DRISCOLL v. COMMISSIONER OF INTERNAL REVENUE

OPINION

CHIECHI, Judge:

Respondent determined the following deficiencies in, and fraud penalties under section 6663(a)1 on, petitioners' Federal income tax (tax):

                           Fraud Penalty
   Year   Deficiency    under sec. 6663(a)

   1996    $64,905         $48,678.75
   1997     83,512          62,634.00
   1998    107,562          80,671.59
   1999    149,880         112,410.00

The only issue remaining for decision is whether petitioners are entitled for each of their taxable years 1996 through 1999 to exclude from gross income under section 107 the amount that an organization exempt from tax under section 501(a) paid to petitioner Philip A. Driscoll during each of those years with respect to a second home that petitioners owned. We hold that they are.

Background

All of the facts in this case, which the parties submitted under Rule 122, have been stipulated by the parties and are so found.

Petitioners resided in Georgia at the time they filed the petition in this case.

During each of the years 1996 through 1999, petitioner Philip A. Driscoll (Mr. Driscoll) was an ordained minister who worked for Mighty Horn Ministries, Inc., later known as Phil Driscoll Ministries, Inc. (We shall refer to Mighty Horn Ministries, Inc., later known as Phil Driscoll Ministries, Inc., as the Ministries.) During each of those years, the Ministries was an organization described in section 501(c)(3) and exempt from tax under section 501(a).

During each of the years 1996 through 1999, petitioners owned more than one residence or home; they owned a principal residence or home in Cleveland, Tennessee (Cleveland home), and a second residence or home at the Parksville Lake Summer Home area of the Cherokee National Forest in Lake Ocoee (lake second home), near Cleveland, Tennessee. Petitioners owned one lake second home from January 1996 through April 1998, which they sold in April 1998, and another lake second home from April 1998 through 1999.2 During the years 1996 through 1999, petitioners used their Cleveland home solely as a residence and their lake second home solely as a residence. At no time during those years did petitioners use their Cleveland home or their lake second home for any commercial purposes, such as rental purposes.

For each of the years at issue, the Ministries filed Form 990, Return of Organization Exempt From Income Tax, in which it claimed an amount described as "parsonage allowance" (Ministries parsonage allowance). That amount represented the total amount that the Ministries paid during each of those years with respect to petitioners' Cleveland home and their lake second home for the acquisition and maintenance of those homes, including mortgage payments, utilities, furnishings, improvements, and maintenance, such as lawn care, painting, and repairs.

In the tax return that petitioners filed for each of the years 1996 through 1999, they did not include the Ministries parsonage allowance in gross income.

Respondent issued a notice of deficiency (notice) to petitioners for their taxable years 1996 through 1999. In that notice, respondent determined, inter alia, that petitioners are not entitled for any of those years to exclude from gross income under section 107 the portion of the Ministries parsonage allowance that the Ministries paid during each of those years with respect to petitioners' lake second home.3 As a result, respondent further determined in the notice to include the following amounts in petitioners' gross income for the years indicated:

                                                             Portion of Ministries
                                                           parsonage allowance with
   Year                                                    respect to lake second home

   1996 ........................................................... $25,842.53
   1997 ...........................................................  70,707.50
   1998 ........................................................... 116,309.11
   1999 ........................................................... 195,778.52

Discussion

Petitioners bear the burden of proving that the determinations in the notice that remain at issue are erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). That the parties submitted this case fully stipulated does not change that burden or the effect of a failure of proof. See Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91 (1990), affd. 943 F.2d 22 (8th Cir. 1991).

We must decide an issue of first impression, namely, whether petitioners are entitled for each of the years at issue to exclude from gross income under section 107 the portion of the Ministries parsonage allowance that the Ministries paid to Mr. Driscoll during each of those years with respect to a second home of petitioners (i.e., their lake second home).

Section 107 provides:

SEC. 107. RENTAL VALUE OF PARSONAGES.

In support of their position that they are entitled for each of the years at issue to exclude from gross income under section 107 the portion of the Ministries parsonage allowance with respect to their lake second home, petitioners argue:

In support of respondent's position that petitioners are not entitled for each of the years at issue to exclude from gross income under section 107 the portion of the Ministries parsonage allowance with respect to their lake second home, respondent argues that section 107

An exclusion from gross income first appeared in section 213(b)(11) of the Revenue Act of 1921, ch. 136, 42 Stat. 239, for the "rental value of a dwelling house and appurtenances thereof furnished to a minister of the gospel as part of his compensation". As respondent concedes, the rationale for the exclusion from gross income in section 213(b)(11) of the Revenue Act of 1921 of the so-called parsonage allowance5 is "obscure".6 The identical provision appeared in, inter alia, section 22(b)(8) of the Revenue Act of 1928, ch. 852, 45 Stat. 798, section 22(b)(6) of the Revenue Act of 1932, ch. 209, 47 Stat. 179, and section 22(b)(6) of the Internal Revenue Code of 1939, ch. 2, 53 Stat. 10.

Congress reenacted as section 107(1) of the Internal Revenue Code of 1954 (1954 Code) the excludible parsonage allowance as it appeared in the tax law before Congress enacted that Code, except Congress changed the phrase "a dwelling house and appurtenances thereof" to the phrase "a home". Internal Revenue Code of 1954, ch. 736, 68A Stat. 32. In changing the phrase "a dwelling house and appurtenances thereof" to the phrase "a home", Congress did not intend any change in the law.7

When Congress enacted the 1954 Code, it also expanded the excludible parsonage allowance in section 107(2) of that Code to include the payment of a "rental allowance paid to him [the minister] as part of his compensation, to the extent used by him to rent or provide a home." Id. Congress expanded the excludible parsonage allowance in section 107(2) of the 1954 Code to remove "the discrimination in existing law by providing that the present exclusion is to apply to rental allowances paid to ministers to the extent used by them to rent or provide a home."8 H. Rept. 1337, 83d Cong., 2d Sess. 15 (1954); S. Rept. 1622, 83d Cong., 2d Sess. 16 (1954).

In expanding the excludible parsonage allowance in section 107(2) of the 1954 Code in order to exclude a rental allowance paid to a minister as part of his compensation, Congress wanted to ensure that the term "home" did not extend to a situation where a minister, in addition to a home, rents, purchases, or owns a farm or other business property. To accomplish that objective, Congress added at the end of section 107(2) the phrase "to the extent used by him to rent or provide a home."9 That phrase precludes the exclusion from gross income of any portion of a rental allowance paid to a minister that is expended in connection with a farm or other business property. See sec. 1.107-1(c), Income Tax Regs.10

Respondent acknowledges that petitioners' second residence in Lake Ocoee is a home of petitioners, albeit a second home.11 Nonetheless, respondent argues that the Ministries parsonage allowance with respect to that home is not excludible under section 107. That is because, according to respondent, section 107, which uses the phrase "a home", and its legislative history12 and the regulations under section 107,13 which also use the phrase "a home", limit a minister's excludible parsonage allowance to a single home and do not allow such an allowance for a second home such as petitioners' lake second home. It is respondent's view that, because section 107, its legislative history, and the regulations under section 107 "refer in the singular to `a home,' rather than `homes' in the plural", a minister is entitled to have an excludible parsonage allowance for only one home.14 We disagree.

Respondent is substituting in section 107, its legislative history, and the regulations under section 107 the phrase "a single home" or the phrase "one home" for the phrase "a home" that appears in the statute and the other authorities on which respondent relies.15 We find nothing in section 107, its legislative history, or the regulations under section 107, which, as respondent points out, all use the phrase "a home", that allows, let alone requires, respondent, or us, to rewrite that phrase in section 107.16 We are not persuaded by those authorities that Congress intended to allow, let alone did allow, in section 107 an excludible parsonage allowance only for a single home or one home of a minister.17 Indeed, section 7701(m)(1) rejects respondent's position that the phrase "a home" in section 107 means a "single home" or "one home". Section 7701(m)(1) provides:

SEC. 7701(m). CROSS REFERENCES.—

Section 1 of Title 1 of the United States Code in turn provides:

As pertinent here, section 107 requires only that amounts paid as part of a minister's compensation be used to rent or provide a home, i.e., a dwelling house of the minister, in order to be excluded from the minister's gross income. See sec. 107(2). In the present case, during each of the years at issue, the Ministries paid Mr. Driscoll as part of his compensation the Ministries parsonage allowance which he used to provide for himself a home or a dwelling house in Cleveland, Tennessee (i.e., petitioners' Cleveland home), and a home or a dwelling house in Lake Ocoee (i.e., petitioners' lake second home). Those facts satisfy the requirements in section 107(2) for the exclusion from gross income of the portion of the Ministries parsonage allowance with respect to petitioners' lake second home.18

We hold that the portion of the Ministries parsonage allowance that the Ministries paid to Mr. Driscoll as part of his compensation during each of the years at issue and that he used during each of those years to provide for himself a lake second home satisfies the requirements in section 107(2) that an allowance be paid to him as part of his compensation and be used to provide a home. Accordingly, we hold that petitioners are entitled for each of the taxable years at issue to exclude from gross income under section 107 the Ministries parsonage allowance with respect to their lake second home.

We have considered all the contentions and arguments of the parties that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.19

To reflect the foregoing and petitioners' concessions in the stipulation of settled issues,

Decision will be entered under Rule 155.

Reviewed by the Court.

WELLS, THORNTON, HOLMES, and PARIS, JJ., agree with this majority opinion.

MORRISON, J., concurs in the result only.

MARVEL, J., did not participate in the consideration of this opinion.

WHERRY, J., concurring:

I agree with the majority opinion but write separately to emphasize the limited factual record on which this case was decided.

As noted in the majority opinion the word "home" in section 107 should, after application of section 7701(m), be read to mean home or homes. See Kislev Partners, L.P. ex rel. Bahar v. United States, 84 Fed. Cl. 385, 389 (2008).

For many years courts have interpreted statutory provisions in accordance with their common meaning. "`The legislature must be presumed to use words in their known and ordinary signification.' * * * `The popular or received import of words furnishes the general rule for the interpretation of public laws.'" Old Colony R.R. Co. v. Commissioner, 284 U.S. 552, 560 (1932) (citations omitted). Consequently, I respectfully reject my dissenting colleagues' view that "a home" is ambiguous and that two homes, which they acknowledge is not impossible, should not be permitted here because "`exclusions from income must be narrowly construed.'" Dissenting op. p. 569.

By design of the parties, this case was submitted for decision under Rule 122. The result, when combined with the parties' briefs, is a very narrow question posited for our decision. That question is whether section 107(2) covers only one home or both homes.

That question was effectively resolved when the parties stipulated that

Thus, the majority's answer here is that it may cover more than one home.1

Necessarily absent from our consideration of this case are important regulatory considerations which were not fully addressed in the stipulation or on brief. See section 1.107-1(a), Income Tax Regs., which specifies that "In order to qualify for the exclusion, the home or rental allowance must be provided as remuneration for services which are ordinarily the duties of a minister of the gospel. In general, the rules provided in § 1.1402(c)-5 will be applicable to such determination." This consideration necessarily involves factual questions of why the remuneration was provided and whether it was reasonable compensation and may indirectly raise issues of private benefit and personal inurement, none of which were considered here. See Orange Cnty. Agric. Socy., Inc. v. Commissioner, 893 F.2d 529 (2d Cir. 1990), affg. T.C. Memo. 1988-380; W. Catholic Church v. Commissioner, 73 T.C. 196 (1979), affd. without published opinion 631 F.2d 736 (7th Cir. 1980); Church of Gospel Ministry, Inc. v. United States, 640 F.Supp. 96 (D.D.C. 1986), affd. without published opinion 830 F.2d 1188 (D.C. Cir. 1987). Thus, my vote in this case is predicated on its limited facts and the specific issue raised.

THORNTON and HOLMES, JJ., agree with this concurring opinion.

GUSTAFSON, J., dissenting:

I would hold, in favor of the IRS, that section 107(2) does not exclude from income a parsonage allowance for two residences.

Section 107(2) provides that gross income does not include a minister's "rental allowance * * * to the extent used by him to rent or provide a home." (Emphasis added.) Mr. Driscoll invokes this provision to exclude an allowance that he used to provide two homes for himself. This interpretation of section 107(2) is not impossible; but it is, at best, no more likely than the interpretation that one properly excludes a rental allowance only to the extent it is used to provide one home. Therefore, since the most that can be said for Mr. Driscoll's position is that section 107(2) is ambiguous, I believe this case is simply decided by reference to the rule "`that exclusions from income must be narrowly construed.'" Commissioner v. Schleier, 515 U.S. 323, 328 (1995) (quoting United States v. Burke, 504 U.S. 229, 248 (1992) (Souter, J., concurring)). If we adopt the narrower construction, then we must hold against Mr. Driscoll and in favor of the IRS.

II. The IRS's interpretation of section 107(2) is more likely.

In addition to the mere fact that the indefinite article "a" and the word "home" are both singular,1 there are two features of section 107(2) that indicate it excludes from income only an allowance for one residence:

A. A person has one "home".

In common usage, a person has one "home",2 and the word therefore has a connotation of singularity. The majority evidently discounts this connotation because the 1954 Congress that replaced the prior "a dwelling house and appurtenances thereof" with "a home" stated that it intended no substantive change.3 That Congress, however, used the word "home" in its description of then-present law:

H. Rept. 1337, 83d Cong., 2d Sess. 15 (1954) (emphasis added); see also S. Rept. 1622, 83d Cong., 2d Sess. 16 (1954). Thus, Congress manifestly thought in 1954 that the allowance had always been for a "home", and the connotations of the word "home" therefore properly inform our understanding of what Congress intended when it provided an exclusion for an allowance used to provide "a home". By excluding an allowance for a "home", the statute has connoted at least since 1954 that an allowance for only one residence is excluded.

In this vein, the IRS contends (in its reply brief at 3-4 (emphasis added)):

I find no concession or contradiction of this contention when the IRS's opening brief refers to Mr. Driscoll's other residence as a "second home". That phrase—like "summer home", "vacation home", and "home away from home"—presumes the existence of a prior "home" that is one's habitual dwelling. The phrase "second home" refers instead to a secondary residence that is not one's actual "home".

B. An allowance is excluded only "to the extent used * * * to * * * provide a home."

However many "homes" or "second homes" a minister may have, he can use only one of them at a time. If a minister were to use an allowance to provide a principal residence for himself and were to use a second allowance to pay for a second house that he never occupied, the exclusion of section 107(2) would be manifestly inapplicable to the second allowance because it was not ever "used * * * to * * * provide a home." That second allowance did not "provide [him] a home" if he did not ever live at the residence for which it paid.

On the other hand, if a minister were to split his year between two "homes" in both of which he did live (but only part time), it could be said that the allowances given for each of those residences did "provide a home" for part of the year. However, those allowances would be excluded (as the statute says) only "to the extent used by him to * * * provide a home." (Emphasis added.) To the extent that a minister uses an allowance to pay the rent of the house he is actually inhabiting, he is using the allowance to "provide a home." But to the extent he makes his "home" elsewhere and uses an allowance to pay the rent on an empty house, he is not using the allowance to "provide a home."

The "to the extent" limitation in section 107 assures that a minister can exclude an allowance from income only to the extent he uses it to "provide a home"—i.e., a house where he actually lives. If a minister divides his year between two homes paid for by two allowances, then a portion of each may be excluded from income. In this case the record provides no information on the quantum of Mr. Driscoll's use of the two residences. The IRS did not disallow any of the exclusion of the allowance for Mr. Driscoll's principal residence, and Mr. Driscoll did not argue for any allocation that might have been more favorable. Mr. Driscoll therefore used the full extent of the section 107 allowance on his principal residence.

III. Exclusion of multiple parsonage allowances would serve no evident legislative purpose.

The majority states that the original congressional rationale for the parsonage exclusion in 1921 is "obscure". Majority op. p. 561. This is hardly a warrant for interpreting the provision broadly to exclude multiple allowances for houses unoccupied for some or all of the year. It is impossible to substantiate, and difficult even to imagine, a congressional motive to extend the exclusion of section 107 to a second residence, or a third, or a fourth.

The majority asserts that it approves today only the exclusion of an allowance on a second residence; and the majority brushes aside, as "speculat[ion] about cases that are not before us", the IRS's expressed concern about "`an unlimited number of residential properties being treated as parsonages for one minister.'" Majority op. note 19. However, there is nothing in Mr. Driscoll's argument or the majority's reasoning that would support any distinction between a "second home" and a "third home". The majority decides today that, if a property is a dwelling house, then it is a "home" for which an allowance is excludable, no matter the number of "homes" a minister may claim.

It is true that there are scenarios in which a minister may work in (and therefore reside in) several ministry locations. For example, a minister may be an itinerant evangelist; another minister in a sparsely populated area may serve multiple congregations that are distant from each other; and another minister may have seasonal duties in different locations. A narrow interpretation of section 107 might work to their disadvantage. However, in addition to the parsonage allowance under section 107, the Code also includes section 119 (which excludes lodging on the employer's premises for the employer's convenience)4 and section 162(a)(2) (which allows a deduction for traveling expenses "while away from home").5 Taken together, sections 119, 162(a)(2), and 107 (construed to exclude only a single parsonage allowance) would address many of these multiple-ministry scenarios. If there is an argument to be made that these Code provisions make inadequate provision for some of these scenarios, it is an argument that was not made here and thus is not before us. The record includes no suggestion of ministry undertaken at two locations; and instead the parties stipulated that Mr. Driscoll's principal residence was in Cleveland, Tennessee, and that his second home was "near Cleveland, Tennessee".

The chance that Congress in 1954 thought it was permitting the exclusion of multiple parsonage allowances seems remote. There is therefore no reason not to apply the general rule that exclusions are construed narrowly. I would apply that general rule here and hold that section 107(2) excludes only an allowance used to provide the single home where the minister actually resides.

COLVIN, HALPERN, GALE, GOEKE, and KROUPA, JJ., agree with this dissent.