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Weber v. Commissioner, 103 T.C. 378, 386 (1994)

May 15, 2018

In North Carolina, IRS audited several hundred United Methodist minister's tax returns that reported their salary income and professional expenses spent to earn that income on Schedule C.  Legal counsel of the United Methodist  denomination required Methodist churches to provide  Form 1099 to their ministers, rather than a Form W-2.  A tax liability was assessed when the professional expenses were changed form Schedule C to Schedule A, Itemized Deductions.  These audits resulted in a District Court Case in North Carolina, Weber v. Commissioner, in January, 1993.  The case was well represented by Rev. Weber's denomination and the written result was released on August 25, 1994.  An appeal was filed and the final decision was received on July 31, 1995. (U.S. Court of Appeals, 4th Circuit, 94-2609, 7/31/95) The IRS position stands.  This case was a test case for the United Methodist ministers as to the issues it contains.  Petitioners in many of the pending cases agreed to be bound by the final decision in this case.

Special Trial Judge John J. Pajak, seemed to have carefully read the Book of Discipline of the United Methodist Church.  He decided that the "right to control" test was of primary importance and found that Weber was subject to significant control.  The court stated, "generally a lower level of control applies to professionals.  Petitioner is a professional minister."  He was required to work at the church to which he was assigned and was required to attend meetings.  He had to explain the position of the Discipline on any topic he chose to present in his sermons.  He did not have the authority to unilaterally discontinue the regular services of a local church.  Though the church did not give him a Form W-2, the court gave that factor little weight.  The Court found that Rev. Weber's position was intended to be permanent as opposed to transitory and that the fringe benefits provided by the Church indicated an employment relationship.

Methodist ministers, spouses, and dependents are covered by life insurance and contributions are made to the General Board of Pensions of the United Methodist Church which provides payments upon retirement.  Ministers are expected to make voluntary contributions to the pension plan equal to 3 percent of their salary.  As an employee, Rev. Weber was entitled to tax free treatment of these fringe benefits.

A more recent U.S. Tax Court decision in Radde v. Commissioner, T.C. Memo 1997 -490 upholds the Weber decision that as a minister Rev. Radde was an employee.  In Private Letter Ruling 9825002, a United Methodist minister, who served as a presiding elder, was denied his request to be considered an independent contractor.

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