Tithing not a necessary expense in computing installment payments to IRS

Howard Freidman, Religion Clause

In Thompson v. Commissioner, (USTC, March 4, 2013), the U.S. Tax Court faced the question of the extent to which a taxpayer entering an installment agreement for the payment of back taxes should be allowed to continue to tithe to the Mormon Church.  George Thompson, who was a volunteer shift coordinator and a stake scouting coordinator for the Church, sought a partial payment installment agreement with the IRS for the over $880,000 in taxes and penalties he owed. The IRS offered an agreement under which he would pay $8389 per month, computed by deducting from Thompson’s monthly income those items the IRS classified as “necessary expenses.” Thompson claimed that his $2110 per month tithing expenses to his Church should also be a necessary expense.

The Internal Revenue Manual provides that “necessary expenses” include those that are a condition of employment. Thompson would be required to resign from his positions with the Church if he stopped tithing. The Tax Court concluded, however, that while required tithing by a minister who receives compensation would be a necessary expense, this does not apply to expenses connected with uncompensated activities. The Internal Revenue Manual also classifies payments for a taxpayer’s health and welfare as necessary ones. However the court said it was not an abuse of discretion to exclude payments relating to “spiritual health.” The Tax Court also rejected Thompson’s arguments under the free exercise clause and RFRA. TaxProf Blog reports on the decision.