Pollard v. C.I.R.

• Decision Date: 14 April 1986
• Docket Number: No. 85-8436,85-8436
• Citation: 786 F.2d 1063
• Parties: -1175, 86-1 USTC P 9331 Eric A. POLLARD, et al., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1063

786 F.2d 1063

57 A.F.T.R.2d 86-1175, 86-1 USTC P 9331

Eric A. POLLARD, et al., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.

No. 85-8436.

United States Court of Appeals Eleventh Circuit.

April 14, 1986.

Lee Boothby, Berrien Springs, Mich., for petitioners-appellants.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief, Richard Farber, George L. Hastings, Jr., Teresa E. McLaughlin, Appellate Section, Tax Div., U.S. Dept. of Justice, Washington, D.C., for respondent-appellee.

Appeal from a Decision of the United States Tax Court.

Before JOHNSON and HATCHETT, Circuit Judges, and MURPHY ^*, District Judge.

JOHNSON, Circuit Judge:

This is another in a long line of suits brought by the commissioner of the Internal Revenue Service (IRS) against individuals who attempt to shield themselves from income tax by taking sham vows of poverty and purportedly turning over their income to so-called religious orders. ¹ In this case we AFFIRM the decision of the tax court in favor of the commissioner, and we further impose SANCTIONS for frivolous appeal under Fed.R.App.P. 38.

I

The delinquent taxpayers here are members of the Calvary Temple Church in East Point, Georgia. Calvary is a functioning church with some 300 members, regular services, and a thriving evangelical ministry. The church has roughly 20 religious "orders," which it describes as "integrated auxiliaries" of the church. Each order consists simply of the members of one family.

To join--or in effect, to become--orders, church members execute "vows of poverty," ostensibly conveying their property and future income to their orders. Theoretically, the church controls the disposition of this property and income; in practice, as the tax court found, the church members administer their own financial affairs as before. The fiction of church control is maintained through a system of "allowances," for which the members of the order apply to the church. The allowance-- which is always granted--roughly equals the wage-earner's income.

Most members of these orders work for private or government employers. A few work for the Calvary Church. Some of the individuals in the instant suit filed tax returns claiming exemption from personal income taxes because of their membership in these orders. Many of these returns contained no financial information and were accompanied by tax protest literature. Some other church members filed returns claiming that any income for which they were chargeable was offset by deductible contributions to Calvary Church in the amount of their annual incomes.

The commissioner of the IRS determined that each of these taxpayers owed back taxes. The IRS also assessed certain additions to these taxes for negligence, failure to file valid returns, and failure to pay estimated taxes. The taxpayers petitioned the tax court for redetermination of their liabilities. In a carefully reasoned opinion the tax court denied the balance of the church members' claims. Those church members appeal certain issues to this Court.

II

The first question presented on appeal is whether appellants' incomes are taxable. We hold that they are.

The tax court properly rejected appellants' claim that the income they "assigned" to their religious orders pursuant to vows of poverty was income to the religious body, not the members. This argument has been repeatedly disapproved where the court has found no agent-principal relationship between the order and the member. See, e.g., Fogarty v. United States, 780 F.2d 1005 (Fed.Cir.1986); Mone v. Commissioner, 774 F.2d 570 (2d Cir.1985); Stephenson v. Commissioner, 748 F.2d 331 (6th Cir.1984); Macior v. Commissioner, 48 T.C.M. (CCH) 91 (1984), aff'd without published opinion, 758 F.2d 653 (6th Cir.1985); McGahen v. Commissioner, 76 T.C. 468 (1981), aff'd without published opinion, 720 F.2d 664 (3d Cir.1983); Lynch v. Commissioner, 41 T.C.M. (CCH) 204 (1980), aff'd by unpublished order (1st Cir. June 2, 1981); Schuster v. Commissioner, 84 T.C. 764 (1985), appeal pending (7th Cir.); Greeno v. Commissioner, 42 T.C.M. (CCH) 1112 (1981); White v. Commissioner, 41 T.C.M. (CCH) 1180 (1981).

In McGahen, 76 T.C. at 478, the tax court set out the requirement of an agent-principal relationship for exemption from tax under these circumstances:

Where ... there is no agent-principal relationship, it is a basic rule of tax law that an assignment by a tax-payer of compensation for services to another person is ineffectual to relieve the taxpayer of Federal income tax liability on such compensation regardless of the motivation behind the assignment.

The Second Circuit recently explained the agency rule further:

To prove assignment of income on an agency theory, the taxpayers bear a double burden: they must show that a contractual relationship existed between their secular employers and their religious order, and that the religious order controlled or restricted the taxpayers' use of the money purportedly turned over to the order.

Mone, 774 F.2d at 573.

Here the tax court found that appellants continued to handle their financial affairs in the same manner before and after their vows of poverty. The church had nothing to do with where church members worked, and appellants took home checks in their own names. Some bought automobiles and real property in their own names. The church placed no restrictions on appellants' use of the "allowances" that the church provided them out of their own money (which never changed hands), and required no accounting of how the money was spent. The allowances always approximated the appellants' actual incomes.

The tax court's findings clearly establish that no agency-principal relationship existed between the orders and these church members. We discern no error in the court's analysis. Appellants' efforts to distinguish cases such as McGahen and Greeno, supra, are unavailing. They argue that the churches considered therein were "shams," ² but their church, on the contrary, conducts regular services and supports considerable evangelical activity. We accept appellants' assertions of institutional sincerity. But the Calvary Church's religious bona fides are irrelevant--it is the purported assignment of income here that is a "sham," and for tax rather than religious reasons. The fact is that no agency relationship exists between the orders and their members, which are one and the same. Courts have reached the identical conclusion where the delinquent taxpayers in question were members of established Catholic orders. See, e.g., Fogarty, supra, slip op. (Jesuit father earned income in individual capacity, not as agent of order); Macior, supra, 48 T.C.M. (CCH) 92 (Franciscan friar); Schuster, supra, 84 T.C. 764 (sister in Catholic order).

We find unpersuasive appellants' suggestion that the incomes of Robert E. McCurry, Evelyn E. McCurry and Michael Barton are not subject to the agency-principal rule, since these appellants are employed by the church. Church employees, like other employees, receive and spend their incomes in their individual capacities. These appellants cannot be said to earn or to manage their incomes for their orders as agents; again, they and their orders are one and the same. Thus, we conclude with the tax court that the incomes of all the appellants are properly subject to tax.

III

Appellants next challenge the commissioner's use of statistical tables to calculate compensation for church members Michael Barton and Kenneth Smith. Michael Barton, who claims to be a minister of Calvary Temple Church, testified that he received some $50 per week from the church plus lodging and meals provided by church members. However, he adduced no proof of this income for the years 1976 and 1977. Kenneth Smith worked as a subcontractor in 1976 but refused to reveal his income or to produce records for that year. Accordingly, the IRS calculated the incomes of Barton and Smith based on Bureau of Labor statistics which compute the cost of living in particular geographical locations.

Appellants argue that the Bureau of Labor tables do not accurately reflect the costs of sacrificial ministry. However, the tax court approved the commissioner's computations for two reasons. First, the commissioner's determinations are presumptively correct and appellants did not prove these to be actually in error, which is their burden. See Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933); Taylor v. Commissioner, 771 F.2d 478, 479 (11th Cir.1985). Second, the IRS has broad authority to calculate income in such cases and the tax court has expressly approved the use of Bureau of Labor statistics for this purpose. Giddio v. Commissioner, 54 T.C. 1530, 1533 (1970).

We find no error in the tax court's analysis. It lay in appellants' power to prove their actual incomes and to controvert the statistics, but they did not choose to do so.

IV

Appellants argue next that if their wages do constitute income, then their assignments of those wages to their orders are deductible charitable contributions to the Calvary Temple Church.

The tax court rejected this argument on three grounds. First, the court found that most of the appellants claimed charitable contribution deductions equal to or in excess of their incomes for the years at issue. However, Sec. 170(b)(1)(A...