Goodwin v. United States

Over a period of 25 years, Lloyd Goodwin (plaintiff), a church pastor, increased his church’s size from 25 members to almost 400 members. Goodwin and his wife (plaintiff) regularly received substantial payments from the church, which often essentially doubled the relatively low amount of Goodwin’s church salary. These substantial payments were financed by the anonymous donations of individual church members and were collected several times a year by church leaders, who were acting in accord with formal procedures they had established. The payments were donated on behalf of the entire church. Individual donors did not take charitable-tax deductions for their donations, and the Goodwins did not report the donations as taxable income. The commissioner of the Internal Revenue Service determined that the payments constituted income to the Goodwins, and issued a deficiency notice for the amount of those payments. Rather than contest the notice, the Goodwins paid taxes on the payments and then filed suit against the federal government (defendant) for a refund. At trial, the Goodwins and the government stipulated that the individual donors had acted voluntarily and saw their donations as gifts rather than as payments to retain Goodwin’s services. The district court nevertheless considered the donations as tied to Goodwin’s services, and ruled that the donations constituted taxable income. The Goodwins appealed.