Schuster v. Commissioner

Francine Schuster (plaintiff) was a nun with the Order of the Adorers of the Blood of Christ (the order). As a nun, Schuster took vows of obedience and poverty, pursuant to which she agreed to direct any compensation she earned through other employment directly to the order. In 1978, Schuster, a trained nurse, was awarded a federal grant to complete a nurse midwife training program. Upon completion of the program, and as a condition thereof, she applied for nurse midwife positions in manpower-shortage areas and was hired at a clinic in Raymondville, Texas. Schuster dealt directly with the clinic and the federal National Health Services Corps (NHSC), which functionally employed her, throughout the application process and her employment with little input from the order. The order approved the employment and wrote letters to the clinic and NHSC requesting that Schuster’s paychecks be sent directly to the order, but the request was denied. Schuster’s paychecks were issued to her and payable to her individually. Schuster endorsed and mailed every paycheck to the order. On her 1980 tax return, Schuster reported $18,771.20 in wages but claimed the compensation was not taxable because she had received it as an agent of the order. The commissioner of internal revenue (defendant) issued a deficiency notice upon determining that Schuster’s wages were taxable to her personally, and the tax court sustained. Schuster appealed.