Perkins
v.
Comm'r of Internal Revenue

Tax Court of the United States.Apr 29, 1960
34 T.C. 117 (U.S.T.C. 1960)
34 T.C. 117T.C.

Docket No. 77474.

1960-04-29

ALVIN T. PERKINS AND STELLA A. PERKINS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Alvin T. Perkins, pro se. Charles P. Dugan, Esq., for the respondent.


Alvin T. Perkins, pro se. Charles P. Dugan, Esq., for the respondent.

Taxpayer received a pension paid to him by a Conference of The Methodist Church pursuant to the church's rules and regulations set out in its published Discipline and according to a long-established plan and past practice of the church. The principal source of the funds paid was from contributions by individual congregations in response to allocations made by the Conference. The amount of all pensions paid was fixed according to a detailed formula provided by the Discipline and not according to the needs and merits of the individual pensioner. Held, such payments constitute income and not gifts.

Respondent determined deficiencies in income tax against petitioners for the years 1955 and 1956 in the respective amounts of $137.26 and $611.90. In the amended petition filed herein the allegation of error is as follows:

The determination of the tax set forth in the said notice of deficiencies is based on the following errors, namely, the $2,348.75 received in 1955; and the $2501.50 received by me, Rev. Alvin T. Perkins, from the Baltimore Conference churches of The Methodist Church as pension, is classed taxable income rather than as gifts from the churches of said Conference to me as a retired minister of the same.

Petitioners' prayer for relief is as follows:

Wherefore, the petitioners pray that this Court may try this case, and rule we hope that the said pension is but a gift, and should not therefore be classed as taxable income.

Petitioner Alvin T. Perkins represents himself and his wife, the other petitioner, in this proceeding. From his opening statement it appears that he is a Methodist minister who retired in 1953 but continues to serve a small church on a part-time basis.

FINDINGS OF FACT.

Petitioners are husband and wife who live at Ridgely Park, Sykesville 1, Maryland. They filed joint income tax returns (and amended returns) for the taxable years. Alvin T. Perkins will be referred to sometimes herein as petitioner.

In 1955 and in 1956 Alvin received pension payments from the Baltimore Conference of The Methodist Church in the respective amounts of $2,348.75 and $2,501.50.

The Discipline of The Methodist Church is a publication containing and setting forth the rules and regulations of that church. The 1952 edition of the Discipline was in force during the years 1952 through 1956. Chapter IV thereof is entitled ‘Pension Code’ and contains detailed provisions governing the payment of pensions to retired ministers of The Methodist Church, their widow, and dependent children, and is incorporated herein by this reference. Paragraph 1615 of chapter IV of the Discipline reads as follows:

Nature of Ministerial Support.— Assumption of the obligations of the ministry required to be made at the time of his admission to membership in an Annual Conference puts upon the church the inevitable counterobligation of providing a comfortable support for the minister during the period of his membership in an Annual Conference and for his widow and dependent children after his death; but such counterobligation with reference to these benefits shall not be construed as contractual unless and until provision shall have been made therefor on an acturial reserve basis.

Shortly after the establishment of The Methodist Church in this country approximately 175 years ago, it made some provision for pensions payable to retired ministers and such a policy has continued to the present.

The Baltimore Conference of The Methodist Church was organized in 1939. Since that time it has provided for pensions to its retired ministers. The pension plan of the Baltimore Conference was organized and operated in accordance with the Pension Code set out in the Discipline.

A minister may voluntarily retire, with the privilege of making an annuity claim, if he has reached the age of 65 prior to the first day of the session of the Annual Conference to which his request for retirement is presented. Every minister who has reached the age of 72 prior to the first day of the session of an Annual Conference is compulsorily retired. A retired minister may file a claim with the Pension Board for a pension. The amount of the pension that he receives is based on the total of his years of approved service multiplied by the annuity rate. The annuity rate is ‘the sum determined annually by the Annual Conference, payable as an annuity for each year of approved service of a retired minister * * * but it is recommended that such rate be not less than one per cent of the average salary of the conference.’ The number of years of approved service is computed in accordance with the definition of that term in the Pension Code. The amount of the pension paid is determined entirely by the years of approved service multiplied by the annuity rate. No consideration is given to such factors as whether the minister has a home or owns property. The amount of pension paid to a minister's dependent children is likewise determined by the number of years of approved service of their father. The amount paid to a minister's widow is based on the number of years that she was his wife during his years of approved service.

The funds with which to pay pensions are derived primarily from contributions from individual Methodist churches. After the annuity rate has been determined for a particular year the Board of Pensions computes the amount which it anticipates will be needed to make the disbursements. Apportionments of this sum are then made the disbursements. Apportionments of this sum are then made on the member churches. The apportionment made on each church for the support of conference claimants is directly proportionate to the salaries paid by the church to the ministers who serve it. The assessment on the churches for the years 1955 and 1956 ranged from 8 per cent of salaries not in excess of $400 to 26 per cent of salaries in excess of $7,201. If the member churches do not pay their respective apportionments or assessments the Board of Pensions cannot and does not take any legal action to compel payment. The Board of Pensions informs district superintendents of churches in their districts which are in arrears and in most cases the apportionments are ultimately collected. The treasurer of the member church is primarily responsible for seeing to it that the apportionments are paid but if he fails in this respect the pastor is expected to reduce the salary which he receives in the same percentage as the unpaid assessment.

Since 1946 the Board of Pensions has derived additional income by reason of a personal assessment on the ministers. A part of this went into an endowment fund and a part went into the amount currently distributed to retired ministers. The assessment rate was for some years 2 per cent and is now 1 per cent on salaries under $4,000 and an average of 3 per cent on salaries in excess of that amount.

In each of the years 1955 and 1956 the Board of Pensions of the Baltimore Conference distributed at least $300,000 to approximately 200 conference claimants. The pension payments were made quarter-annually.

OPINION.

KERN, Judge:

Petitioners' position with regard to the only issue presented by the pleadings in this case is adequately indicated by the following quotation from their brief:

According to the statement made by David Atler in his book, ‘1957 Minister's Income Tax Guide’ (pages 81 and 82) it appears that until June, 1955, the Internal Revenue Service had generally held that payments due retired ministers as above, constituted compensation; but in view of the fact that the Appelate (sic) Courts almost uniformly rejected this position of the Internal Revenue Service and the Tax Court, the Internal Revenue Service in 1955 announced that it would not seek to tax payments which meet all of the following criteria:

‘1. The payments are not made pursuant to an enforceable agreement between the minister and the church, or pursuant to an established plan or the past practice of the church.

‘2. The payments are not made for any future service to be rendered by the minister.

‘3. The payments shall not be for services rendered by the minister in the past, but shall be primarily related to the financial position of the church and the needs of the minister.’

As stated above, there is no enforceable agreement between the minister and the Church as to the payment of any specific sum, and while the Methodist Church must necessarily adopt a plan whereby there is an annual meeting at which it is determined what amount has been collected and how it should be paid, this plan, as above pointed out, is on a voluntary basis and is not a matter of contract, and distribution of the fund is primarily related to the financial position of the Church and the required needs of its retired ministers.

The 1955 announcement of the Internal Revenue Service referred to in petitioners' brief is Rev. Rul. 55-422, 1955-1 C.B. 14, which reads as follows:

Advice has been requested whether the Internal Revenue Service will continue to litigate issues similar to those involved in Charles Schall et ux. v.Commissioner, 174 Fed.(2d) 893; Andrew Mutch v. Commissioner, 109 Fed.(2d) 390; Kavanagh v. Abraham M. Hershman et al., 210 Fed.(2d) 654; and William S. Abernethy et al., v. Commissioner, 211 Fed.(2d) 651, all involving the question whether payments on an annual or monthly basis to a retired minister or rabbi, authorized for an indefinite period by his congregation at or about the time of his retirement, were taxable as additional compensation for past services or constituted gifts exempt under section 22(b)(3) of the 1939 Code. The same problem arises under section 102 of the 1954 Code, which excludes gifts from gross income.

In the cited cases the payments were not made in accordance with any enforceable agreement, established plan, or past practice; the recipient did not undertake to perform any further services for the congregation and was not expected to do so; there was a far closer personal relationship between the recipient and the congregation than is found in lay employment relationships; and the available evidence indicated that the amount paid was determined in the light of the financial position of the congregation and the needs of the recipient, who had been adequately compensated for his past services.

The decisions in the cited cases, to the effect that the amounts involved were exempt gifts rather than taxable income, are accepted by the Service on their particular facts. In other cases involving payments to retired ministers or rabbis under similar circumstances the amounts paid will accordingly be treated as gifts excludable from gross income under section 102 of the 1954 Code.

In the instant case the pension payments were made in accordance with the established plan and past practice of The Methodist Church, there was no close personal relationship between the recipient petitioners and the bulk of the contributing congregations, and the amounts paid were not determined in the light of the needs of the individual recipients.

In our opinion, the cases upon which petitioners' cited text evidently relies are not controlling or persuasive on the facts presented herein. It is our conclusion that the pension payments received by petitioner were not gifts but were additional compensation for past services and constituted taxable income to him. The fact that The Methodist Church was under no legally enforcible obligation to make these payments does not preclude us from reaching this result. Webber v. Commissioner, 219 F.2d 834, 836.

There are vague intimations in petitioner's opening statement and in his rely brief that he is aggrieved by some other action of the respondent having to doe with the computation or collection of the taxes here involved but these are never made clear. However, no issue with regard thereto has been raised by the pleadings. Neither has petitioner made any contention that the amount of the pensions taxable to him as income should be diminished by reason of any contributions he may have made to their cost, nor has he shown the amount of such contributions. The only issue presented by the pleadings has to do with the taxability to him of the pension payments and this is the only issue we can and do decide.

Decision will be entered for the respondent.