Taxing Lessons Case Summaries

Case — Vow of Poverty

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TL Case Summ


Does a taxpayer’s vow of poverty exclude him from self-employment tax?


Taxpayer Says: His vow of poverty insulated him from being taxed on the compensation he received for his services as a pastor.

Internal Revenue Service Says: The income is taxable self-employment income.


From Internal Revenue Code Section 61(a): Defines gross income as “all income from whatever source derived”, including compensation for services. This definition includes all accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.

From Internal Revenue Code Section 107: Provides that gross income does not include, in the case of a minister of the gospel, “the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home.”

From Internal Revenue Code Section 1401: Imposes a tax on an individual’s self-employment income, which is defined as the “net earnings from self-employment” derived by an individual during a taxable year.

From Internal Revenue Code Section 1402(c)(4): A “duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry” is engaged in carrying on a trade or business unless the minister is exempt from self-employment tax pursuant to section 1402(e).

From Internal Revenue Code Section 1402(e)(3): Unless an exemption certificate is timely filed, the minister is liable for self-employment tax on income derived from the ministry.

From Schuster v. Commissioner, 800 F.2d 672, 677 (7th Cir. 1986), aff’g 84 T.C. 764 (1985): While members of religious orders who have taken a vow of poverty are subject to tax for income received in their individual capacities, they are not subject to tax on income received by them merely as agents of the orders of which they are members.


In general, if you perform ministerial services for a qualified religious order, those services are covered by social security and Medicare provisions under the Self Employment Contributions Act. That means your earnings are subject to self-employment tax unless an exception applies. (Ministerial earnings are exempt from federal unemployment and withholding tax, and ministers may not owe tax on amounts paid to them for housing.)

One exception to the general self-employment tax rule is when you take a vow of poverty, renounce your claim to your earnings and assign your income to the religious order. In that case, the income may not be taxable to you, since it was never legally yours (normally, income from services is taxed to you when you perform the service).

Another exception is when you file for an exemption from self-employment tax on IRS Form 4361.

In this case, the taxpayer, a pastor for thirty years, converted his ministry to a corporation sole and took a vow of poverty in 2005. He signed a document stating that any donation/honorarium, and/or endowment given to him personally would be considered the property of the ministry. (A corporation sole is a valid legal corporate form that allows religious leaders to incorporate so the ownership of property passes to the successor of the religious organization.)

During 2007, in exchange for his ministerial services, the ministry made payments totaling $43,200 for the taxpayer’s home mortgage, personal credit cards and utility bills. The taxpayer did not report this amount as income on his tax return, and he did not request an exemption from self-employment tax. The taxpayer did report as income wages received from a religious academy.

He says the payments from the ministry are not taxable because of his vow of poverty. While members of religious orders who have taken a vow of poverty are subject to tax for income received in their individual capacities, they are not subject to tax on income received by them merely as agents of the orders of which they are members.

The IRS says the payments were unreported self-employment income for tax year 2007.


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HL Carpenter, an experienced investor and a CPA, specializes in reader friendly articles on taxes and investing for individuals and small businesses, and publishes two newsletters: Taxing Lessons and Top Drawer Ink. Visit and

This information should not be considered legal, investment or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment or tax advice. Always consult your legal, investment and/or tax advisor regarding your personal situation.


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For the IRS. The taxpayer did not receive a salary from a third party and did not remit any income to the ministry by assignment. He provided services to the ministry and received compensation for those services in the form of payments made on his behalf. There was no income transferred to the ministry from the taxpayer pursuant to his vow of poverty. The mortgage payments were applied toward a house owned solely by the taxpayer and titled in his name. Similarly, the credit card payments and utility payments made on behalf of the taxpayer served only to benefit him in meeting basic living expenses. It would be a mischaracterization of the facts to state the taxpayer received a “salary” as agent of the ministry, and that this salary was assigned for the benefit of the ministry when, in fact, no such salary was paid and all income issued to the taxpayer was used solely for his benefit. Accordingly, the taxpayer received $43,200 of unreported self-employment income for tax year 2007.