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Lloyd v. Commissioner (T.C. Memo. 2020-92)

On June 22, 2020, the Tax Court issued a Memorandum Opinion in the case of Lloyd v. Commissioner (T.C. Memo. 2020-92). The issue before the court in Lloyd was whether a taxpayer’s claims that “the income tax law is null and void” and that “he is entitled to a religious exemption from paying income tax because he is functioning as a church relieves him from the requirement to file and/or pay Federal income taxes. How could these arguments possibly fail?

Author’s Preface

This post is not going to be flattering to the petitioner. He is a crackpot – not because of his religious views, but because of his frivolous tax positions. I feel absolutely no compunction about lambasting tax wingnuts, and the fact that this particular wingnut invoked God as a tax loophole, well, that deserves a reckoning.

Background

James Lloyd, the petitioner, is a self-proclaimed “prophet.” That’s all you really need to know about him, but that’s not all I am going to tell you. The petitioner, a lonely man without employees or staff to assist him, operated several Bible-focused websites and internet-based radio stations, which he dubbed the “Christian Media Network.” At trial, the petitioner even proclaimed that “in effect” he is “Christian Media Network.” Pride goeth before the fall, and what a beautiful fall it is.

The petitioner offered materials to his “flock” (he was a shepherd, too, after all) for a small donation to the cause. This “donation” however, was a fixed amount (plus shipping and handling), and the materials could not be obtained without the donation. If not for the religious smokescreen, these “donations” had all of the earmarks of a “sale” of goods. The Tax Court though so as well. The petitioner also sprinkled about the Good Word advertisements for rain filters, satellite dishes, and organic seeds. No relevance, just hypocrisy.

The Lord Then Spoketh to the Prophet: Cooperate Not with the IRS

Having filed no returns for the years at issue (2005-2010) the IRS became curious if the petitioner actually might have reportable income. The IRS asked politely for the Prophet to refute this blasphemy, but the Almighty had spoken to the Prophet and instructed him not to cooperate in any way with Lucifer’s handmaidens (the IRS). Consequently, no records were produced (willingly) by the petitioner.

Using their admittedly earth-bound subpoena powers, the IRS summoned and received records of the Prophet’s accounts (a bank, eBay, and PayPal). The IRS reconstructed the Prophet’s receipts from sales through the Christian Media Network, et al.

No one was more shocked than the IRS, when the reconstruction showed that the Prophet had hundreds of thousands of dollars of unreported income each year at issue. Gathering its collective administrative wits about itself, the IRS prepared substitutes for returns (SFRs) for the years at issue and determined certain deficiencies and additions to tax.

And From the Prophet’s Mouth, a Crock of Shit

Petitioner’s principal argument is that he has no “income” subject to tax because the income tax law is “null and void,” because the concept of “income” cannot be defined by the Code, because the legislature is prohibited from “defining terms used within the United States Constitution as to do so would in reality amend the constitution in a way outside their authority to do so.” Well then, that settles it. Time for this tax attorney to pack it up and go home. But just for giggles, let’s read on…

The Prophet, being a reasonable man, understands that the Tax Court is a slave to the “law,” and mercifully offers the Tax Court an alternative avenue of relief, so as to save face and to save the “Code” that the Tax Court is so very fond of. “In publicly functioning as a church, James Lloyd and the Christian Media ministry which he directs, are immune from Income Tax liability by the First Amendment of the United States Constitution.” Phew. I thought he might start talking crazy again.

And From the IRS’s Mouth: Stunned Silence

Well, your honor…I mean…really? Understanding that they had to say something sensible, Counsel argued that a person does not a church make, income is real, the Code is constitutional, the petitioner is liable for tax and penalties, and, maybe a sanction for frivolous arguments.

The Door Hit the Prophet’s Ass on the Way Out

The court did not take much time to “consider” the Prophet’s “argument” before “rejecting it summarily.” The Tax Court did so with a flourish, however, in quoting the Fifth Circuit Court of Appeals, which observed as to frivolous tax arguments “We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” Williams v. Commissioner, 801 F. App’x 328, 329 (5th Cir. 2020) (quoting Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)); see also Wnuck v. Commissioner, 136 T.C. 498, 501 (2011); Wells v. Commissioner, T.C. Memo. 2019-134, at *5.

As for the “I am a church, churches aren’t taxed, so you can’t tax me” syllogism, the Tax Court points out the tautological fallacy that no man is an island, nor is he a church. Ministers may be entitled to exclude the rental value of a parsonage from gross income pursuant to IRC § 107, but even men and women of the cloth are taxable on the income they earn from ministering. See, e.g., White v. Commissioner, T.C. Memo. 1981-147, *13. Further, although IRC § 501(c)(3) exempts religious organizations from income tax, there is no exemption from the Federal income tax for income earned by individuals from religious activities, especially those who peddle Jesus on eBay. See IRC § 61(a)(2); IRC § 61(a)(3).

(T.C. Memo. 2020-92) Lloyd v. Commissioner

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