Rev. Rul. 69-645

Advice has been requested whether a taxpayer may deduct as a business expense or as a charitable contribution his automobile expenses incurred under the circumstances described below.

The taxpayer serves without compensation as an ordained minister of a church, which is an organization described in section 170(c) of the Internal Revenue Code of 1954. He spends approximately 20 hours per week fulfilling his prescribed duties and frequently uses his automobile in performing these duties. The work performed by him is under the direction of his superiors in the organizational structure of the church. He is subject to removal by the same authorities who are authorized to appoint him.

His responsibilities include presiding over the church in the geographic area assigned to him, planning and conducting sacerdotal functions and meetings of the church within that geographic area (including religious worship), attending district meetings as needed (to be given instruction, assignments, and counsel from higher authorities), planning and conducting weddings and funerals, and interviewing and recommending members of the church eligible for missionary work, baptisms, etc.

Section 162(a) of the Code provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Under that provision, an employee or a self-employed individual may deduct the cost of operating a passenger automobile owned by him to the extent that such cost is incurred in his trade or business.

Section 170 of the Code provides in part that in computing taxable income an individual may deduct, subject to certain limitations, charitable contributions or gifts payment of which is made within the taxable year to or for the use of certain organizations, including a church or a convention or association of churches.

Whether the taxpayer is engaged in a "trade or business" is determined under section 162 of the Code. A "trade or business" is generally defined as that branch of activities wherein an individual expends his usual everyday efforts to gain a livelihood.

The case of Hugenia Doggett v. David Burnet, 65 F. 2d 191 (1933), concerned the question of whether the taxpayer was, in fact, engaged in a "trade or business." In deciding that question, the court stated that the "proper test [of whether an individual is carrying on a trade or business] is not the reasonableness of the taxpayer's belief that a profit will be realized, but whether it is entered into and carried on in good faith and for the purpose of making a profit, or in the belief that a profit can be realized thereon, and that it is not conducted merely for pleasure, exhibition, or social diversion."

Since the taxpayer in the instant case undertook his duties with no expectation of receiving compensation, he did not undertake the position for the purpose of making a profit or in the belief that a profit could be realized from it. Therefore, the taxpayer is not engaged in a "trade or business" for purposes of section 162(a) of the Code.

Accordingly, the taxpayer is not entitled to deduct as business expenses under section 162(a) of the Code his automobile expenses incurred while carrying out his duties and obligations as a minister. However, he is entitled to a deduction for these expenses as a charitable contribution under section 170(c) of the Code provided he itemizes his deductions on his tax return. The taxpayer may, within the limitations of section 170(c) of the Code, deduct his actual, out-of-pocket expenses incurred while rendering his services as a minister. However, see Revenue Procedure 64-15, C.B. 1964-1 (Part 1), 676, which provides that the Internal Revenue Service will accept a standard mileage rate of five cents per mile as representative of the cost of operating an automobile for charitable purposes.