20 CFR 404.1071(a) and 404.1091(c)

SSR 83-41c

Robert Briant and Virginia Woods Briant v. Commissioner, 1A Unempl. Ins. Rep. (CCH) ¶ 14,207 (U.S. Tax Court, 7/19/82)

The petitioner, a U.S. citizen, performed services while employed in Canada as a minister and did not pay the U.S. self-employment tax on that earned income. Held, since the performance of services by a minister is considered a trade or business for self-employment tax purposes, income earned by a U.S. citizen as a minister, regardless of where or for whom the ministerial services are performed, is subject to the U.S. self-employment tax unless an exemption from that tax is in effect for that individual.


Findings of Fact

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Petitioner was a U.S. citizen during 1976 who has resided in Canada since 1972. On July 24, 1974, petitioner was ordained to the Diaconate of the Anglican Church of Canada. On November 30, 1976, petitioner was ordained into the priesthood for the Anglican Church of Canada. From July 24, 1974, to the date of trial, petitioner has been employed by the Christ Church Cathedral, Anglican Church of Canada, in Vancouver, British Columbia, Canada. Petitioner has never been a priest or minister within the United States nor ever worked for a U.S. church.

During 1976 petitioner was covered by two pension plans, one by the government of Canada and the other by the National Anglican Church of Canada. During 1976 petitioner was paid the equivalent of $8,636.60 U.S. dollars by Christ Church Cathedral for services she performed. Under section 911, IRC 1954, effective for 1976, she excluded that amount from income reported on her 1976 U.S. income tax return. Petitioner paid no U.S. self-employment tax on these earnings.

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The first issue is whether petitioner, an American citizen, is liable for U.S. self-employment taxes on income earned while employed in Canada as a minister.

Petitioner asserts that it is inequitable for the United States to collect self-employment taxes from her since she has already paid into two pension plans in Canada. Respondent asserts that petitioner was clearly subject to the self-employment tax and that this Court does not have equity jurisdiction to find otherwise.

While we recognize the reason for petitioner's concern over why she should have to pay retirement taxes to three different sources,[1] we must agree with respondent. The law in this area has been changed many times in the last 25 years and is confusing, but the bottom line is clear.

Section 1401[2] imposes a tax upon the self-employment income of every individual. Section 1402(a) defined "net income from self-employment" as the gross income derived by an individual from any trade or business carried on by such individual, less the allowable deductions attributable to such trade or business, except that in computing gross income, subsection (a)(8) provides that a duly ordained minister shall compute his net earnings from self-employment from the services described in subsection (c)(4) without regard to section 911.[3] The term "trade or business," when used in reference to self-employment income, as defined in subsection (c), shall have the same meaning as when used in section 162, except that such term shall not include --

(2) the performance of service by an individual as an employee, other than --

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(D) Service described in paragraph (4) of this subsection.

Paragraph (4) provides that the term shall not include "the performance of service by a duly ordained * * * minister." However, the flush language at the end of subsection (c) provides that paragraph (4) shall not apply to service performed by an individual unless an exemption under subsection (e) is effective with respect to him. Subsection (e) provides that any duly ordained minister, upon filing an application, together with a statement that he is conscientiously opposed to, or because of religious principles is opposed to the acceptance of any public insurance which makes payments in the event of death, disability, old age, or retirement, shall be exempt from self-employment tax with respect to services performed by him as a minister.

From this rather convoluted language of the statute, as it read in 1976,[4] we conclude that the earned income of a minister, who is a citizen of the United States, from his trade or business regardless of where and for whom he performs his ministerial services is subject to the U.S. self-employment tax, unless he or she is qualified to file and files an application for exemption from the tax. The performance of services by a minister is considered a trade or business for self-employment tax purposes. See section 1402(c)(2)(D). See also Rev. Rul. 80-110, 1980-1 C. B. 190. And a minister shall compute his self-employment income without regard to section 911.

We note that simply because petitioner's income was earned in Canada does not entitle petitioner, a U.S. citizen, to exclude such amount from her self-employment income. While section 911(a) provides, in pertinent part, that in the case of an individual who establishes that he has been a bona fide resident of a foreign country for an uninterrupted period, amounts received from sources without the United States which constituted earned income attributable to such services shall not be included in gross income for income tax purposes, such amounts cannot be excluded from self-employment tax. See section 1402(a)(8), and Conf. Rept. 92-1605, 92d Cong. 2d Sess., (1972), 1972-2 C. B. 759-760, which states "all American clergymen serving foreign congregations outside the United States would compute their self-employment income for social security purposes without regard to the $20,000 exclusion of income earned abroad."

Since petitioner was a citizen of the United States in 1976 and had not filed an application for exemption from the self-employment tax, we have no alternative but to conclude that her income earned from the performance of her ministerial duties in Canada were subject to the self-employment tax, and respondent's determination must be sustained on this issue.[5]

Petitioner, however, asserts that it is inequitable for her to be subject to the self-employment tax since she has already paid into two pension plans in Canada. While we sympathize with petitioner, we are without equity jurisdiction to relieve her of the tax. Hays Corporation v. Commissioner [Dec. 26,146], 40 T.C. 436, 442-443 (1963), affd. [64-1 USTC ¶ 9465] 331 F.2d 422 (7th Cir. 1964), cert. denied 379 U.S. 842 (1964).

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[1] Initially we harbored some doubts ourselves about a person having to pay U.S. self-employment tax on income earned in Canada which was properly excludable from gross income for U.S. income tax purposes.

[2] All section references are to the Internal Revenue Code of 1954, as amended and in effect during the year in issue.

[3] Sec. 911 deals with the exclusion from gross income of certain earned income in a foreign country, and will be discussed later.

[4] The status of ministers with respect to the social security tax has been changed on numerous occasions. For example, for the years 1954 through 1967, ministers had to file an election to be covered by the Social Security System. Since 1967, they have had to file an application not to be covered.

[5] It may seem illogical that petitioner's foreign source income is exempt from U.S. income tax but still makes her subject to the U.S. self-employment tax. But such is the law and we are powerless to change it. Henson v. Commissioner [Dec. 33,960], 66 T.C. 835, 837-838 (1976). Of course petitioner could have avoided the self-employment tax had she filed the required statement and application for exemption; but then again she may not have been qualified to truthfully make the required statement. See sec. 1402(e) for the requirements.

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