Mutch v. Commissioner of Internal Revenue, 11184.

• Decision Date: 13 January 1954
• Docket Number: No. 11184.,11184.
• Citation: 209 F.2d 390
• Parties: MUTCH v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

209 F.2d 390 (1954)

MUTCH v. COMMISSIONER OF INTERNAL REVENUE.

No. 11184.

United States Court of Appeals, Third Circuit.

Argued December 17, 1953.

Decided January 13, 1954.

Frederick E. S. Morrison, Philadelphia, Pa. (Calvin H. Rankin, James J. Cloran, Drinker, Biddle & Reath, Philadelphia, Pa., on the brief), for petitioner.

Robert B. Ross, Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Robert N. Anderson, Sp. Assts. to the Atty. Gen., on the brief), for respondent).

Before MARIS, GOODRICH and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge.

The Tax Court found a deficiency of $73.26 in petitioner's income tax for 1947 and disallowed his claim of overpayment in the sum of $469.90. The dispute is over the latter item.

Petitioner is a clergyman who for twenty-four years served as minister of the Bryn Mawr, Pennsylvania Presbyterian Church, resigning in 1936 because of illness. He left behind him tangible evidence of fine accomplishment. The membership of the church during his pastorate increased from 250 to 1100. A new church and school were erected at a cost of $710,000. The debt on these was less than $130,000 at the time of his retirement.

The original salary of Dr. Mutch was $6,000 a year. This was increased to $7,200 on October 1, 1918; to $7,500 on April 1, 1921; to $9,000 on December 1, 1921 and to $10,000 on April 1, 1929. In 1933 because of the general business depression petitioner urged that his salary be reduced to $8,500 a year. His suggestion was accepted and he received that reduced salary until his resignation in 1936. From 1927 to and including 1935 the church contributed to the Board of Pensions of the Presbyterian Church 7½% of taxpayer's salary and taxpayer contributed 2½%. Payment of a pension of $1,206 a year to Dr. Mutch was started in 1935 when he reached the age of sixty-five years and he has been receiving this ever since that time. During his pastorate petitioner and his wife received on their twenty-fifth wedding anniversary a gift of table silverware and the sum of $1,000. On another occasion he received a gift of $1,000 to aid him in paying certain outstanding hospital and medical expenses. When he retired individual members of his congregation contributed $8,000 as a gift to be used toward the purchase of a home for himself and his wife.

In the spring of 1936 just prior to Dr. Mutch retiring the members of the Session of the Bryn Mawr Church discussed his financial situation with him. He had his pension and an income from other sources of about $3,000 a year and he considered that ample for the maintenance of his wife and himself. However the Session elders did not think that he would have sufficient income — "as we would like our old minister to live" was the way they explained it. The Session was and is the spiritual ruling body of the church and "they combine with the trustees who look after the material side of things." One of the elders, describing the close relationship between the Session and Board of Trustees, testified that "the Session rules the church and if they make the request to the Board, the Board usually adheres to it." The Session, feeling as it did about Dr. Mutch, recommended to the Board of Trustees that he be given an "honorarium" upon retirement. The evidence is not only uncontradicted but completely convincing that this was to be strictly a gift with its continuance entirely contingent upon the prosperity of the church. An elder testified in effect that in the event of financial difficulty the gift to Dr. Mutch should be one of the first things to be eliminated. Following the Session suggestion the Trustees passed a resolution which read:

"Resolved, that the present salary, use of the Manse and other allowances heretofore made to Dr. Mutch, be continued until September 30, 1936, and that thereafter an honorarium of one hundred and seventy dollars per month be paid to Dr. Mutch as Pastor Emeritus until further action by the Board.

"It is understood that Dr. Mutch\'s use of the Manse for occupancy will be extended beyond September 30th for such period as may be necessary to enable him to make arrangements for a new residence."

The Tax Court found that the petitioner neither requested nor suggested the payment of the "honorarium" provided in the resolution and that after his resignation he at no time agreed to render services to the church and was under no obligation to do so.

In the situation outlined the Tax Court thought that the petitioner had failed to sustain the burden of showing that the "honorarium" was a gift and therefore excludible from gross income under Section 22...