## Facts

- Sister Francine Schuster, a Roman Catholic nun, was a member of a tax-exempt religious order and had taken perpetual vows of poverty, chastity, and obedience.
- Under her vow of poverty, she executed a declaration agreeing not to claim wages for herself for services performed in the name of, or on commission from, the Order.
- The Order required members to obtain approval for employment and could prevent a member from accepting or leaving a job without authorization.
- Schuster, a trained nurse, received a federal grant to complete nurse-midwife training and then sought employment in a medically underserved area.
- She applied for and obtained nurse-midwife work at a Texas clinic through an arrangement in which the National Health Service Corps functioned as the employer.
- Schuster dealt directly with the clinic and the NHSC in securing and performing the job; the Order’s role was largely limited to approving the position and asking that wages be paid directly to the Order.
- The clinic/NHSC refused to issue checks to the Order; paychecks were issued to Schuster personally, and she endorsed and forwarded them to the Order.
- On her 1980 return, Schuster reported wages but asserted they were not taxable to her because she received them as the Order’s agent and immediately remitted them.
- The Commissioner determined the wages were taxable to Schuster and issued a deficiency; the Tax Court sustained the deficiency.

## Issues

1. Whether wages paid to a member of a religious order who has taken a vow of poverty are taxable to the individual when the individual is the employee and is paid directly, even if the wages are remitted to the order.
2. Whether the facts established an agency relationship such that the religious order, rather than the individual, was the true earner of the income for federal income tax purposes.

## Decision

- The Seventh Circuit affirmed the Tax Court’s decision sustaining the Commissioner’s deficiency determination.
- The court held Schuster’s wages were taxable to her individually.
- The court rejected the claim that Schuster earned the wages as the Order’s agent.
- The court treated Schuster’s remittance of wages to the Order as an assignment of income that did not change the identity of the income earner.

## Legal Principles

- Income from services is taxable to the person who earns it; a taxpayer generally cannot avoid tax through anticipatory assignment of earned income.
- A vow of poverty and subsequent transfer of wages to a religious order, without more, does not shift the tax burden from the individual earner to the order.
- To attribute wages to a religious order, there must be a genuine agency or employment relationship showing the order is the principal or employer in the economic and contractual sense.
- Religious or disciplinary control by an order over its members’ work choices is not equivalent to the employer-type control relevant to determining the taxable earner of wage income.

## Conclusion

The court held that because Schuster personally obtained and performed the job and was paid directly by the clinic/NHSC, her wages were taxable to her despite her vow of poverty and her immediate remittance of the funds to her religious order.


Schuster v. Commissioner, 800 F.2d 672 (7th Cir. 1986)