SCOTUS Reports

Tag: Religious Freedom Restoration Act

  • Thompson v. Comm’r, 140 T.C. 173 (2013): Necessary and Conditional Expenses in Partial Payment Installment Agreements

    George Thompson v. Commissioner of Internal Revenue, 140 T. C. 173 (U. S. Tax Court 2013)

    In Thompson v. Comm’r, the U. S. Tax Court ruled that the IRS did not abuse its discretion in rejecting a taxpayer’s request for a partial payment installment agreement that included tithing and college expenses. The court upheld the IRS’s classification of these expenses as conditional rather than necessary, emphasizing the government’s compelling interest in collecting taxes promptly. This decision reinforces the IRS’s authority to determine allowable expenses in installment agreements and underscores the legal limits on using religious obligations to offset tax liabilities.

    Parties

    George Thompson, the petitioner, sought review from the U. S. Tax Court against the Commissioner of Internal Revenue, the respondent, regarding a Notice of Determination concerning collection actions under I. R. C. sections 6320 and 6330.

    Facts

    George Thompson, a member of the Church of Jesus Christ of Latter-Day Saints, sought a partial payment installment agreement to settle his substantial tax liabilities. Thompson, president of Compliance Innovations, Inc. , and a trustee of its owning trust, had been assessed trust fund recovery penalties under section 6672 for failing to collect and pay over employment taxes, as well as income tax liabilities for several years. Thompson proposed a monthly payment of $3,000, which included expenses for tithing to his church and his children’s college tuition. The IRS, however, classified these as conditional expenses, not necessary, and proposed a higher monthly payment of $8,389, which Thompson rejected.

    Procedural History

    The IRS issued Thompson a Notice of Determination Concerning Collection Action(s) under sections 6320 and 6330, sustaining the filing of a Notice of Federal Tax Lien and the proposed levy action. Thompson filed a timely petition with the U. S. Tax Court, which reviewed the IRS’s decision for abuse of discretion.

    Issue(s)

    Whether the IRS abused its discretion by classifying Thompson’s tithing and children’s college expenses as conditional expenses rather than necessary expenses in determining the amount available for a partial payment installment agreement?

    Rule(s) of Law

    The Internal Revenue Manual (IRM) guides the determination of necessary and conditional expenses in partial payment installment agreements. Necessary expenses must provide for the taxpayer’s health and welfare or production of income. Conditional expenses, which include tithing and college expenses, are not allowed in partial payment installment agreements unless they meet specific criteria outlined in the IRM.

    Holding

    The U. S. Tax Court held that the IRS did not abuse its discretion in classifying Thompson’s tithing and children’s college expenses as conditional expenses. The court found that the IRS’s decision was consistent with the Internal Revenue Manual and did not violate Thompson’s rights under the Free Exercise Clause of the First Amendment or the Religious Freedom Restoration Act of 1993.

    Reasoning

    The court’s reasoning focused on the IRS’s authority to define and apply the necessary expense test as outlined in the Internal Revenue Manual. The court emphasized that tithing did not meet the necessary expense test because it was not required for Thompson’s production of income, and the IRS’s interpretation of “health and welfare” did not include spiritual health. The court also rejected Thompson’s arguments that the IRS’s decision violated his religious freedoms, citing the government’s compelling interest in collecting taxes and the fact that the IRS’s decision did not interfere with the church’s autonomy in selecting its ministers. Regarding college expenses, the court upheld the IRS’s interpretation that such expenses were not necessary under the IRM unless the taxpayer could fully pay the liability within five years, which Thompson could not. The court’s analysis considered the legal tests applied, policy considerations, statutory interpretation methods, and the treatment of counter-arguments.

    Disposition

    The U. S. Tax Court entered a decision for the respondent, sustaining the IRS’s determination to proceed with collection actions.

    Significance/Impact

    Thompson v. Comm’r clarifies the IRS’s authority in determining allowable expenses in partial payment installment agreements, emphasizing the distinction between necessary and conditional expenses. It reinforces the government’s interest in prompt tax collection and limits the use of religious obligations or educational expenses to offset tax liabilities. The decision has implications for taxpayers seeking installment agreements and underscores the IRS’s discretion in defining necessary expenses, which subsequent courts have referenced in similar cases.

  • George Thompson v. Commissioner of Internal Revenue, 140 T.C. No. 4 (2013): Classification of Tithing and College Expenses in Partial Payment Installment Agreements

    George Thompson v. Commissioner of Internal Revenue, 140 T. C. No. 4 (2013)

    In George Thompson v. Commissioner, the U. S. Tax Court upheld the IRS’s decision to classify tithing and college expenses as conditional, not necessary, in determining a partial payment installment agreement. The court found no abuse of discretion or violation of religious freedom laws, reinforcing the IRS’s authority to collect taxes efficiently while allowing only necessary expenses in such agreements.

    Parties

    George Thompson, the petitioner, filed a petition for review against the Commissioner of Internal Revenue, the respondent, in the U. S. Tax Court. Thompson sought a partial payment installment agreement for his tax liabilities and penalties, while the Commissioner assessed and sought collection of these liabilities.

    Facts

    George Thompson, a member of the Church of Jesus Christ of Latter-Day Saints, had unpaid tax liabilities including trust fund recovery penalties under I. R. C. sec. 6672 and income tax liabilities for multiple periods. Thompson requested a partial payment installment agreement, proposing a monthly payment of $3,000, which included tithing to his church and college expenses for his children. The IRS settlement officer calculated Thompson’s ability to pay based on the Internal Revenue Manual, classifying tithing and college expenses as conditional rather than necessary expenses.

    Procedural History

    Thompson received notices of intent to levy and notices of federal tax lien filing, leading him to request a collection due process (CDP) hearing. During the CDP hearing, Thompson contested the classification of his tithing and college expenses as conditional expenses. The settlement officer offered a partial payment installment agreement with a higher monthly payment than Thompson proposed. Thompson petitioned the U. S. Tax Court, which reviewed the case for abuse of discretion by the settlement officer.

    Issue(s)

    Whether the classification of Thompson’s tithing as a conditional expense under the Internal Revenue Manual was an abuse of discretion?

    Whether classifying Thompson’s tithing as a conditional expense violated his rights under the Free Exercise Clause of the First Amendment?

    Whether classifying Thompson’s tithing as a conditional expense violated the Religious Freedom Restoration Act of 1993?

    Whether the classification of Thompson’s children’s college expenses as conditional expenses under the Internal Revenue Manual was an abuse of discretion?

    Rule(s) of Law

    The Internal Revenue Manual (IRM) provides guidelines for determining a taxpayer’s ability to pay in a partial payment installment agreement, categorizing expenses into necessary and conditional. Necessary expenses must meet the “necessary expense test,” which requires the expense to provide for the taxpayer’s health and welfare or production of income. Conditional expenses, including tithing and college expenses, are not allowed in partial payment installment agreements.

    The Free Exercise Clause of the First Amendment prohibits the government from interfering in a church’s selection of its ministers but does not exempt taxpayers from tax obligations due to religious beliefs.

    The Religious Freedom Restoration Act (RFRA) prohibits the government from substantially burdening a person’s exercise of religion unless it furthers a compelling government interest through the least restrictive means.

    Holding

    The U. S. Tax Court held that the settlement officer did not abuse her discretion by classifying Thompson’s tithing as a conditional expense under the Internal Revenue Manual. The court also held that this classification did not violate Thompson’s rights under the Free Exercise Clause or the RFRA. Similarly, the court upheld the classification of Thompson’s children’s college expenses as conditional expenses, finding no abuse of discretion.

    Reasoning

    The court reasoned that Thompson’s tithing did not meet the necessary expense test because it was not for the production of income and did not provide for his health and welfare. The court interpreted the term “employment” in the Internal Revenue Manual to mean compensated employment, thus rejecting Thompson’s argument that his uncompensated church positions qualified as employment.

    Regarding the Free Exercise Clause, the court found that the settlement officer’s decision did not interfere with the church’s selection of its ministers, as the church, not the IRS, required Thompson to resign his positions if he did not tithe. The court also emphasized that paying taxes is a common burden and does not violate the Free Exercise Clause.

    Under the RFRA, the court acknowledged the government’s compelling interest in collecting taxes efficiently. It found that allowing Thompson’s proposed partial payment installment agreement would not further this interest, as it would delay tax collection. The court concluded that the settlement officer’s decision was the least restrictive means to further the government’s interest.

    The court upheld the classification of college expenses as conditional, noting that the Internal Revenue Manual specifically addresses college expenses and requires that the taxpayer be able to pay the liability within five years for these expenses to be considered necessary.

    Disposition

    The U. S. Tax Court sustained the IRS’s determination to proceed with collection action, affirming the settlement officer’s decision to classify Thompson’s tithing and college expenses as conditional expenses in the partial payment installment agreement.

    Significance/Impact

    This case reinforces the IRS’s authority to classify expenses as necessary or conditional in determining partial payment installment agreements. It clarifies that tithing and college expenses are generally not considered necessary expenses under the Internal Revenue Manual. The decision also upholds the government’s compelling interest in efficient tax collection, even when religious freedom claims are involved, and provides guidance on the application of the RFRA in tax collection contexts. The case may influence future IRS decisions on similar issues and underscores the balance between religious freedom and tax obligations.

  • Adams v. Commissioner, 110 T.C. 137 (1998): Religious Beliefs Do Not Exempt Individuals from Federal Income Taxes

    Adams v. Commissioner, 110 T. C. 137 (1998)

    Religious beliefs do not exempt individuals from paying federal income taxes, even if those taxes fund activities contrary to their beliefs.

    Summary

    Priscilla Adams, a devout Quaker, argued that the Religious Freedom Restoration Act (RFRA) exempted her from federal income taxes because they fund military activities, which conflicted with her faith. The U. S. Tax Court rejected her claim, ruling that neutral, generally applicable tax laws meet the compelling interest test established by RFRA. The court emphasized the government’s high interest in maintaining a uniform tax system, thus denying Adams’ exemption and upholding the tax deficiencies and penalties assessed against her.

    Facts

    Priscilla Adams, a member of the Religious Society of Friends (Quakers), held a belief that paying federal income taxes was against her faith because these taxes fund military activities, which she opposed on religious grounds. Adams did not file federal income tax returns for several years, resulting in the IRS determining deficiencies and imposing penalties for failure to file and make estimated tax payments.

    Procedural History

    Adams petitioned the U. S. Tax Court to challenge the IRS’s determinations of tax deficiencies and penalties for the years 1988, 1989, 1992, 1993, and 1994. The case was decided based on fully stipulated facts under Rule 122 of the Tax Court Rules of Practice and Procedure.

    Issue(s)

    1. Whether, pursuant to the Religious Freedom Restoration Act of 1993 (RFRA), Adams is exempt from Federal income taxes.
    2. Whether Adams is liable for additions to tax for failure to file Federal income tax returns and failure to make estimated tax payments.

    Holding

    1. No, because the government’s compelling interest in maintaining a uniform tax system outweighs Adams’ religious objection to paying taxes that fund military activities.
    2. Yes, because Adams failed to file her tax returns and make estimated tax payments, and her religious objection does not exempt her from these obligations.

    Court’s Reasoning

    The court applied the compelling interest test reinstated by RFRA, which requires the government to demonstrate that a substantial burden on religious exercise is the least restrictive means of achieving a compelling governmental interest. The court cited pre-Smith cases like Hernandez v. Commissioner and United States v. Lee, where the Supreme Court upheld the application of neutral, generally applicable tax laws despite religious objections. The court emphasized the government’s “very high” interest in maintaining a sound tax system, quoting United States v. Lee: “The tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief. ” The court found that requiring Adams’ participation in the federal income tax system was the least restrictive means of furthering this compelling interest. The court also noted that the Supreme Court’s decision in City of Boerne v. Flores did not affect RFRA’s application to federal law.

    Practical Implications

    This decision reinforces that religious objections do not exempt individuals from participating in the federal income tax system. Attorneys should advise clients that claims for religious exemptions from federal taxes are unlikely to succeed. The ruling underscores the importance of uniform application of tax laws and may deter similar claims in the future. Businesses and tax professionals must continue to comply with tax obligations regardless of religious beliefs. Subsequent cases like Steckler v. United States have relied on this decision to uphold the government’s interest in tax compliance over religious objections.