Kitcher v. Commissioner, Docket No. 24321-82.

CourtUnited States Tax Court
Writing for the CourtPARKER
Citation51 TCM (CCH) 372,1986 TC Memo 41
PartiesGeorge J. Kitcher and Barbara E. Kitcher v. Commissioner.
Docket NumberDocket No. 24321-82.
Decision Date29 January 1986

51 T.C.M. (CCH) 372 (1986)

T.C. Memo. 1986-41.

George J. Kitcher and Barbara E. Kitcher

Docket No. 24321-82.

United States Tax Court.

Filed January 29, 1986.

51 TCM (CCH) 373

Thomas P. Cullen, Jr., for the petitioners. William S. Garofalo and Richard J. Sapinski, for the respondent.

Memorandum Findings of Fact and Opinion

PARKER, Judge:

Respondent determined deficiencies in petitioners' 1980 Federal income taxes and section 6653(a)1 additions to tax as follows:

 Sec. 6653(a)
                 Addition to
                 Petitioner Deficiency Tax
                George J. Kitcher $9,329.24 $466.46
                Barbara E. Kitcher 5,517.03 275.85

After concessions,2 the issues for decision are (1) whether petitioners are precluded from claiming joint filing status for the taxable year in issue, and (2) whether the payment in the amount of $5,100 that petitioners made to become ministers in the Freedom Church of Revelation was expended for tax advice or for legal representation and deductible under section 212(3).

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.

Petitioners, George J. Kitcher (Mr. Kitcher) and Barbara E. Kitcher (Mrs. Kitcher), husband and wife, resided in Flushing, New York, at the time their petition was filed in this case. Each petitioner timely filed an individual 1980 Federal income tax return (Form 1040) with the Internal Revenue Service Center in Holtsville, New York. Petitioners were husband and wife at the close of the 1980 taxable year and could have filed a joint return for such year, but instead they filed separate returns with each claiming the filing status of "married filing separately." Petitioners did not file any amended return claiming joint filing status for 1980 at any time before the filing of the petition in this case.

Mr. Kitcher is employed with the New York Telephone Company as a telephone technician, having been employed with this company for some 19-½ years. His annual salary was approximately $30,000. Mr. Kitcher neither presently owns nor has ever owned his own home. Mr. Kitcher is presently married to Barbara E. Kitcher, the co-petitioner in this case. During the year involved in this case, he had one child from a previous marriage.

51 TCM (CCH) 374

At all times relevant to this case, Mrs. Kitcher was employed with the New York Telephone Company as a customer service representative, having been employed with the company for about 15 years. Her annual salary at the time she left that employment was approximately $20,000.

Petitioners George and Barbara Kitcher were married on July 26, 1980. At some point during 1980, petitioners obtained credentials as ministers in the Freedom Church of Revelation (hereinafter FCR).

When Mr. Kitcher was first introduced to the FCR, he was experiencing financial problems. He was then recently divorced, paying alimony to his former wife, and searching for a means to save money and to get ahead. During this period, Mr. Kitcher met a minister from the FCR who invited him to attend an FCR seminar. Such recruiters were paid commissions by the FCR for each new member. In the course of his recruitment, Mr. Kitcher was shown copies of tax returns that other ministers in the FCR had filed in previous years, together with copies of refund checks that had been issued by the Internal Revenue Service in connection with those returns.

Petitioners attended an FCR meeting that was held at a hotel at LaGuardia Airport. They were told at this meeting that becoming a minister in the FCR was a legal way to avoid Federal and state taxes. Petitioners' purpose in becoming ministers in the FCR was to become legally tax exempt. The record does not indicate that any professional person, knowledgeable in the tax law and competent and qualified to render tax opinions, was present at petitioners' initial meeting or at any subsequent meetings or that such a qualified professional person ever represented to petitioners that these purported tax benefits were valid. Any representations to petitioners were made by other FCR ministers. Prior to joining the FCR, petitioners did not seek the legal advice or opinion of any outside accountant or attorney concerning the correctness of the FCR's representations that becoming a minister in the FCR was a legal means to avoid taxes.

The FCR membership procedures required prospective members to make an initial "donation" or payment to the FCR to become a minister. The initial cost to petitioners to become ministers in the FCR and to acquire this purported tax-exempt status was $5,100. Petitioners considered the $5,100 to be a good investment and a good bargain if they never had to pay any more taxes. Petitioners made their "donation" to the FCR by a check dated June 20, 1980, in the amount of $5,100. The stated purpose of this $5,100 payment is indicated by a handwritten notation on the bottom right-hand corner of the check that reads: "Donation-Educational." Petitioners do not know and the record does not show how the FCR used the $5,100 payment made by petitioners. However, Mr. Kitcher was told that a portion of the $5,100 membership fee would be used to build a holistic health center, a portion to fund the FCR's legal department, and the remaining portion would be used to acquire various publications and to recruit new members. Some part of petitioners' payment was probably paid as a commission to the FCR minister who recruited them.

In return for the payment of $5,100, petitioners received their FCR minister credentials and their certificates of sacramental authority from the FCR that purportedly would enable them to perform marriages, baptisms, and other sacraments.3 Petitioners also received an FCR charter designating them as a chapter or local church of the FCR. Petitioners used their ministerial credentials to receive fringe benefits such as discounts in furniture and clothing stores and exemption from local sales taxes. In addition, as ministers in the FCR, petitioners were entitled to and did receive a commission for bringing a new member into the FCR. Petitioners received this commission in a year subsequent to that before the Court.

Petitioners also received various government publications as a part of the package they were given upon becoming ministers in the FCR. Petitioners received Publication 517, relating to social security for clergy members, and were told that this publication would allow them as FCR ministers to withdraw from social security. Petitioners received Publication 526 relating to charitable contributions and were told that any charitable contributions they made to the FCR would qualify as a charitable deduction pursuant to this publication.4 Petitioners also received a copy of the determination letter dated June 8,

51 TCM (CCH) 375
1979, issued by the Internal Revenue Service, that stated that the FCR of Hohokus, New Jersey was exempt from Federal income tax under section 501(c)(3).5

Petitioners also received a photocopy of a 1979 tax return that was filed by Rev. Leonard Scarnato, Jr., a minister in the FCR. On the back of this return was photocopied a United States Treasury check dated May 30, 1980, made payable to "LEONARD JR. SCARNATO" in the amount of $6,990.12, which was the exact amount claimed on the return as a refund. The amount claimed as a refund consisted of Federal income tax withheld in the amount of $5,638.40 and excess FICA and RRTA tax withheld in the amount of $1,351.72. Mr. Scarnato filed this return purportedly as an agent and minister of the FCR, claiming he was under a vow of poverty and therefore was exempt from taxation pursuant to section 3401(a)(9). The return showed adjusted gross income in the amount of $23,191.20, taxable income for the same amount, and $0 tax due. Petitioners were instructed by the FCR to use this tax return as a model and to file their tax returns in exactly the same manner.6

The FCR held numerous meetings from time to time and required the ministers to attend at least three meetings each year. Generally, these meetings were held in conference rooms at various hotels. Each meeting usually began with a prayer and the Pledge of Allegiance. Occasionally, someone would read some articles or briefly list donations that the FCR had made to various charities. The stated purpose of these meetings was to further the ministers' education and philosophy in the FCR together with the tenets of their religion. Petitioners attended several of these meetings. Only 10 percent of each meeting was devoted to what could be called religious instruction. The main purpose of these meetings was to review the latest information and documents relating to the operation of each minister's church, including the proper procedure to maintain their tax-exempt status. The meetings included instruction on the preparation of income tax forms, instruction on how to file for exemption from social security and from the employer's withholding provisions, and also the proper procedure in filing state sales tax exemption forms. These meetings generally included lectures from Joseph Coniglione, the bishop in the FCR, and were usually concluded with a question and answer period. The lectures included nutrition, diet, and holistic health matters. Occasionally, questions were directed to William DeMarco, who was legal counsel for the FCR, questions involving the authority of the state to incarcerate members for failing to produce documents or membership lists. The record, however, indicates that Mr. DeMarco was not legal counsel for the FCR at the time petitioners initially became members.

William DeMarco is a practicing attorney, licensed in the State of New Jersey. He has a general practice and handles both criminal and civil matters. About 60 percent of his practice consists of criminal defense work, and the remainder consists of general litigation that includes matrimonial matters....

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