Lawrence v. Commissioner, 50 T. C. 494 (1968)

A ‘minister of the gospel’ under Section 107 of the Internal Revenue Code must be ordained or perform duties typically associated with ordained ministers to exclude rental allowance from gross income.

Summary

Robert D. Lawrence, a minister of education at a Baptist church, sought to exclude a rental allowance from his taxable income under IRC Section 107, which allows such exclusions for ‘ministers of the gospel. ‘ The Tax Court held that Lawrence, who was not ordained and did not perform typical ministerial duties such as administering sacraments, did not qualify as a ‘minister of the gospel. ‘ The decision emphasized the need for ordination or equivalent duties for the exclusion, despite Lawrence’s commissioning by the church for tax purposes. The dissent argued that Lawrence’s duties and commissioning should qualify him under a broader interpretation of the term.

Facts

Robert D. Lawrence was employed as a minister of education at Springfield Baptist Church, a member of the Southern Baptist Convention. He held a Master’s degree in Religious Education from Southwestern Baptist Theological Seminary. In 1961, the church commissioned him as a ‘Commissioned Minister of the Gospel in Religious Education’ to help him secure tax benefits. Lawrence’s duties included administering educational programs, training teachers, soliciting new members, visiting the sick, and occasionally leading worship services when the ordained pastor was unavailable. He did not administer baptisms or the Lord’s Supper, which were reserved for the ordained pastor.

Procedural History

The Commissioner of Internal Revenue determined deficiencies in Lawrence’s income tax for 1963 and 1964, asserting that the $900 rental allowance he received each year was taxable income because he was not a ‘minister of the gospel’ under Section 107. Lawrence petitioned the Tax Court, which held that he did not qualify for the exclusion. Judge Dawson dissented, arguing that Lawrence’s duties and commissioning should qualify him.

Issue(s)

1. Whether Robert D. Lawrence qualifies as a ‘minister of the gospel’ under Section 107 of the Internal Revenue Code, thereby entitling him to exclude his rental allowance from gross income.

Holding

1. No, because Lawrence was not ordained and did not perform the typical duties of a minister of the gospel, such as administering sacraments.

Court’s Reasoning

The Tax Court, in its majority opinion, reasoned that the term ‘minister of the gospel’ should be given its ordinary meaning, which implies ordination or performing duties typically associated with ordained ministers. The court found that Lawrence’s commissioning by the church was merely a procedural action to secure tax benefits and did not change his status or duties. Lawrence did not administer the church’s ordinances, which are central to the role of a minister in the Baptist faith. The court distinguished this case from Salkov v. Commissioner, where a cantor’s duties were found equivalent to those of a rabbi. The dissent, led by Judge Dawson, argued that the regulations and prior case law (Salkov) suggested that performing ministerial services in an official capacity, regardless of ordination, should qualify one for the exclusion. The dissent believed Lawrence’s duties and the church’s commissioning were sufficient to meet these criteria.

Practical Implications

This decision clarifies that for tax purposes, the term ‘minister of the gospel’ requires either ordination or the performance of duties typically associated with ordained ministers. It impacts how churches and religious organizations structure positions and compensation to ensure tax benefits are properly claimed. The ruling may affect non-ordained religious workers seeking to exclude rental allowances from income, prompting them to seek ordination or ensure their duties align closely with those of ordained ministers. Subsequent cases have continued to refine the definition, with some courts adopting a more inclusive interpretation as advocated in the dissent. This case underscores the importance of aligning church practices with tax law interpretations to avoid disputes over compensation classifications.