By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m101 c0103
The Tax Court ruled that a minister was exempt from self-employment taxes even though the IRS had no record that he submitted a timely Form 4361. Pastor B graduated from seminary in 1976 and was ordained in 1977. Since his ordination, Pastor B served as the senior pastor of a church. In March of 1977 Pastor B completed and signed Form 4361 in the presence of witnesses, and mailed it to the IRS. The IRS has no record that the Form 4361 was filed, and Pastor B did not keep a copy of the form that he submitted. The IRS audited Pastor B, and determined that he was not exempt from self-employment taxes. It relied on a provision in the income tax regulations specifying that an exemption is not effective until “approved” by the IRS. Pastor B appealed to the Tax Court. Both he and the IRS agreed that a Form 4361 filed in March of 1977 would have been timely. The only issue was whether the form was actually filed. The court concluded that Pastor B was exempt from self-employment taxes: “We found [Pastor B’s] evidence that he had filed for an exemption to be particularly credible. His testimony concerning the filing of the Form 4361 was straightforward and plausible. Further, his testimony was buttressed by the written statement of a witness who observed petitioner complete and sign the Form 4361 in 1977. With regards to whether the application was approved by [IRS], as required by the regulations . . . we believe that such approval must have been given. [Pastor B] consistently has not paid self-employment taxes on his ministerial earnings since 1977. . . . It seems highly peculiar that, if the approval had not been given, he would have filed for 21 years as being exempt without some dispute. Rather, it seems more likely that his file was misplaced at some point in time. Thus, we find that he prepared and filed the Form 4361 in 1977.” The court acknowledged that Pastor B could not produce a copy of the Form 4361 that he allegedly filed, but it concluded that neither the tax code nor regulations require ministers “to retain such a copy.” Abdallah v. Commissioner, T.C. Summary Opinion 2002-132.