Rev. Rul. 83-127

ISSUE

Is compensation received by a member of a religious order under vows of poverty and obedience, for services performed as a school teacher, includible in gross income under section 61 of the Internal Revenue Code and subject to the Collection of Income Tax at Source on Wages, under the circumstances described below?

FACTS

A is a member of a religious order who, as a condition of membership in the order, has taken vows of poverty and obedience by which all claims to earnings from personal industry are renounced. A, a school teacher, was instructed by the superior of the order to secure employment as a teacher in a secular private school that is exempt from taxation under section 501(c)(3) of the Code. In accordance with these instructions, A entered into an employment contract with the school in A's individual capacity. The school pays A's salary by a standard payroll check, which A endorses and remits to the religious order.

ANALYSIS AND HOLDINGS

Section 61 of the Code provides that gross income means all income from whatever source derived, including compensation for services.

A's contract of employment establishes the existence of an employer-employee relationship between the school and A. Because A is an employee of the school, A is performing services as the school's agent rather than as an agent of the religious order through whom the order performs services for the school.

Therefore, the compensation paid by the school for A's services is includible in A's gross income under section 61 of the Code. Further, the compensation paid by the school is subject to the Collection of Income Tax at Source on Wages. See Rev. Rul. 77-290, 1977-2 C.B. 26, which concludes that an attorney, under similar obligations to a religious order, who was employed as an associate in a law firm is an employee and agent of the law firm and is not acting as an agent for or on behalf of the religious order in performing legal services for the law firm. See also Rev. Rul. 79-132, 1979-1 C.B. 62

Rev. Rul. 68-123, 1968-1 C.B. 35, concludes that remuneration for services paid by a hospital to a nurse who is a member of a religious order is not includible in the member's gross income. Although not specifically stated in Rev. Rul. 68-123, the hospital described in that revenue ruling was an associated institution of the church that exercised administrative supervision over both the religious order and the hospital. Thus, with respect to the services performed for the associated hospital, the nurse is an agent of the religious order. See Rev. Rul. 77-290, which concludes that services performed by a member of a religious order in the local business office of the church that exercises general administrative supervision over the order at the direction of the member's ecclesiastical superiors are services performed for another agency of the church as an agent of the religious order.

The facts in this revenue ruling are distinguishable from those in Rev. Rul. 68-123 because the secular private school A is working for is not an associated institution of A's religious order.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 68-123 is clarified and distinguished.