address situations where taxpayers earn money from a third party (not the religious

order) and then assign that money to a religious order in accordance with their

vows of poverty. In such a situation, the U.S. Court of Appeals for the Eleventh

Circuit has stated that payments or benefits received in exchange for services

rendered by individuals not on behalf of a separate and distinct principal are

taxable to the individuals. See Pollard v. Commissioner, 786 F.2d 1063, 1065

(11th Cir. 1986), aff’g T.C. Memo. 1984-536.

      Petitioner’s argument, however, is misguided. The Court has previously

noted that cases in which a taxpayer receives money from a third party (a party

other than the religious order) and remits that money to the religious order in

accordance with his vow of poverty are factually distinguishable from cases in

which a taxpayer executes a vow of poverty to a religious order and receives

money directly from the religious order. See Cortes v. Commissioner, at *9;

Rogers v. Commissioner, at *8-*9.

      Petitioner did not receive a salary from a third party. Petitioner provided

services to WEOC and received compensation directly from WEOC in the form of
                                         -9-

[*9] payments WEOC or its related entities made on his behalf. Petitioner asserts

that because he received the money directly from WEOC or its related entities

after he signed a vow of poverty, it is not taxable.

      Petitioner appears to rely on the Internal Revenue Service’s original official

public pronouncement regarding the vow of poverty, O.D. 119, which was

published in 1919. See O.D. 119, 1919-1 C.B. 82. In part, O.D. 119 stated: “A

clergyman is not liable for any income tax on the amount received by him during

the year from the parish of which he is in charge, provided that he turns over to the

religious order of which he is a member, all the money received in excess of his

actual living expenses, on account of the vow of poverty which he has taken.”

Again, petitioner’s argument is misguided. Rev. Rul. 77-290, 1977-2 C.B. 26,

supersedes O.D. 119. Rev. Rul. 77-290, supra, states that income earned by a

member of a religious order on account of services performed directly for the

order or for the church with which the order is affiliated and remitted back to the

order in conformity with the member’s vow of poverty is not includible in the

member’s gross income. As was the case with the taxpayers in Cortes and Rogers,

the critical difference in this case is that petitioner did not remit income to WEOC

pursuant to his vow of poverty. Petitioner had signatory authority over the WEOC

apostolic bank account, and the payments WEOC made on his behalf served only
                                        - 10 -

[*10] to benefit petitioner in meeting his living expenses. The compensation

petitioner received from WEOC--in the form of payments WEOC or its related

entities made on his behalf--must be included in his gross income.4 See Pollard v.

Commissioner, 783 F.2d at 1065-1066; Cortes v. Commissioner, at *9-*10;

Rogers v. Commissioner, at *9-*10.

III.   Self-Employment Tax

       Section 1401 imposes a tax on an individual’s self-employment income,

which is defined as the “net earnings from self-employment” derived by an

individual during a taxable year. Sec. 1402(b). “Net earnings from self-

employment” is the gross income derived by an individual from any trade or

business carried on by that individual less than deductions attributable to that trade

or business. Sec. 1402(a). Pursuant to section 1402(c)(4), a “duly ordained,

commissioned, or licensed minister of a church in the exercise of his ministry” is

engaged in carrying on a trade or business unless the minister is exempt from self-

       4
        As noted supra pp. 4-5, although the parties agreed that the unreported
income still at issue represents payments that WEOC or its related entities made
on petitioner’s behalf, the parties did not provide the Court with a breakdown
detailing the source of the income. The source of the unreported income--whether
it represents amounts WEOC or its related entities paid to petitioner or on his
behalf or amounts that a third party (an entity other than WEOC or its related
entities) paid to petitioner or on his behalf--would not affect the Court’s holding in
this case because petitioner did not remit the income back to WEOC pursuant to
his vow of poverty.
                                        - 11 -

[*11] employment tax pursuant to section 1402(e). Unless an exemption

certificate is timely filed, the minister is liable for self-employment tax on income

derived from the ministry.5 Sec. 1402(e)(3). The time limitation imposed by

section 1402(e)(3) is mandatory and is to be complied with strictly. Wingo v.

Commissioner, 89 T.C. 922, 930 (1987); Rogers v. Commissioner, at *7.

Petitioner did not file a timely application for exemption from self-employment

tax for any of the years at issue. Petitioner therefore does not qualify for an

exemption from self-employment tax.

      The Court has considered all of the arguments made by the parties, and to

the extent they are not addressed herein, they are considered unnecessary, moot,

irrelevant, or without merit.

      To reflect the foregoing and the concessions of the parties,


                                                      Decision will be entered

                                                 under Rule 155.




      5
      The operative document used to apply for this exemption is Form 4361,
Application for Exemption From Self-Employment Tax for Use by Ministers,
Members of Religious Orders and Christian Science Practitioners.
