Schuster v. Comm'r of Internal Revenue

• Decision Date: 29 April 1985
• Docket Number: Docket No. 20396-82.
• Citation: 84 T.C. 764,84 T.C. No. 51
• Parties: FRANCINE SCHUSTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

84 T.C. 764

84 T.C. No. 51

FRANCINE SCHUSTER, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20396-82.

United States Tax Court

Filed April 29, 1985

Petitioner, a nurse-practitioner, was a member of a religious order of the Roman Catholic Church. She sought and was offered a position with a Federal agency that assigns health care professionals to work in regions lacking adequate medical services. After receiving approval from her Order, petitioner accepted the position. Pursuant to her vow of poverty, petitioner endorsed all of her paychecks over to her Order. HELD, petitioner's wages were earned in her individual capacity, and not as an agent of the Order. Her wages are therefore subject to taxation. FRANK AGOSTINO and DAVID R. REED, for the respondent.

WILLIAM J. FALK and MARY GASSMANN REICHERT, for the petitioner.

WILBUR, JUDGE:

Respondent determined a deficiency in petitioner's 1980 Federal income tax in the amount of $1,529. The sole issue for decision is whether compensation earned by petitioner while she was a member of a religious order is includable in her gross income.

FINDINGS OF FACT

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

Petitioner resided in Red Bud, Illinois when she filed her petition in this case. She timely filed her 1980 Federal income tax return with the Kansas City Service Center.

During all relevant times, petitioner was a member, or Sister, in a religious order of the Roman Catholic Church called the Order of the Adorers of the Blood of Christ (the Order). The Order was incorporated under the laws of the State of Illinois on July 24, 1886, as the Convent of the Sisters of the Precious Blood, and is a religious organization exempt from Federal income tax. The Order's corporate objective is stated to be ‘to conduct schools and places of learning and to promote education, to advance the cause of religious and social work, to conduct hospitals and institutions for the care and treatment of suffering humanity and to do all and everything necessary or convenient for the accomplishment of any of the purposes or objects and powers above mentioned or incidental thereto.‘

Each member of the Order is required to make vows of chastity, obedience and poverty as a precondition of membership. Petitioner therefore executed a Declaration Concerning Remuneration in which she agreed ‘never (to) claim or demand, directly or indirectly, any wages, compensation, remuneration, or reward * * * for the time or for the services or work that I devote for * * * (the Order) during the time I may remain there or elsewhere in the name of or upon commission from said (Order) * * *.‘

A member who wishes to withdraw from the Order may receive official dispensation from her vows or by application through her provincial superior to the general superior of the Order. In addition, some members have withdrawn from the Order without obtaining dispensation from the Church. Members who withdraw from the Order are entitled to receive the personal property they owned before joining the Order, as well as property received by gift or inheritance. In addition, withdrawing members are entitled to the return of their dowries, if they had them. The procedures set forth in the Order's Constitution for the return of property to withdrawing members do not vary for members who fail to obtain official dispensation from their vows.

Members of the Order are allowed to secure employment (called ‘missions‘) in occupations that relate to the Order's general purposes, subject to approval by a Provincial Superior of the Order. The Provincial Superior's approval turns upon whether the proposed mission is in accordance with the Order's interpretation of the Gospel of Jesus Christ; that is, whether the mission relates to religious and charitable works that promote education, relieve suffering, and otherwise provide assistance to those in need.

When a member takes a vow of obedience as a precondition to her membership in the Order, she expressly promises to subjugate her will to that of the Order. Pursuant to that vow, no member may accept a mission without the approval of the Order. Each member who receives a missioning order is under a duty to obey that order and cannot voluntarily terminate the mission without the Order's prior approval. In addition, each member promises to abide by any direction of the Provincial Superior, even if such direction relates to the performance of the mission itself, or requires the member's withdrawal from the mission. The Order has at times required members to terminate their assigned missions.

Pursuant to their vows, members of the Order are not entitled to retain any funds generated by their mission work; rather, the Order is entitled to all such funds. Thus, the Order requires its members to submit any payments made to a member in respect of a mission. After the member transfers the funds to the Mother House, the member maintains no control over the Order's disposition of the funds. If a member who has engaged in mission work subsequently leaves the Order, the Constitution of the Order provides that ‘(a) sister who withdraws may not demand remuneration for her work as a member of the community, since, like all the Adorers of the Blood of Christ, she freely chose to serve the Lord and His people in a life of poverty, without personal gain. The community, however, in charity will help her provide for her immediate needs when she leaves.‘

When a member of the Order is missioned in a location that is not impracticably far away from the Mother House of the Order, the member generally lives in the convent. When, on the other hand, a mission is not located near a convent, the Order rents a residence for the member. Any house rented by the Order for these purposes is considered within the Order to constitute a convent. Each member living away from the Mother House of the Order is required to submit to the Order a monthly budget statement setting forth her living expenses. The Order then either approves or revises the proposed budget, and pays the member's monthly living expenses, as approved. In addition, the Order provides its members with a maximum allowance for personal expenses which, during the year at issue, was $35 per month. There is no relationship between the amount of a member's monthly allowance and the amount of funds, if any, generated by her mission work.

Petitioner made her perpetual vows of poverty, chastity and obedience in 1970 and became a perpetual member of the Order at that time. She has never requested dispensation from her vows, and at all relevant times was an active member of the Order.

In June, 1968, petitioner received her bachelor of science degree in nursing. On October 18, 1978, petitioner was awarded a traineeship for Nurse Practitioner training under section 882(b) of the Public Health Services Act. This award covered the cost of petitioner's tuition, living and moving expenses, books and fees in the Nurse Midwife Program at the University of Mississippi's Medical Center. In order to receive the traineeship award, petitioner agreed that upon completion of her traineeship she would reside and practice in a ‘health manpower shortage area‘ (as defined by section 332 of the Public Health Services Act) for a 12-month period for each academic year for which the traineeship award was made. Petitioner agreed that if she failed to fulfill her ‘practice commitment‘ she would ‘pay back within 12 months of the date of completing the training, the amount of all traineeship assistance received, plus interest set by the Treasury.‘

From February 28, 1978 through May 12, 1979, petitioner attended the University of Mississippi's Nurse Midwife Program. Upon her graduation in May, 1979, petitioner applied and was interviewed for several positions in health manpower shortage areas. Prior to being interviewed for these positions, petitioner sought and obtained authority from the Order to do so. One position petitioner applied for was a position with Su Clinica Familiar (the Clinic). The Clinic conducts a family health services program in Raymondville, Texas.

During the year in issue, a portion of the Clinic's staff was employed through the National Health Services Corps (NHSC). The NHSC is a Federal program within the United States Public Health Service that assigns health professionals in its employ to deliver health care services in health manpower shortage areas. The NHSC provided the Clinic with necessary professional staff, such as physicians, mid-level practitioners, and nurse-midwives. The professionals provided by the NHSC were employed and compensated by the Federal government, and not by the Clinic.

Although the details are not entirely clear, the record reveals that petitioner filed an application for employment with the NHSC in conjunction with her application to the Clinic. Her application was made on a Federal government Standard Form 171 on which she stated that she would not accept a salary of less than $16,000 per year. She applied for the job ‘in order to fulfill my 12-month commitment to practice as a Nurse Practitioner in a primary care health shortage area designated under Section 822(b) of the *** (Public Health Services) Act.‘ She stated on her application to the NHSC that she would accept a position only if she were assigned to work at the Clinic in Raymondville, Texas. Subsequently, petitioner was interviewed over the telephone by an employee of the NHSC. Neither the NHSC nor the Clinic are affiliated with petitioner's Order in any way.

The NHSC paid for petitioner to travel to the Clinic in late May, 1979, ‘for the purpose of visiting the community as a prospective National Health Service Corps assignee.‘ On June 27, the Clinic informed the NHSC of ‘the clinic's intention of employing Sister Francine Schuster as a staff...