Opinion
13494-20
11-17-2021
James E. Van Pelt, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER
Joseph W. Nega, Judge
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph W. Nega in Hartford, Connecticut, containing his oral Findings of Fact and Opinion rendered on September 30, 2021, at the remote hearing at which the case was heard. In accordance with the oral Findings of Fact and Opinion, an appropriate decision will be entered.
Pages: 1 through 12
Place: Hartford, Connecticut (Remote Proceeding)
Date: September 30, 2021
Federal Building & U.S. Courthouse 450 Main Street Room 619, 6th Floor Hartford, Connecticut 06103 (Remote Proceeding)
September 30, 2021
The above-entitled matter came on for bench opinion, pursuant to notice at 10:48 a.m.
BEFORE: HONORABLE JOSEPH W. NEGA Judge
For the Petitioner: No Appearance
For the Respondent: No Appearance
THE CLERK: Calling from the calendar docket number 13494-20, James E. Van Pelt.
(Whereupon, a bench opinion was rendered.)
Bench Opinion
Joseph W. Nega, Judge
THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, as amended and in effect at all relevant times.
Petitioner James E. Van Pelt appeared pro se. Brian M. Gore appeared on behalf of respondent.
By Notice of Deficiency dated August 19, 2020, respondent determined a deficiency of $24,884 in petitioner's Federal income tax for the 2017 taxable year. The issue for decision is whether petitioner is subject to tax on the income as determined in the Notice of Deficiency.
The Court finds the following facts:
FINDINGS OF FACT
Petitioner resided in Leyden, Massachusetts at the time he filed his petition in this case. Some of the facts have been stipulated and are so found. The first stipulation of facts and exhibits attached thereto, and the admitted exhibits are incorporated herein by this reference. This case was tried on September 27, 2021, in Hartford, Connecticut.
Petitioner worked as a minister at Beacon Falls Congregational Church (the Church) in Beacon Falls, Connecticut, where he provided ministerial services throughout the 2017 taxable year. Petitioner resided in the parsonage of the Church as part of his employment and did not make rental payments to the Church. On April 15, 2018, petitioner timely filed a 2017 Form 1040, U.S. Individual Income Tax Return. On his 2017 tax return, petitioner self-reported $16,632 in pension income and $1,480 in taxable Social Security benefits. Petitioner did not report any wage income, despite the Church issuing him a Form W-2 reporting $63,652 in compensation for his ministerial services.
Petitioner's 2017 return was later selected for examination by respondent. Respondent proposed an adjustment in the amount of $24,884, resulting from the addition of the omitted wages to gross income and resulting adjustments to petitioner's taxable Social Security income, self-employment adjusted gross income, and self-employment tax. On August 19, 2020, respondent issued a Notice of Deficiency to petitioner in that same amount.
On November 23, 2020, petitioner timely filed a petition with this Court. In both his petition and in subsequent filings, petitioner has made arguments that resemble those that this Court has previously deemed groundless and frivolous. On September 8, 2021, the Court issued an order warning petitioner that if he continued to pursue such arguments, he would be potentially subject to penalties under section 6673 of up to $25,000. The Court repeated this warning during the trial.
At trial and in petitioner's most recent filing - Exhibit 1003-P - petitioner continues to advance groundless arguments, namely that due to his status as a minister, his wages are not subject to income tax nor self-employment tax.
OPINION
In general, the Commissioner's determinations in a notice of deficiency are presumed correct, and the petitioner bears the burden of proving them erroneous by a preponderance of the evidence. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933); Delaney v. Commissioner, 99 F.3d 20, 23 (1st Cir. 1996).
Section 61(a) provides that "gross income" means "all income from whatever source derived". The scope of section 61(a) is broad, and exclusions from gross income must be narrowly construed. Commissioner v. Schleier, 515 U.S. 323, 328 (1995); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429 (1955); Helvering v. Clifford, 309 U.S. 331, 334 (1940). Petitioners seeking an exclusion from gross income must demonstrate they are eligible for the exclusion and bring themselves" within the clear scope of the exclusion". Dobra v. Commissioner, 111 T.C. 339, 349 n.16 (1998). Section 61(a)(1) expressly includes in gross income compensation for services rendered. I. Unreported W-2 Income
Petitioner's primary contention is a familiar tax protester refrain; he claims that he is not an employee and that the compensation he received as a minister is not wages and thus nontaxable. We will not "refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have colorable merit." Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984); see also Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) ("Courts uniformly have rejected as frivolous the arguments that money received in compensation for labor is not taxable income.").
Petitioner also appears to allege that respondent's determination of his W-2 income is erroneous because it includes his "employer's SSA contribution." A review of the evidence produced by respondent suggests that the Church paid to petitioner, as part of his compensation, what were deemed "offsets" of the Social Security and Medicare taxes for which petitioner was responsible. Because petitioner's compensation is not subject to the withholding and payment of such taxes by the Church, the payments made by the Church to petitioner as "offsets" of his taxable income remain includible in his gross income. See, e.g., Rev. Rul. 68-507, 1968-2 C.B. 485 ("To the extent that the church pays any amount toward the minister's obligation for income tax or self-employment tax other than from the minister's salary, the minister is in receipt of additional income that is includible in his gross income and must be considered in determining his income tax and self-employment tax liability."); see also Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729-31 (1929).
Petitioner also appears to allege in his most recent filing that respondent improperly included in his gross income: (1) reimbursements by the Church of his employee business expenses; and (2) pension payments. Petitioner provides no evidence to support these secondary contentions. Similarly, petitioner raised other vague, unsubstantiated claims in his most recent filing and at trial, asserting entitlement to offsetting business expense deductions, an exclusion, and a dependency exemption but offering no evidence in support. Petitioner has failed to carry his burden of demonstrating that respondent's determination of additional income tax was erroneous.
II. Determination of Self-Employment Taxes
Petitioner has also failed to carry his burden of showing that respondent's determination of additional self-employment tax was erroneous. Individuals are subject to tax under section 1401 on their net earnings from self-employment, which is defined as the net income from any trade or business carried on by the individual. See sec. 1402(a). Section 3401(a)(9) provides that compensation for services paid to a "duly ordained, commissioned or licensed minister of a church" (church minister) is not wages for purposes of employment taxes and thus not subject to withholding and payment by a church employer. See sec. 3402(a); see also sec. 3121(b)(8). Instead, the provision of services by a church minister generally constitutes a trade or business, and a church minister's wages are subject to self-employment tax. See sec. 1402(c)(4); id. at (c) (flush language); see also Knight v. Commissioner, 92 T.C. 199, 201-202 (1989). While a church minister is permitted to submit a certificate seeking exemption from self-employment tax on religious or conscientious grounds, see sec. 1402(e), petitioner has not alleged - nor does the record indicate - that he timely did so for tax year 2017.
Petitioner performed the duties and functions of a minister in his role at the Church, which included leading worship services and ministering to members. See sec. 1.1402(c)-5(b)(2) (setting forth applicable factors for determining whether minister falls under section 1402). Petitioner received wages as compensation for those services. Due to petitioner's status as a minister under section 1402, the Church did not withhold employment taxes from his compensation, which was properly subject to self-employment tax. We hold that petitioner has failed to demonstrate that respondent's determination of self-employment tax was erroneous.
III. Imposition of 6673 Penalty
Finally, we turn to the issue of whether to impose a penalty on petitioner for his frivolous arguments. Section 6673 authorizes the Tax Court on its own accord to impose a penalty not in excess of $25,000 when it appears that (1) the proceedings have been instituted or maintained primarily for delay or; (2) the taxpayer's position in such proceeding is frivolous or groundless. A position maintained by the taxpayer is "frivolous" where it is "contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); see also Hansen v. Commissioner, 820 F.2d 1464, 1470 (9th Cir. 1987) (affirming section 6673 penalty because taxpayer should have known claim was frivolous). The Court is given full discretion in deciding whether to impose the penalty. See Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 102 (2000), aff'd, 299 F.3d 221 (3d. Cir. 2002).
We find that petitioner has advanced a frivolous and groundless argument in this proceeding. In his petition, petitioner contended that he is a "worker of common right and a nontaxpayer" and thus "not subject to the jurisdiction of revenue law because of his occupation." Despite the Court's warning in its order of September 8, 2021 that such an argument is frivolous, petitioner has continued to advance it in his most recent filing (Exhibit 1003-P) and at trial. In his most recent filing, petitioner continues to claim that his compensation is excluded from gross income and that he is not subject to self-employment tax. These contentions have no merit and reflect common tax protestor arguments. See, e.g., Wells v. Commissioner, T.C. Memo. 2019-134 (imposing $10,000 section 6673 penalty where petitioners made the frivolous contention that they were not employees and their wages were not taxable income).
Petitioner has been warned multiple times that his arguments were frivolous and that the Court would consider imposing a penalty should he continue to advance them. Petitioner has done just that. Under such circumstances, we believe the imposition of a penalty under section 6673(a)(1) in the amount of $2,500 is warranted here. Accordingly, a decision will be entered for respondent.
IV. Conclusion
In reaching our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, find those arguments moot, irrelevant, or without merit. This concludes the Court's oral Findings of Fact and Opinion in this case.
(Whereupon, at 11:05 a.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 12 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Gary Baldwin on September 30, 2021 before the United States Tax Court at its remote session in Hartford, CT, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
Meribeth Ashley, CET-507 10/5/21
Transcriber Date
Lori Rahtes, CDLT-108 10/5/21