Abernethy v. Commissioner

William S. Abernethy and Jane R. Abernethy, Petitioners, v. Commissioner of Internal Revenue, Respondent Abernethy v. Commissioner Docket No. 33566 United States Tax Court 20 T.C. 593; 1953 U.S. Tax Ct. LEXIS 125; June 11, 1953, Promulgated *125 Decision will be entered for the respondent. Where the petitioner, a retired minister, fails to produce evidence sufficient to prove that certain payments received by him from the church and congregation formerly served by him were intended as gifts, held, the determination of the respondent that the payments were compensation for past services is sustained. J. Barrett Carter, Esq., for the petitioners. J. Nelson Anderson, Esq., for the respondent. Hill, Judge. HILL *593 The respondent determined a deficiency of $ 202.14 in income tax of the petitioners for the year 1949. The sole issue for our consideration is whether the sum of $ 2,400 received by William S. Abernethy in 1949 from Calvary Baptist Church and congregation constitutes taxable income or a gift. *126 FINDINGS OF FACT. The facts were stipulated and are found accordingly. The petitioners are individuals residing in Washington, D. C. The return for the year here involved was filed with the collector of internal revenue for the district of Maryland. On May 4, 1941, William S. Abernethy resigned as pastor of Calvary Baptist Church and congregation of Washington, D. C., effective December 31, 1941. He was then 69 years of age, had served as pastor of the church for 20 years, and felt that he was no longer physically able to perform the arduous duties of a pastor for so large a congregation, the church at that time having a membership of over 3,000. Since his retirement he has performed no official duties for the church, and was not expected to do so. However, since his retirement and at the invitation of the present pastor, he has preached at the church once or twice a year as a guest preacher. On December 18, 1941, the board of trustees of the church reported to a meeting of the membership of the church as follows: This is a special report covering recent action of the Board of Trustees with respect to a matter which will be of interest to all of Calvary's people. During recent*127 months many individuals have suggested to members of the Board that it would seem appropriate for the church to express its appreciation to our retiring Pastor in some tangible form. This is a subject which has enlisted the serious and prayerful consideration of your trustees. When we contemplate the magnificent service rendered by Dr. and Mrs. Abernethy we realize how impossible it is to give adequate expression to our appreciation. We believe that the sentiment, calling for some gift of appreciation to our Pastor and his wife, is shared by our people. Acting upon that belief, your trustees at their regular meeting on Wednesday, December 17, 1941, voted unanimously to suggest *594 to you that the church give Dr. and Mrs. Abernethy, as a token of its gratitude and appreciation, one-half year's salary ($ 3650), payable in instalments of $ 100 per month, beginning on January 1, 1942. On behalf of the Board of Trustees, I submit this suggestion. Respectfully, (s) Golden N. Dagger. Golden N. Dagger, who signed the report, was then chairman of the board of trustees of the church. At the meeting of the members of Calvary Baptist Church and congregation, held December 18, 1941, *128 the following action was taken, as appears from an excerpt from the minutes: Mr. Dagger submitted recommendation of the Board of Trustees that the Church give Dr. and Mrs. Abernethy, as a token of its gratitude and appreciation, one-half year's salary ($ 3,650.00), payable in instalments of $ 100.00 a month beginning January 1, 1942. On motion of Mr. Carter, which was seconded by Mr. Cooke and others, the recommendation of the Board of Trustees was unanimously approved. The church, at a meeting of its members held on March 1, 1944, took the following action, as shown by an excerpt from the minutes: The Chairman of the Board of Trustees, Mr. Mitchell, presented a report of the activities of the Board during the past quarter, dealing particularly with the splendid condition of the financial affairs of the Church and advising that the Board had approved recommendation that the Church continue to pay the sum of $ 100 monthly to Dr. W. S. Abernethy. The report was accepted for filing. Mr. Carter presented the following resolution and moved its adoption: Resolved, That, in accordance with the recommendation of the Board of Trustees of this Organization, the treasurer of this Organization*129 be, and hereby is, authorized and directed to pay to Reverend W. S. Abernethy, D. D., Pastor Emeritus of this Church, for and during his lifetime, the sum of one hundred dollars ($ 100.00) a month, in appreciation of his long and faithful services to Calvary Baptist Church. The motion was seconded by Mr. Dunkum and the vote was unanimous. The church continued to pay William S. Abernethy $ 100 a month until May 1947, at which time the payments were increased to $ 200 a month pursuant to action taken at a meeting of the members of Calvary Baptist Church and congregation held March 12, 1947, as shown by the following excerpt from the minutes: Mr. Mitchell moved that the retirement fund of $ 200 a month included in the budget for the ensuing year be paid to Dr. Abernethy indefinitely, or until other action is taken by the Church. The motion was seconded and carried unanimously. In preparing the church budget for submission to the members for approval, the payments to be made to William S. Abernethy were carried under the heading "Retirement." The petitioners paid income tax on the aforesaid payments received from the church until the taxable year 1949. The petitioners treated such*130 payments received from the church during the taxable year 1949, *595 aggregating $ 2,400, as gifts for income tax purposes. The petitioners omitted the total sum of $ 2,400 from their taxable income and attached to the return a statement of their position with respect to the amount. The payments received by petitioner William S. Abernethy from Calvary Baptist Church and congregation were compensation for past services. OPINION. The only question for our decision is whether the $ 2,400 received by petitioner William S. Abernethy in the taxable year 1949 from Calvary Baptist Church and congregation of Washington, D. C., was a gift and therefore excludible from gross income under the provisions of section 22 (b) (3) of the Internal Revenue Code or was within the purview of the terms "salaries, wages, or compensation for personal service" and taxable under section 22 (a) as determined by the respondent. We must examine the facts and circumstances surrounding the transaction here involved to determine the true intention of the parties with respect to the payments made, for if the payments were in fact intended to be a gift, they could be tax free. However, if they were intended *131 to be compensation for past services, the amounts are taxable as ordinary income to the petitioners. Bogardus v. Commissioner, 302 U.S. 34. The evidence before us is meager, consisting of a stipulation of facts. From this the following information may be gleaned. The petitioner William S. Abernethy retired from the service of Calvary Baptist Church and congregation at the age of 69 years, after service to that church and congregation for 20 years. At the time of his retirement he was no longer physically able to perform his duties as pastor of a congregation numbering over 3,000. Since his retirement he has performed no official duties for the church and has not been expected to do so, although he has preached once or twice a year to his former congregation as a guest preacher. These facts standing alone reveal almost nothing with respect to the intention with which the payments here involved were made. The intent of the parties must, therefore, be determined, if possible, from the terms of the various resolutions as they appear in the stipulated facts. On December 18, 1941, the board of trustees of the church suggested to the congregation *132 "that the church give Dr. and Mrs. Abernethy, as a token of its gratitude and appreciation, one-half year's salary ($ 3650), payable in instalments of $ 100 per month, beginning on January 1, 1942." The minutes of the meeting of the members of Calvary Baptist Church and congregation of the same date contain the following language: Mr. Dagger submitted recommendation of the Board of Trustees that the Church give Dr. and Mrs. Abernethy, as a token of its gratitude and appreciation, *596 one-half year's salary ($ 3650.00), payable in instalments of $ 100.00 a month beginning January 1, 1942. On motion of Mr. Carter, which was seconded by Mr. Cooke and others, the recommendation of the Board of Trustees was unanimously approved. On March 1, 1944, as evidenced by the minutes of a meeting of the members of the church, it was resolved that the church "pay to Reverend W. S. Abernethy, D. D., Pastor Emeritus of this Church, for and during his lifetime, the sum of one hundred dollars ($ 100.00) a month, in appreciation of his long and faithful services to Calvary Baptist Church." Thereafter the church continued to pay William S. Abernethy $ 100 a month until May 1947 at which time the payments*133 were increased to $ 200 a month, when at a meeting of the members of the church a motion was adopted that the retirement fund of $ 200 a month included in the budget for the ensuing year be paid to William S. Abernethy indefinitely, or until other action is taken by the church. The payments with which we are here concerned, totaling $ 2,400 in the year 1949, were made under authority of the resolution of March 1, 1944, as amended by the resolution of March 12, 1947, the effect of the amendment being to increase the monthly payment from $ 100 to $ 200. It is significant that in preparing the church budget for submission to the members of the church for approval at the meeting of March 12, 1947, the payments to be made to William S. Abernethy were carried under the heading "Retirement." We think it inescapable from the facts submitted that the payments by the church to petitioner William S. Abernethy were in consideration of his long and faithful pastoral services. These facts are consistent with the position taken by the respondent. Certainly the petitioners have failed to overcome the presumption of correctness of respondent's determination herein. Therefore, we are impelled to*134 sustain the respondent and hold the payments here involved to be compensation to William S. Abernethy within the meaning of section 22 (a) of the Code and that accordingly they constitute taxable income. The petitioners cite the authority of Schall v. Commissioner, 174 F. 2d 893, reversing 11 T. C. 111. Suffice it to say that there is a distinguishing difference between the facts of that case and those in the instant case and furthermore we are not convinced that our holding in the Schall case was wrong notwithstanding the reversal thereof by the Circuit Court. In any event the evidence before us is not such that we can say that the payments here in question were not intended as a return of value made because of an intention to repay that which was justly due, nor can we say that the payments were bestowed only because of personal affection or regard or pity, or from general motives of philanthropy or charity. Decision will be entered for the respondent.