In the case of Felton v. Commissioner, TC Memo 2018-168, the Tax Court was faced with a minister who claimed that $200,000 given to him by parishioners in addition to their regular offers were gifts and not compensation.

The issue has its beginnings in a tradition for some evangelical churches that Reverend Felton discovered as he began his career in the ministry.  As the opinion notes:

Reverend Felton found his vocation at Tuskegee University, where he assisted the dean of the school’s chapel while still a student. He also first learned about “shake-hand” money at that chapel — the custom in some evangelical churches of handing donations to the pastor on the way out of the church. Reverend Felton didn’t like the way the chapel handled these donations and silently resolved to do things differently if he ever had a church of his own to run.

The church Reverend Felton presided over used envelopes to allow members of the congregation to designate what their contributions would be used for, including a line that allowed for pastoral contributions.  Contributions made with such envelopes would be accounted for by the church, with the donors given statements regarding their contributions. 

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Neil Sadaka may have crooned that “breaking up is hard to do” but most often the IRS doesn’t get involved—but this case is an exception to that rule. In this breakup, the Tax Court determined that the IRS retained the right to determine whether amounts transferred from an individual’s former boyfriend represented gifts and that the taxpayer could not use the rescission doctrine to escape taxation on a $400,000 payment from said boyfriend she received that she later was order to return after a finding she obtained it by fraud.

The case in question is that of Blagaich v. Commissioner, TC Memo 2016-2 and involves matters taking place between Ms. Blagaich and her former boyfriend Mr. Burns in 2010, specifically transfers to Ms. Blagaich during that year, as well an agreement entered into during that year.