Improper Taxation of the Vowed Religious: How Glenshaw Glass Principles Can Reestablish Horizontal Equity

The 1955 U.S. Supreme Court decision in Commissioner v. Glenshaw Glass Co. defined income as all “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” In cases where members of religious orders assign all earnings to their orders pursuant to the vow of poverty, this definition has not played a role in the courts’ evaluation of proper tax treatment. Consequently, tax treatment of the members of these orders has violated the fundamental principle of horizontal equity, which states that similarly situated taxpayers should receive similar tax treatment. Instead, the Internal Revenue Service and three federal appellate courts have applied a formulistic agency theory that makes it virtually impossible for the vowed religious who work outside their orders to exclude the assigned earnings from income. In doing so, the IRS and the courts have misapplied the U.S. Supreme Court’s assignment of income doctrine. Nonetheless, the agency theory has been applied in comparable non-religious contexts with favorable outcomes for the taxpayers. The inconsistent results demonstrate that the agency theory is flawed when it is applied to assignments made pursuant to the vow of poverty. This Note argues that courts should evaluate assignments of personal service income under the Glenshaw Glass “dominion and control” standard to reestablish horizontal equity and end the improper taxation of the vowed religious.