Opinion
Appeal No. 84-827.
September 12, 1984.
Thomas Arden Roha, Washington, D.C., argued for appellant; John Holt Myers, Marc E. Albert and Susan L. Flaherty, Washington, D.C., of counsel.
Terry L. Fredricks, Washington, D.C., argued for appellee. With him on the brief were Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup and Ann Belanger Durney, Washington, D.C.
Francis J. Vaas, John C. Kane, Jr., Virginia C. Hall and Marianna C. Pierce, Boston, Mass., were on the brief for amicicuriae.
Appeal from the United States Claims Court.
Before FRIEDMAN, Circuit Judge, COWEN, Senior Circuit Judge, and NEWMAN, Circuit Judge.
This is an appeal in a tax refund suit from the United States Claims Court (Claims Court). Taxpayer, a member of a religious order, is subject to vows of poverty and obedience, and all income derived from her activities is the property of the order. The question presented is whether services she performed as a speech therapist for a county hospital, wholly unrelated to her order, come within the exception to the definition of "employment" for FICA tax purposes ( 26 U.S.C. § 3121(b)(8)(A)), since she was directed by the order to accept the hospital's offer of employment and to perform the services after she had been appointed by the hospital. Trial Judge White ruled that the earnings were taxable, granted the government's motion for summary judgment, and dismissed the complaint. We have added a discussion of two matters which were not considered by him, and with these additions, we agree with his analysis and affirm the decision of the Claims Court on the basis of his opinion.
Reported at 4 Cl.Ct. 325 (1984).
1. Trial Judge White's construction of the applicable statutes and regulations is consistent with the position of the Commissioner of Internal Revenue as set forth in a number of revenue rulings which were not referred to in the trial judge's opinion. The general rule derived from these rulings is that where a member of a religious order enters into an employment relationship with a third party who is unrelated to the order, but who looks to the member rather than to the order for the performance of the duties, the member's earnings are subject to FICA taxation, even though the order directed the member to apply for the position and to perform the duties thereof. See, e.g., Rev.Rul. 84-13, 1984-4 Int.Rev.Bull. 5 (member's private practice as a psychologist); Rev.Rul. 83-127, 1983-2 Cum.Bull. 25 (member employed as a teacher in a secular private school); Rev.Rul. 81-267, 1981-2 Cum.Bull. 196 (member employed by a private hospital not associated with the order's church); Rev.Rul. 79-132, 1979-1 Cum.Bull. 62 (member serving as an Army chaplain); Rev.Rul. 78-229, 1978-1 Cum.Bull. 305 (minister performing non-religious services for a manufacturing company); Rev.Rul. 76-323, 1976-2, Cum.Bull. 18 (members employed as a plumber and as a construction worker).
We are aware of revenue rulings dealing with different factual patterns, including situations where the services of members were performed when the member was acting as agent of the religious order of for another agency of the church or an associated institution. See e.g. Rev.Rul. 56-187, 1956-1 Cum.Bull. 483 (ordained minister serving as executive or administrative officer of a federation of churches); Rev.Rul. 68-123, 1968 Cum.Bull. 35 (nurse assigned as agent of religious order to perform duties for a hospital where she was under the supervision and control of the order at all times); Rev.Rul. 77-290, 1977-2 Cum. Bull. 26 (experienced secretary assigned to perform duties as the business officer of a church). Although taxpayer claims that Rev.Rul. 68-123 is inconsistent with the rulings holding that a member's employment by a third party, not associated with a church order, is subject to FICA taxation, we find this ruling is clearly distinguishable on its facts.
2. On appeal, taxpayer argues that taxation of her income from the hospital amounts to double taxation. Her order had elected to provide social security coverage for its members in accordance with 26 U.S.C. § 3121(r)(1) and was making FICA payments on her behalf based on the fair market value of maintenance and benefits the order provided for her. She maintains, therefore, that the only lawful way she could be taxed for FICA purposes was through the payments made by her order under section 3121(r). We disagree. We think Trial Judge White correctly held that taxpayer's employment by the hospital was not covered by the exception of section 3121(b)(8)(A) of the Code, because her day-to-day activities were under the control and supervision of the hospital. By enacting the Social Security Amendments of 1972, Pub.L. 92-603 ( 86 Stat. 1329), Congress authorized religious orders to elect social security coverage for their members by filing an irrevocable certificate for that purpose. The legislative history of the 1972 amendments shows that Congress intended to limit the new coverage to the types of service excluded by section 2131(b)(8)(A) and to extend the new benefits to services rendered by members as employees of the order or for an autonomous subdivision of the order. H.R. Rep. No. 231, 92d Cong., 1st Sess., U.S. Code Cong. Admin. News 1972, pp. 4989, 5045, 5046, 5268 (1972-2 Cum.Bull. 739), which states:
Under present law, the services performed by a member of a religious order who has taken a vow of poverty which are in the exercise of the duties required by the order are excluded from coverage under social security. Your committee's bill provides that such service would be covered under social security as employment for the order (or for an autonomous subdivision of the order) if the order (or subdivision) irrevocably elects coverage for its entire active membership, and if the order also makes an irrevocable election to cover its lay employees. (Emphasis supplied.) [742]
* * * * *
Section 129(b) of the bill amends section 3121 of the Code by adding a new subsection (r). The new section 3121(r)(1) provides that a religious order whose members are required to take a vow of poverty, or any autonomous subdivision of such an order, may file a certificate with the Internal Revenue Service electing to extend social security coverage to the services performed by its members in the exercise of the duties required by such order or subdivision. The certificate of election by the religious order or autonomous subdivision must specify that the election of coverage will be irrevocable; that the coverage will apply to all current and future members of the order or subdivision; that all services performed by a member of the order or subdivision in the exercise of duties required by the order or subdivision will be deemed to have been performed as an employee of the order or subdivision; and that the religious order or subdivision will pay the tax on employees imposed by section 3101 of the Code and the tax imposed on employers by section 3111 of the Code, with respect to the wages of each active member. (Emphasis supplied.) [748-49]
In accordance with the legislative history, 26 U.S.C. § 3121(r)(1)(C) provides that all services performed by a member of the order (covered by the election) in the exercise of duties required by the order shall be deemed to have been performed as an employee of the order.
The emphasis in the legislative history and in the language of the 1972 amendments is on the employment relationship between the order and its members. Although the members are not "employees" of the order, Congress, as taxpayer suggests, has created a legal fiction by providing that they shall be deemed employees when performing duties required by the order.
We agree with the government that the two FICA coverages are for two different purposes, much the same as when an individual holds more than one job. As indicated above, the purpose of the 1972 amendments was to authorize religious orders to elect social security coverage for their members who perform duties directly for the order or for an associated institution under circumstances which normally create an employer-employee relationship. We are not persuaded that there is anything in the legislative history or in the 1972 amendments which requires a holding that the section 3121(r) coverage for duties performed for the order and the separate coverage for work done by members while employees of a third party are mutually exclusive.
AFFIRMED.
I conclude that under the governing provisions of the Internal Revenue Code of 1954 (Code) and the implementing Treasury Regulations, Sister Mary was not subject to Federal Insurance Contributions Act (FICA) taxes on the salary she received from the St. Louis County Hospital (Hospital) for working there as a speech therapist, as her religious order (the Order) directed her to do.
The Code subjects to FICA (Social Security) taxes earnings paid "with respect to employment." I.R.C. §§ 3101, 3111 (1982). Employment is defined in pertinent part as "any service, of whatever nature, performed . . . by an employee for the person employing him." I.R.C. § 3121(b). Section 3121(b)(8)(A) excludes from the definition of employment "service performed . . . by a member of a religious order in the exercise of duties required by such order . . . ."
The parties conceded that before accepting the position as speech therapist with the Hospital, Sister Mary (1) was directed by her Order to apply for the position and (2) after being offered the position, was directed by her Order to accept it. The United States also concedes that there is no legally significant difference between the terms "directed" and "required." Under the foregoing Code provisions, the relationship between Sister Mary and the Hospital was not one of employment for FICA purposes, since it involved service that Sister Mary was "required" by her Order to perform. On the face of the Code, therefore, Sister Mary was not subject to FICA taxes upon the salary she received for performing those services.
The court holds, however, that the Code does not mean what it says. It interprets "duties required by such order" to mean duties the Order has the power to compel the member to perform. As the Claims Court pointed out:
from the standpoint of reality, the Order could not require or direct the plaintiff to perform the duties of the civil service position of Speech Therapist . . . for the [Hospital] . . . .
. . . .
In essence, the Order's role was to grant (or deny) authorizations to the plaintiff with respect to her desire to participate in the county's appointing process. The Order could not — and did not — issue any mandatory requirement or directive controlling the appointing process.
Samson v. United States, 4 Cl.Ct. 325, 329 (1984) (emphasis in original).
In effect, the court holds that for services performed by a member of a religious Order to be exempt from FICA taxes, the relationship between the Order and its member with respect to the services must be that of employer and employee.
There are two answers to this theory. First, that is not what the statute says. It uses the unambiguous phrase "required by the order." If the Order requires a member to perform particular service, as Sister Mary's Order required her to do in this case, the Code exempts the wages paid for such service from FICA taxes because such service is not considered to be "employment."
Second, and equally compelling, is the statement in the Treasury Department Regulation implementing this provision which, after stating that "[s]ervice performed by a member of a religious order . . . includes all duties required of the member by the order," provides:
The nature or extent of such service is immaterial so long as it is a service which he is directed or required to perform by his ecclesiastical superiors.
Treas. Reg. § 31.3121(b)(8)-1(d) (West 1984).
Thus, under the governing regulation the "nature or extent" of the member's service is "immaterial." It is immaterial whether the member performs the service for the Order or for an outside agency, as in this case. The sole issue is whether "it is service which he is directed or required to perform by his ecclesiastical superiors."
If, as the court holds, the critical inquiry in such a case is whether the service was performed as part of employment by the Order or by an outside entity, one would think that the regulation would have explicitly so stated, as it easily could have done. If that had been the standard the Treasury Department intended, it certainly would not have said that "[t]he nature . . . of such service is immaterial" in determining whether it constitutes employment subject to FICA taxes.
Section 3121(b)(8)(A) was added to the Code by the Social Security Act Amendments of 1950, ch. 809, 64 Stat. 477. Most of the legislative history of that provision merely tracks the statutory language, and thus provides no aid in interpreting the language. Even the one item that appears to provide some support for the government's position (upon which the government, but not the court, relies), does not justify the court's interpretation of the Code.
Both committee reports stated:
The exception contained in subparagraph (A) applies to the performance of services which are ordinarily the duties of . . . members of religious orders.
S.Rep. No. 1669, 81st Cong., 2d Sess. 138, reprinted in 1950-2 C.B. 302, 342; see H.R. Rep. No. 1300, 81st Cong., 1st Sess. 130 (1949), reprinted in 1950-2 C.B. 255, 282.
The government has not shown, however, that in 1950 the performance of services for entities outside the Order, such as those Sister Mary was required to perform in this case, was not "ordinarily the duties of . . . members of religious orders." Without such a showing this single sentence from the committee reports is too slim a reed upon which to build an exemption from what I view as the unambiguous language of the Code.
The Court cites a number of revenue rulings from which it derives the "general rule . . . that where a member of a religious order enters into an employment relationship with a third party who is unrelated to the order, but who looks to the member rather than to the order for the performance of the duties, the member's earnings are subject to FICA taxation, even though the order directed the member to apply for the position and to perform the duties thereof." These revenue rulings do not establish this "general rule." The first revenue ruling to deal with the specific statute involved in this case announced the following principle:
In order for the employment of a member of a religious order to constitute the exercise of duties required by such order within the meaning of the Employment Tax Regulations, the services must be of the type that are ordinarily the duties of the order and must be performed by the member as part of the duties for and on behalf of the religious order as its agent.
Rev.Rul. 76-323, 1976-2 C.B. 18, 19; accord Rev.Rul. 81-267, 1981-2 C.B. 196; Rev.Rul. 79-132, 1979-1 C.B. 305.
One of those revenue rulings stated that "[o]rdinarily, a member is performing services as the agent of the religious order only if the order is engaged in the performance of the services as a principle. Ordinarily an order is not engaged in the performance of services as a principal where the legal relationship of employer and employee exists between the member and the third party with respect to the performance of such services." That ruling involved the services of a plumber and a construction worker, one of who lived outside the religious order and paid for his housing out of his earnings before turning the remainder over to the order. The ruling itself suggested that the result might be different in a case involving a nurse and a hospital. See 1976-2 C.B. at 19 (discussing Rev.Rul. 68-123, 1968-1 C.B. 35).
The latter revenue ruling, which the court says "is clearly distinguishable on its facts," held that a nurse who was a member of a religious order was not subject to income tax on the salary she received for nursing services which the order directed her to perform at a hospital. Rev.Rul. 68-123, 1968-1 C.B. 35. Although a subsequent ruling distinguished Rev.Rul. 68-123 on the ground that the nurse was under the supervision and control of the Order in performing the services, Rev.Rul. 83-127, 1983-2 C.B. 25, there is nothing in Rev.Rul. 68-123 to indicate that that was the basis of the ruling. Rev.Rul. 68-123 does not even mention whether the hospital was religious or secular.
The fact that the Commissioner has taken inconsistent positions in his rulings weakens their persuasiveness. St. Louis Bank for Cooperatives v. United States, 624 F.2d 1041, 1051 (Ct.Cl. 1980); see Morton v. Ruiz, 415 U.S. 199, 237, 94 S.Ct. 1055, 1075, 39 L.Ed.2d 270 (1974). In any event, since these administrative interpretations are inconsistent with the statutory language, they are entitled to little weight. Securities and Exchange Commission v. Sloan, 436 U.S. 103, 117-19, 98 S.Ct. 1702, 1711-12, 56 L.Ed.2d 148 (1978); see United States v. Vogel Fertilizer Co., 455 U.S. 16, 102 S.Ct. 821, 70 L.Ed.2d 792 (1982). Furthermore, the revenue rulings fail to explain convincingly why the Commissioner read additional requirements (such as ordinary service and agency) into the clear statutory language, a failure that still further weakens any deference due those decisions. St Louis Bank, 624 F.2d at 1051 (citing Skimore v. Swift Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944)).
It may well be that, as a matter of policy, the salary Sister Mary received in this case should be subject to FICA taxes. Congress, however, has not so subjected them. I do not think it is appropriate for the court to extend the statute beyond what Congress provided.
If Congress wishes to change the law to achieve the result the court reaches, it may do so. The Commissioner could amend his regulations to provide explicitly that service by a member of an Order is employment only if the member is subject to the control of the Order in performing the services. As the statute and the regulations now read, however, I see no basis for subjecting Sister Mary's earnings from the Hospital to FICA taxes.