Paul L. Caron

Tuesday, March 5, 2013

Tax Court: Taxes Come Before Tithing to Church, Children's College Expenses

Tax Court Logo 2Thompson v. Commissioner, 140 T.C. No. 4 (Mar. 4, 2013):

P filed a petition for review pursuant to I.R.C. §. 6330 in response to R’s determination to proceed with collection. P sought a collection alternative of a partial payment installment agreement with a monthly payment of $3,000. The Internal Revenue Manual provides guidance for determining how much a taxpayer should be able to pay in a partial payment installment agreement and how much should be set aside for the taxpayer’s necessary living expenses. The Internal Revenue Manual provides that in a partial payment installment agreement a taxpayer is allowed only necessary expenses; conditional expenses are not allowed. In computing the necessary expenses, P included tithing to his Church and expenses for his children’s college. P claims that both tithing and his children’s college expenses are necessary expenses. ...

Issue 1. Tithing.  This issue involves whether petitioner’s asserted religious obligation to tithe can trump his obligation to pay substantial amounts of delinquent penalties and taxesin a reasonably prompt manner. Petitioner introduced evidence, including a biblical passage from the Old Testament, to support his position. See Malachi 3:8-10. This brings to mind another biblical passage suggesting an answer to this type of dilemma: “Render therefore to Caesar the things that are Caesar’s, and to God the things that are God’s.” Matthew 22:21. However, even this formulation presents the dilemma of determining which things fall into the two respective categories. While we may be incapable of determining what belongs to God, we believe that we can, and must, decide what is Caesar’s. Therefore, we will consider this issue using the latter approach based on existing procedures and precedents. ...

We hold that the classification of petitioner’s tithing as a conditional expense: (1) conformed to the guidelines in the Internal Revenue Manual; (2) was not a violation of petitioner’s rights under the Free Exercise Clause; and (3) did not violate the [Religious Freedom Restoration Act of 1993]

Issue 2. College Expenses.  On Form 433-A petitioner reported monthly college expenses of $2,952.15 Petitioner argues it was an abuse of discretion for the settlement officer to not allow his children’s college expenses as a necessary expense. Respondent contends that his children’s college expenses are conditional expenses.

In a partial payment installment agreement only necessary expenses are allowed. See [IRM] pt.  The Internal Revenue Manual discusses both college expenses and education expenses. IRM ex. 5.15.1-1 Q&A (2) provides:

Question. A taxpayer has a child in an expensive university. She has already paid the university $25,000 for tuition and housing for the school year, and she intends to pay another $25,000 next July for the following school year. Should this expense be allowed?

Answer. Yes, if the taxpayer can pay the liability plus accruals within five years. Otherwise, the expense will not be allowable. ...

Petitioner would not fully pay his tax liabilities within five years under the terms of the partial payment installment agreements proposed by either petitioner or the settlement officer. Therefore, the college expenses would not be a necessary expense under IRM ex. 5.15.1-1 Q&A (2).

(Hat Tip: Bob Kamman.)

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Wow, who knew taxprofblog had so many sovereign citizens in its readership?

I hope none of you are tax attorneys. Good luck getting the Tax Court to take your irrelevant and frivolous arguments about the illegitimacy of the federal government or your compaints about the tax code seriously. I'm sure you'll get the same amount of credence as the tax protesters who like to file briefs about the fringe on the flag.

Posted by: G.E. Moore | Mar 12, 2013 5:17:03 PM

" You got the money from Caesar, you render it back to him because it is already his. QED."

1. Most any argument ending with "Q.E.D." skips some foundational step, and relies on the "Q.E.D." to carry it further than it ought to go.

2. The money may have been printed by Caesar, but it came into my hands in exchange for the value of work that I have performed. Caesar may have his coins back, but I want my efforts back first.

Posted by: bobby b | Mar 7, 2013 8:46:05 PM

Jesus said the "render unto Caesar" part before he said the "render unto God" part. The money is Caesar's in the first place. The Thomistic/Aristotelian definition of justice is rendering unto someone that which is already his. You got the money from Caesar, you render it back to him because it is already his. QED.

Posted by: teapartydoc | Mar 7, 2013 4:23:53 AM

In the USA we the people through the States formed a federal government with a Constitution that spells out the rules for governance. If the federal government follows those rules, then it legitimately has supreme power. Presumably the taxes were set by Congress and the President who are elected by the people, thus we are expected to pay them.

I believe the correct solution in this case is that the taxpayer must finance college over a period of time, just as he's asking the federal government to allow on his tax debt.

Further, the taxpayer apparently didn't pay his taxes as everyone else is expected to do, so that puts the burden on him to get them paid within some reasonable financing time. It would take more detailed knowledge of the case to decide whether the government made a reasonable balance between the financing of the tax debt and the presumably financed college expenses. Also: is the taxpayer living at a reasonable standard of living justified by his income? It won't do to claim you can't pay your taxes because you want to have a higher standard of living than others who make about the same income as you.

Posted by: Ken in Camarillo | Mar 7, 2013 12:13:54 AM

Money is a medium of exchange manufactured by the government. The actual piece of money belongs to the government, not to the person holding the paper, coin, or electrons. Jesus made it pretty clear that was the case when he pointed out that Caesar's picture was on the coin.

Tithes, educational costs, etc. are expenses paid in money, but taxes are a claim by the government to the money itself, or at least a portion of it. Taxes are not expenses.

The matter might be different if the government were collecting grain, sheep or gold, but it isn't.

It therefore seems reasonable to suppose that taxes will always be paid in preference to expenses, and the IRM is in fact a relaxation of that standard, not an imposition of standards.

BTW, last time I looked, the income tax was based on an amendment to the Constitution, just like freedom of religion. While in theory freedom of religion pre-exists the Constitution, as a practical matter it doesn't. So the idea that the first amendment presumptively trumps the 16th seems wrong.

Posted by: punditius | Mar 6, 2013 9:34:48 PM

Unfortunately, I get a 404 on the .pdf for the decision, so forgive my confusion...

The college expenses seems pretty cut and dry. P owes $X, considering college expenses necessary requires that P be able to pay $X+$A (accrual) in 5 years. This should all be simple math.

The tithing is apparently not as clear, except presumably, P can not pay $X+$A within 5 years if it is considered a necessary expense. I would consider the IRS Manual (1) to be irrelevant. I don't care what they think. (2) is much more critical. Free exercise to me, means you do what your religion compels you to do. Now, only Scientology would suggest you tithe before you meet your worldly obligations, so it certainly would be a stretch; however, here we have the State telling the Citizen what they can and can not believe in.

As for Matthew and Ayn Rand, I think you are giving Ayn a bad rap. She supports 'voluntary' payment of taxes, and our moral obligation to pay collectively for our common good. Per G.E.'s comment, it is a very slippery slope to "apply the law as written", particularly when the court itself invoked the Free Exercise Clause.

Now, in this case, I believe the court's interpretation of Free Exercise is appropriate; however, consider the Affordable Care Act. It is indeed written law, but one of its provisions requires me, a taxpayer, to provide free birth control and abortion pills to every slut in the country that can't keep her legs closed.

As that last sentence suggests, I do not consider this either to be a necessary 'other service', or in keeping with the Free Exercise Clause. I would suggest Cardinal Dolan's opinion to be somewhat definitive. The State can not compel me to finance a sin. And that, David is indeed taxing me in violation with my Freedom of Religion.

Posted by: Donald Campbell | Mar 6, 2013 5:58:09 PM

Some bureaucrat wrote a section in a manual which decided that if you couldn't pay all in five years... you don't get to take college expenses?

A) When did the mantle of infallibility descend on the IRS manual writers? Just because it's in some "manual" doesn't make it any less arbitrary. The court just said "I don't know, so I'll let some anonymous GS-13 in the IRS decide for me." Cowards.

B) Where (other than the proverbial lower orifice) did the "5 year" distinction come from? Again, arbitrary a hell and the court played Sir Robin, again.

Posted by: bud | Mar 6, 2013 5:08:17 PM

I can tell you from personal experience putting three kids through college that colleges do not consider either taxes or tithing legitimate expenses, so there is a lot of this going around. I am an ordained minister serving a church and I tried to explain to the colleges' financial aid offices that tithing was not optional for me.

Their answers, though windier than this, can nionetheless be summed up: "Yes, it is."

Posted by: Donald Sensing | Mar 6, 2013 5:03:49 PM

We as Christians are supposed to submit ourselves to all authority over us, as God is sovereign (not the state) and ordains governments, kings, leaders, laws, etc (1 Peter 2:13-16). IMO this person was not submitting to authority as commanded in the Word of God for even being in a tax court in the first place. Additionally, he should not have been attempting to abuse a principal of giving to the Lord, not a command that he must give to the Lord, to avoid paying his taxes.

Posted by: jclittlep | Mar 6, 2013 5:02:49 PM

The monopoly on force argument could be extended to allow the government to do most anything, and so must be rejected.The people ceded certain enumerated powers to the federal government, The income tax was added by amendment since it was not allowed by the constitution. It was originally 3% for those earning a million or more, was 1 page long and was voluntary. It has since metastasized beyond all recognition and become monstrous. The sixteenth amendment should be repealed (as well as the seventeenth).

Posted by: mr burns | Mar 6, 2013 5:02:42 PM

But the sovereign has repeatedly exceeded its authority and acted outside of the limitations put upon it by the Constitution. That being the case, they have no legitimate authority and are just another criminal enterprise.

Unless you want to make an argument that a document such as our Constitution allows for a government such as ours then I would not put any great belief in its legitimacy. You simply can't ignore the 14th amendment nor can you torture the text to arrive at the current state of the law and still retain any legitimate authority. If the government is allowed to ignore its foundational documents from which it draws its authority then the people are allowed to ignore the government.

Hell, they are up on Capitol Hill today arguing because the president will not admit that he does not have the authority to order drones to gun us down in the streets without due process of law. It is absolute madness.

No, we are long past the days when anyone complies due to any other reason than force and fear.

Posted by: Captain Obvious | Mar 6, 2013 4:49:00 PM

The government is not sovereign, you horse's ass, the people are. You belong in 17th century France where you can compete to kiss the Sun King's arse.

Posted by: Carl Pham | Mar 6, 2013 4:31:38 PM

"Taxes pay for that make a peaceful civil society and functioning markets possible"

Reasonable however for how long can a society remain peaceful and for how long is it possible to maintain functioning markets when half of such civil society pays, for example, no Federal Income Tax while the other half is burdened at a greater rate?

A civil society with a functioning market would not have half the society paying all the burden of taxation while the other half not paying burdensome taxes receives the majority of the benefits of paying taxes.

In America, not only do tax payers render unto Caesar, tax payers render unto Caesar's personal slaves.

Posted by: Susan | Mar 6, 2013 4:01:03 PM

Ah, Yes. Of course it is much more important for this taxpayer to pay his fair share for Obamaphones, Solyndra, and Cash for Clunkers before he pays for the necessary education for his own children and a modest charitable contribution. It must be that the Feds found someone still working and will take it all, plus interest.

Posted by: Charley | Mar 6, 2013 3:40:47 PM

Pretentious Novus : Take a deep breath and make an effort to read what someone has written and not what you assume they have written.

Posted by: Musashi | Mar 6, 2013 3:28:25 PM

To assert the government has a legitimate monopoly on the use of force is laughable and far beyond the bounds of reality (and the second amendment). You might be able to demonstrate the merits of sophistry with your arguments but this seems like an odd place to do it.

Posted by: Musashi | Mar 6, 2013 3:25:01 PM

has asserted a legitimate monopoly on the use of force

Citation needed.

Posted by: BC | Mar 6, 2013 3:24:50 PM

Matthew: Take a deep breath and try to bring yourself slowly out of Ayn Rand World. Your political philosphy is a little, shall we say, strained?

Posted by: Publius Novus | Mar 6, 2013 7:32:58 AM

To Matthew. The government has the right to tax because it is the sovereign and has asserted a legitimate monopoly on the use of force. Taxes pay for the military, infrastructure, law enforcement, and other services that make a peaceful civil society and functioning markets possible. This is an unremarkable decision and it's laughable to suggest that the Tax Court should have reconsidered the entire basis for American social contract rather than apply the law as written.

You might be able to demonstrate the merits of anarchocapitalism, but this seems like an odd place to do it.

Posted by: G.E. Moore | Mar 6, 2013 7:17:55 AM

To David R ... forcing people to pay taxes is valid in the first place for what reason? What gives the government the right to steal? If I don't have the right to steal, I can't cede that right to someone else. The "right to steal" that the government possesses exists by the use and threat of violence.

Supposedly our government started to prevent taxation without representation, yet ended up making taxes far higher than the previous government ever had and the whole notion that "representation" on the scale of the US is in anyway meaningful is a complete misnomer. If this were accurate we wouldn't be 16 trillion in debt with 100 trillion in unfunded liabilities and have a monetary system that results in funneling money to those who come to the trough of the state. This is a mess.

Posted by: Matthew Swaringen | Mar 5, 2013 2:03:17 PM

One expects someone who appears to disdain Christians to try to put words into their mouths.

Posted by: Woody | Mar 5, 2013 10:47:39 AM

One expects comments from those opposed to this decision to the effect that forcing someone to pay taxes violates their freedom of religion.

No, it doesn't.

Posted by: David R. | Mar 5, 2013 6:46:37 AM