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Reverend Lloyd L. Goodwin Martha J. Goodwin v. United States

Court of Appeals for the Eighth Circuit
76 A.F.T.R.2d (RIA) 6716, 67 F.3d 149, 1995 U.S. App. LEXIS 27769 (1995)
ELI5:

Rule of Law:

Regular, organized, and substantial payments made by a congregation as a whole to its minister are considered taxable income, not excludable gifts, when viewed objectively as compensation for services, regardless of the individual donors' subjective intent.


Facts:

  • Reverend Lloyd L. Goodwin was the pastor of the Gospel Assembly Church in Des Moines, Iowa, which he grew from 25 to nearly 400 members.
  • Beginning in 1966, the congregation started giving 'gifts' to the Goodwins, which evolved from physical items into cash payments.
  • By 1987, a routinized procedure was in place where, three times a year, the associate pastor would announce a 'special occasion gift' collection while the Goodwins were not present.
  • Congregation members contributed cash anonymously in envelopes, which the associate pastor collected and delivered to the Goodwins.
  • For the tax years 1987-1989, these payments totaled approximately $42,250, amounts that were substantial in comparison to Reverend Goodwin's official annual salary, which ranged from $7,800 to $16,835.
  • Members of the congregation stated they gave the money out of love, respect, and admiration, not out of any sense of obligation.
  • The church trustees did not consider these 'special occasion gifts' when setting Reverend Goodwin's official annual salary.
  • The contributing church members did not deduct their cash payments as charitable contributions.

Procedural Posture:

  • The Commissioner of Internal Revenue assessed tax deficiencies against The Reverend and Mrs. Goodwin for the years 1987-1989, classifying 'special occasion gifts' as unreported income.
  • The Goodwins paid the assessed deficiencies.
  • The Goodwins filed a refund suit against the United States in the U.S. District Court for the Southern District of Iowa, seeking the return of the taxes paid.
  • The parties filed cross-motions for summary judgment in the district court.
  • The district court granted summary judgment for the United States, holding that the payments were taxable income, but ordered a refund based on a recalculation of the amounts received.
  • The Goodwins, as appellants, appealed the district court's decision to the U.S. Court of Appeals for the Eighth Circuit.

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Issue:

Are regular, organized, and substantial cash payments made by a church congregation as a whole to its pastor excludable from gross income as 'gifts' under 26 U.S.C. § 102(a) when the congregation members are motivated by love and admiration?


Opinions:

Majority - Loken, Circuit Judge.

No. The payments are not excludable gifts and constitute taxable income. Following the fact-intensive inquiry established in Commissioner v. Duberstein, the transferor's intent must be viewed from an objective perspective. The critical fact is that the payments were made by the congregation as a whole, not by individual members. The payments were part of a routinized, highly structured program that occurred regularly. Objectively, the congregation collectively knew that these substantial, on-going cash payments were necessary to retain the services of a popular minister at the relatively low salary the Church was paying. Therefore, the payments function as compensation for ongoing services and are properly treated as taxable income, similar to how tips are treated.



Analysis:

This decision refines the application of the Commissioner v. Duberstein gift-versus-income test in the context of religious congregations. It establishes that the collective and organized nature of payments can override the individual donors' stated intent of love and affection. The court's focus on the congregation acting 'as a whole' creates a precedent that makes it more difficult for clergy to exclude regular, congregation-wide payments from taxable income. The analysis shifts the focus from the subjective motivation of individual givers to the objective economic reality of how the recipient is being compensated, impacting future cases involving structured payments to service providers.

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