1974 U.S. Tax Ct. LEXIS 117">*117 Decision will be entered under Rule 155.
T was a Roman Catholic priest and a member of the Dominican Order until his marriage in August of 1969. For the 2 years preceding his marriage T had been living outside of the order as a layman in order to make a final judgment as to whether he wished to continue living the life of a Dominican priest. During this period he received directly the amounts he earned as a salary for teaching and as commissions for selling securities, and he used these amounts to pay for his living expenses. After he left the order T retained all of the material possessions he had accumulated while living outside the order. Held, T was not acting as an "agent" of the Dominican Order with respect to the amounts he earned during 1969 prior to his marriage, and those amounts are not excludable from his gross income for that year.
62 T.C. 131">*131 The Commissioner determined a deficiency in petitioners' income tax for 1969 of $ 1,351.25. Petitioner Francis E. Kelley was a Roman Catholic priest and a member of the Dominican Order until his marriage in August of 1969. The only issue is whether certain amounts earned by him in 1969 prior to his marriage are excludable from his gross income for that year.
62 T.C. 131">*132 FINDINGS OF FACT
The parties have filed a stipulation of facts which, together with accompanying exhibits, is incorporated herein by this reference.
At the time their petition herein was filed Francis E. and Judith M. Kelley were husband and wife and they resided in Massachusetts.
In August of 1951 Francis E. Kelley (petitioner) entered the novitiate of the Dominican Order, a religious group with its own independent leadership and constitution, but which is an organization under, and a part of, the Roman Catholic Church. At that time he received the name Francis Matthew Kelley from the Dominican Order. 1974 U.S. Tax Ct. LEXIS 117">*119 On August 24, 1955, petitioner executed a document (in printed form) captioned "Document of Renunciation of Temporal Goods" which provided, in part, as follows:
Know all men by these presents that I, Francis M. Kelley otherwise known as, Bro. Matthew Kelley of Providence, in the county of Providence and State of R.I.
In Consideration Of the laws of the Roman Catholic Church concerning the renunciation of all goods and possessions of a member of a religious community about to make solemn profession, acknowledged by said Roman Catholic Church (Codex Juris Can. 581)
First: Do hereby renounce all temporal goods that I am now actually possessed or seized of (in the certain hope of acquiring) which consists of all natural rights of inheritance and cede them to my sister Mrs. Thomas Harold Unsworth
Second: Do hereby declare that by the act of making my solemn profession, I do render myself incapable of possessing temporal goods as my own or of using them with a private right, so that any contrary act, i.e., any act of receiving, retaining, selling, giving, exchanging, profiting etc., on my own authority is an act that is null and void.
Third: Do declare that 1974 U.S. Tax Ct. LEXIS 117">*120 after solemn profession all goods which may in anyway accrue to me individually belong to the Order to be given to the Province or to the Convent in accordance with the Constitutions of the Dominican Order nn. 557 and 866, respectively.
[All underscored portions of this document were written in by hand.]
On June 5, 1958, petitioner was ordained a Roman Catholic priest.
After finishing the 7-year program of studies which had led to his being ordained, petitioner's first assignment was to teach philosophy to future priests at St. Stephen's College in Dover, Mass. He continued in this position for 2 years, during which time he received no monetary compensation for his work. In or about 1961 petitioner was sent to Oxford University in England where he enrolled as a graduate student in history. While at Oxford he began writing his dissertation. During this period petitioner lived with the English branch of the Dominican Order at no cost to himself. Money for his tuition and other general living expenses (e.g., clothing, books, travel, etc.) was provided by his own Dominican Providence in the United States. In the fall of 1963 petitioner returned to the United States where he continued1974 U.S. Tax Ct. LEXIS 117">*121 to work 62 T.C. 131">*133 on his dissertation and taught, on a part-time basis, at St. Stephen's College. Again, he received no monetary compensation for his teaching.
Near the end of 1965 petitioner completed his dissertation. For the next few months, from December 1965 to March 1966, while awaiting instructions from Oxford University with respect to defending his dissertation, petitioner worked in a hospital in New York City; he received no monetary compensation for this work. In March of 1966 petitioner was notified by Oxford University that he would be examined on his dissertation in midsummer; accordingly, he returned to Oxford at that time to complete some minor work on his dissertation and to prepare himself for his examination. In or about July of 1966 petitioner successfully defended his dissertation, and several months later he received his degree in absentia.
Upon his return to the United States, petitioner taught for one semester, from September 1966 to January 1967, at Providence College in Providence, R.I. This college was run by the Dominican Order, and, while he taught there, petitioner lived, at no cost to himself, at the Dominican priory on the campus. He also received1974 U.S. Tax Ct. LEXIS 117">*122 $ 15 per month for "haircuts and cigarettes." It was at this time that petitioner first began to entertain serious doubts as to whether he wished to continue living the life of a Dominican priest. He discussed this situation with Father Avery, who was then Provincial and, as such, petitioner's "Major Religious Superior."
The Dominican Order designates the eastern portion of the United States as the Province of St. Joseph. As Provincial of the Province of St. Joseph, Father Avery was the highest religious official within the province; in this position he was directly under the Master General of the Dominican Order, who resided in Rome and was subject to the Pope alone. The Provincial made decisions concerning the operation of the province in conjunction with the Provincial Council, which was composed of selected members of the Dominican Order.
After discussing his problem with Father Avery petitioner requested permission to live outside the order as a layman. The Provincial Council denied this request and petitioner, at the suggestion of Father Avery, went to Puerto Rico to live with the Dutch Dominicans and to think over his situation. While in Puerto Rico he received a letter1974 U.S. Tax Ct. LEXIS 117">*123 from another Dominican priest indicating that there was a need for a teacher at Merrimack College, a Catholic institution in North Andover, Mass., and asking if petitioner would be interested in this job. Petitioner immediately replied indicating that he would like to have the job.
After remaining in Puerto Rico for approximately 3 months, petitioner returned to St. Stephen's College where he stayed for several more months. Although he did not engage in any compensatory work 62 T.C. 131">*134 while in St. Stephen's, he did work for 2 months, during the summer of 1967, for the City of Providence in its "Urban Renewal Program." Petitioner received compensation for this work which was paid directly to him and which he used to "support" himself. Taxes were withheld from the money petitioner was paid by the City of Providence, and he filed a Federal income tax return for 1967.
In or around the beginning of 1967, Father Sullivan became the Provincial of the Province of St. Joseph. Petitioner then renewed his request, this time to Father Sullivan, that he be allowed to live outside the order as a layman in order to make a final judgment as to whether he wished to continue living the life of 1974 U.S. Tax Ct. LEXIS 117">*124 a Dominican priest. In July of 1957 this request was granted for 1 year. During this time petitioner was to be allowed to live in his own apartment, rather than in one of the Dominican houses, and to administer his own funds, although he was required to notify the order as to where he was living and what work he was doing. He was also allowed to dress in ordinary clothing rather than clerical garb, and he was relieved of certain religious obligations. At the end of 1 year it was expected that petitioner would reach some final decision concerning his future. As a practical matter petitioner assumed that his decision in this regard would be approved; although it was theoretically possible that he could be denied permission to sever his relationship with the order, this was very unlikely. Thus, as a practical matter, the vows which petitioner took when he signed the "Document of Renunciation of Temporal Goods," set out in part above, were revocable in the event he decided to leave the order.
In September of 1967 petitioner began the first of what was to be 5 years of teaching philosophy at Merrimack College. His initial 1-year appointment, which was renewed four times, was as an1974 U.S. Tax Ct. LEXIS 117">*125 assistant professor, at an annual salary of $ 7,100. Prior to his arrival at Merrimack petitioner was given $ 150 by the order to purchase nonclerical clothes. During the entire time that he was at Merrimack, prior to severing his connection with the Dominican Order, petitioner dressed in nonclerical garb, received his salary and used it to support himself, lived in his own apartment, and generally conducted himself as a layman rather than a Dominican priest. The order also arranged for a car for petitioner's use. While the order paid for the insurance with respect to this automobile, petitioner paid the order approximately $ 75 to $ 100 per month to cover the ordinary expenses involved in operating the car, as well as the expense incurred by the order in obtaining the car. After approximately 1 year petitioner returned this car, which was in poor condition, to the order. Shortly thereafter he purchased a 1967 Volkswagen for approximately $ 1,000. He financed this purchase with a bank loan. This car was registered in petitioner's name and he paid for the necessary insurance.
62 T.C. 131">*135 Petitioner continued to teach at Merrimack during 1968 and 1969. In or around June of 19681974 U.S. Tax Ct. LEXIS 117">*126 his teaching contract was renewed, and his salary was increased to $ 7,800 per year effective that September. This was the salary which petitioner was paid by Merrimack until September of 1969, the year at issue herein.
By a letter from Father Sullivan dated July 15, 1968, petitioner was notified that the Provincial Council had approved his petition for permission to live outside of a religious house for another year. At the end of this time it was hoped that petitioner would "be able to make a definitive judgment concerning your future."
In addition to teaching at Merrimack during 1969 petitioner also taught a summer course at Northern Essex Community College, which is not a Catholic institution. Petitioner received $ 600 for teaching this course. Although the course ended around August 2, 1969, he was not paid by Northern Essex until after that date. Petitioner also worked for Securities Investment Services, selling securities, during 1969. He was paid on a commission basis for this work and he received $ 105 in 1969. Petitioner did not notify the Dominican Order of his work for Northern Essex Community College and Securities Investment Services, and the order was not aware1974 U.S. Tax Ct. LEXIS 117">*127 that he performed this work. Petitioner gave no accounting to the order of the amounts he earned during 1969, or of how he spent those amounts. He received no specific instructions from the order in 1969. He also maintained a small savings account from 1967 until the time he left the order in 1969, as is described more fully below. When he left the order petitioner kept the funds from this account, as well as his nonclerical clothing and his automobile.
In or around May or June of 1969 petitioner decided that he did not want to live as a Dominican priest and that he wanted to marry. He wrote to the Provincial telling him of his decision and asking, first, for permission to leave the order and, second, for permission to marry. While theoretically petitioner could have been granted permission to leave the order without being given permission to marry, in practice he expected to be granted both. In any case, permission to do these things can only come from the Pope, and so petitioner's request was passed on by the Provincial through the appropriate channels to Rome. In or around mid-July petitioner received a phone call from the Archdiocese of Boston indicating that his dispensation1974 U.S. Tax Ct. LEXIS 117">*128 to marry would arrive shortly. At that time petitioner indicated that he intended to be married in approximately 2 weeks. He was told that his dispensation would not arrive that quickly.
On August 2, 1969, his dispensation to marry still not having arrived, petitioner was married by a justice of the peace. Whatever the status of his request for permission to leave the order was at that time, 62 T.C. 131">*136 his marriage automatically terminated his connection with the order. Had petitioner never made any request for permission to leave the order his marriage would have automatically terminated his relationship with it. Several weeks after his marriage by a justice of the peace petitioner was notified that his dispensation to marry had arrived. He went to the Chancery in Boston, was interviewed, filled out the appropriate forms, and set a date for a second ceremony. On that date he and his wife went through a private, Catholic wedding ceremony in church.
On an attachment to their joint Federal income tax return for 1969 petitioners indicated that Francis E. Kelley had earned $ 8,605 during 1969, of which $ 600 was from Northern Essex Community College, $ 105 was from Security Investment1974 U.S. Tax Ct. LEXIS 117">*129 Services, and the remainder was from Merrimack College. They then indicated that $ 5,445 of the total amount earned by petitioner during 1969 was "earned January -- August while member of Dominican Fathers Order of priesthood while under vow of poverty." They subtracted the $ 5,445 from the $ 8,605 earned by petitioner in 1969 and reported only the remainder as income on their Federal income tax return for 1969. In his deficiency notice the Commissioner disallowed the exclusion of this amount from gross income, stating:
It is determined that the $ 5,445.00 excluded from gross income on your income tax return for 1969, purportedly representing nontaxable income earned as a member of the priesthood, is includible in income as wages earned per section 61 of the 1954 Code. Therefore, your taxable income is increased in the amount of $ 5,445.00.
OPINION
Section 61(a), I.R.C. 1954, 1 defines gross income as "all income from whatever source derived." It is a well-settled principle of our tax law that this broad language was meant to include in gross income "all gains except those specifically exempted." Commissioner v. Glenshaw Glass Co., 348 U.S. 426">348 U.S. 426, 348 U.S. 426">430.1974 U.S. Tax Ct. LEXIS 117">*130 See sec. 1.61-1, Income Tax Regs. At issue is whether certain amounts received by petitioner prior to August 2, 1968 (the date of his marriage), as wages for teaching at Merrimack College and Northern Essex Community College, and as commissions for selling securities for Security Investment Services, are excludable from his gross income for that year. It is clear that these amounts fall within the broad scope of section 61 (see sec. 61(a)(1); sec. 1.61-2(a)(1), Income Tax Regs.), 62 T.C. 131">*137 and that they must, therefore, be included in gross income unless petitioners can carry their burden of showing why these amounts should be excluded.
Petitioner argues that he was acting as an "agent" of the Dominican Order when 1974 U.S. Tax Ct. LEXIS 117">*131 he received the amounts in issue; that he was subject at all times to his "vows of obedience and poverty"; that the order was aware at all times of where he was living and working and of his approximate salary; and that he received these amounts directly only to avoid the unnecessary step of giving the funds to the order and then having the order return them to him to allow him to pay his living expenses. In support of this position petitioner relies upon O.D. 119, 1 C.B. 82, and Rev. Rul. 68-123, 1968-1 C.B. 35. But whatever force may be attributed to these rulings on the basis of the facts assumed therein, they are not applicable here, for, in our judgment, petitioner has not shown that he was acting as an "agent" of the Dominican Order in 1969 in respect of the services performed by him or the compensation that he received therefor.
The "agency" argument is based on the notion that petitioner's living expenses during this period were actually being provided for by the order. It was simply more convenient for him to retain and use the money which he had earned than it was for him to give this money to the order1974 U.S. Tax Ct. LEXIS 117">*132 only to have them return it to him. In essence, petitioner argues that he received these funds as a mere "collecting agent" for the order, which allowed him to retain them for administrative simplicity. This position, however, is simply not supported by the facts. Petitioner was not living as a Dominican priest during 1969. He had requested permission to live apart from the order and this permission had been granted. He was relieved from certain specific religious duties and he wore nonclerical clothing. He earned a salary which he used to support himself. With the money he received from his various jobs he paid his rent, made payments on a loan he obtained to purchase a car, bought his own food and clothes, and even deposited any small remaining funds in a savings account. There were no limitations on the use which he could make of his earnings. He never made any accounting to the order of what he earned or how he spent those earnings. Indeed, petitioner never even informed the order of his jobs with Northern Essex Community College and Security Investment Services, or of the extra income he derived therefrom.
To the extent that petitioner was subject to "vows of poverty1974 U.S. Tax Ct. LEXIS 117">*133 and obedience" during this period, he could, as a practical matter, avoid the effect of those vows simply by deciding that he wished to leave the order. Indeed, petitioner married before he received permission to marry. While this act may have violated his "vow of obedience," it also automatically severed his ties with the order, thereby destroying 62 T.C. 131">*138 the effect of that vow. Moreover, petitioner received no specific orders or instructions from the Dominican Order in 1969, a further indication that in the circumstances his "vow of obedience" lacked substance as a practical matter. Finally, when petitioner left the order he retained all of the material possessions he had accumulated while living apart from the order (e.g., clothing, automobile, savings account, etc.), despite his "vow of poverty." In light of these facts, we cannot say that petitioner was acting as an "agent" of the Dominican Order when he received the amounts in issue. 2 Accordingly, since these amounts are clearly within the scope of section 61(a), they are includable in petitioners' gross income for 1969.
1974 U.S. Tax Ct. LEXIS 117">*134 In order to correct an apparent computational error in the deficiency notice, 3
Decision will be entered under Rule 155.
Footnotes
1. SEC. 61. GROSS INCOME DEFINED.
(a) General Definition. -- Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, and similar items;↩
2. The "agency" argument is further weakened by the fact, as disclosed by the evidence, that although petitioner is also seeking refunds for the taxes paid on his earnings for 1967 and 1968, the order has not asked him to pursue this matter, nor does it appear to have a claim to, or to be interested in, any refund for those years which petitioner might receive.↩
3. In the deficiency notice the Commissioner added the $ 5,445 in issue to petitioners' taxable↩ income, without increasing their standard deduction. This amount should, however, be added to petitioners' gross income, and their standard deduction increased accordingly.