Should a Pastor’s Vow of Poverty Make Him Exempt From Income Tax?

Posted on January 08, 2015

A pastor of a church took a vow of poverty and was the owner of an entity called Living Waters Ministries.

The pastor performed services for a church. The church, in turn, issued checks for the pastor’s services to Living Waters Ministries. The pastor paid for his personal expenses out of the Living Waters Ministries account including his mortgage, utilities, food and transportation. The taxpayers filed their federal Form 1040 tax returns for 2007 and 2009 but did not report the income that the pastor earned from the church.

The IRS subsequently issued a Notice of Deficiency and the taxpayers filed a Petition in the United States Tax Court. The pastor argued that his vow of poverty insulated him from being taxed on the money he received from the church. Because the money the pastor earned was used for personal expenses, and because he did not give that money to his church or another tax exempt entity, the United States Tax Court held that the money the pastor received was income and is subject to income tax. The Tax Court also upheld a 20% accuracy related penalty.

Does a vow of poverty supersede a parsonage allowance?

What do you think?

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