On Appeal from the Decision of the United States Tax Court.
Bauer, Eschbach and Coffey, Circuit Judges.
The appellants David and Rachel Templeton appeal the tax court's affirmance of a $227.24 deficiency assessment for unpaid self-employment taxes in 1977. On appeal, they essentially raise two issues: (1) whether they qualify for an exemption from self-employment tax under 26 U.S.C. §§ 1402(e) & (g), Internal Revenue Code; and, if not (2) whether those sections are unconstitutional. We find the appellants' arguments to be without merit and affirm the decision of the tax court.
On December 31, 1976, the Templetons filed Internal Revenue Service Form 4029 ("Application for Exemption From Tax on Self-Employment Income and Waiver of Benefits") and Form 4361 ("Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners"). The IRS returned both forms to the taxpayers on February 22, 1977, because neither form had been properly completed as filed. Form 4029 had been altered by deleting the words "member of" from the printed phrase "I certify that I am and continuously have been a member of (name of religious group),. . . ." Form 4361 was incomplete in that it: (1) failed to designate the qualifying category under § 1402(e),*fn1 i.e., the Templetons failed or refused to check the appropriate box to indicate whether they were ordained ministers, priests, rabbis; members of a religious order; commissioned or licensed ministers; or Christian Science practitioners; (2) failed to state the date on which they were ordained or licensed; (3) failed to name the denomination or religious order to which they belonged; and (4) failed to set forth the first two calendar years following 1954 in which they had self-employment income of $400.00 or more some part of which was for services as a minister, priest, rabbi, etc. The IRS also informed the Templetons that they would have to file separate forms if they both wished to be considered for exemption.
A week later, on March 1, 1977, Mr. Templeton submitted a revised set of Forms 4029 and 4361. This time Form 4029 was modified to delete the words "private or" from the printed phrase "I am conscientiously opposed to accepting benefits of any private or public insurance which makes payments in the event of death, disability, old-age or retirement. . . ." In addition, Form 4361 again failed to state the first two years after 1954 in which Mr. Templeton had self-employment earnings equal to or exceeding $400.00. This revised Form 4361 did, however, report that Mr. Templeton was ordained or licensed in 1940, and was a member of the denomination or religious order of "Bible Believing Christians." On March 21, 1977, the IRS notified Mr. Templeton that both applications for exemption from self-employment tax had been rejected. The 4029 application was rejected because it failed to meet the requirements of § 1402(h) (now § 1402(g)) because the form had been modified. The 4361 application was rejected because it was not timely filed.
On June 29, 1977, Mr. and Mrs. Templeton jointly submitted a third 4029 application. This time the taxpayers altered the form by striking the words "application for" and inserting therein the words "notice of." As in the March 1, 1977, application, the words "private or" were deleted. In this latter application, however, the word "taxpayer" was also stricken from the printed phrase "name of taxpayer." On August 4, 1977, the IRS notified the Templetons that it would not process this renewed application because it had previously received a Form 4029 application, which had been disapproved because the form had been modified.
During 1977, the Templetons received net self-employment income of $2,876.42 which they reported on their 1977 tax return. They did not, however, pay any self-employment tax on this amount. The Commissioner of the IRS sent the Templetons a statutory notice of deficiency in the amount of $227.24. The taxpayers unsuccessfully sought a redetermination of that assessment in federal tax court. From the tax court's decision the taxpayers appeal.
The first issue is whether the trial court erred in holding that the Templetons failed to qualify for an exemption under either §§ 1402(e)*fn2 or (g).*fn3 It is well established that exemptions and deductions are not matters of right but rather are granted by "legislative grace; and only as there is clear provision therefor can any particular deduction be allowed." New Colonial Co. v. Helvering, 292 U.S. 435, 440, 78 L. Ed. 1348, 54 S. Ct. 788 (1934). See also Kirk v. C.I.R., 138 U.S. App. D.C. 61, 425 F.2d 492, 494 (D.C. Cir.), cert. denied, 400 U.S. 853, 27 L. Ed. 2d 91, 91 S. Ct. 53 (1970). The taxpayer has the burden of proving that he qualifies for an exemption from taxation under the Internal Revenue Code. See Tax Court Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115, 78 L. Ed. 212, 54 S. Ct. 8 (1933); New Colonial Co., 292 U.S. at 440 (1934); and Potts, Davis & Company v. C.I.R., 431 F.2d 1222, 1224 (9th Cir. 1970). "This burden on the taxpayer is accompanied by the presumption that the determinations of the Commissioner are correct." Potts, 431 F.2d at 1224 (footnote omitted); Welch, 290 U.S. at 115. An examination of the record in light of the requirements of §§ 1402(e) and (g) clearly demonstrates that the Templetons failed to establish that they qualify for an exemption under either provision.
Section 1402(e) only exempts self-employment income from tax "imposed by this chapter with respect to services performed by him [the taxpayer] as such minister, member, or practitioner." Thus, only that portion of self-employment income received for services performed as a minister, etc., is exempt under § 1402(e). The Templetons have not demonstrated that the self-employment income in question, some $2,876.42, was in fact income received exclusively from the performance of pastoral services. The stipulation of evidence provided to the tax court established that the self-employment income in question consisted of $5,113.08 obtained from the operation of "The Sewing Center", a loss of $2,509.66 from "Temple Enterprises" and $273.00 in income from "Carnegie International Corp." The record is devoid of evidence demonstrating that any of the $2,876.42 in self-employment income was derived from the practice of a religious ministry. Therefore, we hold that the Templetons fail to qualify for an exemption under § 1402(e).
The result is the same under § 1402(g). That section provides an exemption only if the:
"Secretary of Health, Education, and Welfare finds that . . . it is the practice, and has been for a period of time which he deems to be substantial, for members of such sect or division thereof to make provisions for their dependent members which in his ...