Gifts to pastor were not excludable.

For over 20 years, Lloyd Goodwin was the well-liked pastor of a church in Iowa. By 1987, his yearly income from the church, including the value of the parsonage, totalled around $20,000.

In 1966, church members began making collective gifts to the Goodwins at Christmas and at other times of the year. By 1987, gift giving had become a regular procedure. The associate pastor would announce a collection when the Goodwins weren't around and anonymous cash contributions would be presented to them. The church kept no records of the gifts.

Church members were neither obligated nor encouraged to give, and members testified the gifts were made out of "love, respect and admiration" and not out of fear Reverend Goodwin would leave because of his low salary. Members did not deduct the amounts given.

For the years 1987 to 1989, the IRS estimated the Goodwins received $15,000 per year in anonymous gifts. Tax deficiencies were assessed. A district court ruled the gifts were income to die pastor and his wife, although the deficiency amounts were decreased.

The Goodwins appealed, arguing that the donative intent of the members, as evidenced by testimony, proved the amounts were gifts, not income.

IRC section 102(a) exempts gifts from gross income. Under principles used by the Supreme Court, the determination of whether an amount is an excludable gift or taxable gross income is based on the facts of each case; the transferor's intent, as determined objectively, is the most critical factor.

Result: For the IRS. Despite the testimony, an objective inquiry into die donative intent of the congregation showed the payments were extra remuneration for the pastor's services. Therefore, the amounts were not excludable as gifts but needed to be reported as income.

* Goodwin (8th Cir., 1995).