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  5. 47 T.C.M. 162 (1983)
 

LOVE v. COMMISSIONER

Docket Nos. 10036-80, 20549-80, 20550-80, 20669-80.

47 T.C.M. 162 (1983)

T.C. Memo. 1983-648

James B. Love and Mary F. Love v. Commissioner.

United States Tax Court.

Filed October 20, 1983.

Attorney(s) appearing for the Case

Michael G. Parham, for the petitioners. Larry D. Anderson, for the respondent.

Memorandum Findings of Fact and Opinion DRENNEN, Judge: Respondent determined the following deficiencies and additions to tax in petitioners' Federal income taxes. Deficiency Additions to Tax1 Petitioner(s) Year Docket # 6651(a) 6653(a) 6654(a) _______________________________________________________________________________________________________ Jame B. & Mary F. Love ....... 1976 10036-80 $2,969 .... $148 .... James B. Love ................ 1977 20549-80 4,268 .... 213 ....2 Mary F. Love ................. 1977 20550-80 4,268 .... 213 ....2 James B. Love ................ 1978 20669-80 3,424 $856 171 $109
These cases have been consolidated for purposes of trial, briefing, and opinion. After concessions,2a the issues are (1) whether certain income generated by a business was taxable to petitioners, or instead, to their church, (2) whether certain amounts earned by petitioner, Mary F. Love, that were turned over to the church are includible in her gross income, (3) whether petitioners' are entitled to a charitable contribution deduction for the amounts paid over to the church, and (4) whether petitioners are liable for the additions to tax for negligence. Findings of Fact Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by reference. Petitioners James B. Love, (petitioner) and Mary F. Love, (Mary), resided in College Park, Georgia on the date the petition was filed herein. Petitioners filed joint income tax returns for the taxable years 1976 and 1977 with the Internal Revenue Service Center, Chamblee, Georgia. In 1973, petitioner and a partner purchased a pet shop named The Pet Jungle. In 1974, petitioner purchased his partner's interest and became the sole proprietor of The Pet Jungle.3 In February, 1976, petitioners started a church that was associated with the Life Science Church.4 This association continued until April, 1977 when the church became chartered as an auxiliary of the Basic Bible Church of America. In 1979, petitioner disassociated himself with the Basic Bible Church and changed the church's name to The American Bible Church. At all times relevant, the church was headquartered at petitioners' personal residence. After petitioners formed their church in February, 1976, The Pet Jungle became one of the focal points of petitioners' ministry. Religious literature and Bibles were distributed at the pet shop and petitioner spent most of his time there where he also provided religious counseling. On October 20, 1976, both petitioners executed documents purporting to be vows of poverty wherein they purported to transfer all their property and future income to an "Order of the Life Science Church designated as The Order of Almighty God, 683 Chapter."5 Thereafter, Mary, who was employed as a secretary for Continental Casualty Co., during the years in issue gave her entire salary check to petitioner to deposit in the church's checking account. Petitioner then allotted Mary between ten and fifteen dollars weekly for personal commuting expenses and meals. During this period petitioners and the church had only one checking account which they used for all banking purposes.6 Although petitioners purportedly transferred all their property to the church, including The Pet Jungle, the title to the property was never placed in the church's name. On January 7, 1977 and January 3, 1978, petitioner received loans from a bank secured by The Pet Jungle's inventory as well as other property reported to be in petitioners' name. On November 18, 1978, petitioner secured another loan and again gave as collateral property that was held in his own name. In addition, on various other loans obtained by petitioner in 1978, he listed himself as self-employed at The Pet Jungle and made no reference to the fact that the church owned the various assets he was using to secure the loans, and represented that he had real estate and automobiles registered in his own name. Petitioners used the single checking account to both purchase items used by the church and for personal expenses and the majority of petitioners personal expenses were paid from this checking account.7 During 1976 and 1977 petitioners did not include in their gross income the income generated by The Pet Jungle.8 In addition, Mary claimed a charitable contribution deduction for the full amount of her salary. Respondent determined that petitioners' were taxable on the net income of The Pet Jungle and denied the charitable contribution deduction in its entirety. Opinion The first issue is whether income generated in 1976 and 1977 by a pet shop known as The Pet Jungle is taxable to petitioners, or instead, to their church. Respondent contends that the income generated by the pet shop in 1976 and 1977 is properly includible in petitioners' income since petitioners owned and operated the business. Petitioners counter that their church owned the business and that they are therefore not taxable on the income generated by the business. We disagree and hold for respondent. Section 61(a)(2) provides that gross income means all income from whatever source derived, including gross income derived from business. It is well established that income is taxed to the person or entity who earns it. Lucas v. Earl [3 USTC ¶ 1164], 281 U.S. 111 (1930). In the instant case, the record reveals that petitioners, not the church, were the owners of the pet shop. Although petitioners executed a vow of poverty whereby they purportedly transferred the pet shop to their church, petitioners at all times continued to treat the pet shop as their own property.9 Title to the business was never placed in the church's name, petitioners represented in several loan applications that they were the owners of the business, and petitioners used the funds generated by the business to pay for their personal expenses. No records were produced to prove that The Pet Jungle became the property of the church nor that anyone was made aware that it was the property of the church. Therefore, we find that petitioners were the owners of the pet shop and taxable on the income generated thereby under section 61(a)(2). The second issue is whether salary earned by Mary that was turned over to the church is taxable to Mary, or instead, to the church. Petitioners contend that Mary was the agent of the church and that these amounts paid to her as salary are therefore not taxable to her. We disagree. Where an agent receives income on behalf of a principal, the income is not taxable to the agent but to the principal. Maryland Casualty Co.v. United States [1 USTC ¶ 29], 251 U.S. 342 (1920). Similarly, where a member of a religious order receives income as an agent of and on behalf of the order, and pursuant to a vow of poverty remits the income to the order, such income is the income of the order and not of the member. However, where the member of the religious order is not an agent for the order, the taxpayer's assignment of compensation for services is ineffective to relieve the taxpayer from Federal income tax liability. McGahen v. Commissioner [Dec. 37,781], 76 T.C. 468, 478-89 (1981), affd. ___ F. 2d ___ (3rd Cir. 1983).10 In the instant case, Mary was performing services as a secretary for Continental Casualty Co. The services Mary performed as a secretary obviously were not the type of services the church was engaged in, and there is insufficient evidence to establish that Mary was acting as the church's agent. Thus, we hold that the compensation for services paid to Mary were earned on her own behalf and are taxable income to her.11 The third issue is whether petitioners are entitled to a charitable contribution deduction in 1976 and 1977 for Mary's salary payments that were purportedly turned over to the church. Petitioners claimed a charitable deduction on their 1976 and 1977 Federal income tax for the entire amount of Mary's salary earned as a secretary. Petitioners now concede that at the most they should only be entitled to a charitable contribution deduction equal to 50 percent of her income. Respondent asserts that petitioners are not entitled to any charitable contribution deduction, with which we agree. Section 170(c)(2)(C) provides that in order for a gift to qualify as a charitable contribution, no part of the net earnings of the organization to which the gift is made may inure to the benefit of any private shareholder or individual. The church's net earnings in this case were nothing more than Mary's salary and the income from The Pet Jungle that may have been assigned to the church. Most, if not all, of Mary's and petitioner's personal expenses were paid out of those net earnings by the church and thus it is clear that part of the net earnings of the church inured to Mary's benefit. These facts alone are sufficient to show, without questioning the sincerity of petitioners' religious beliefs, that their church is not an organization to which a deductible gift is contemplated by section 170(a). Oakknoll v. Commissioner [Dec. 34,990], 69 T.C. 770 (1978), affd. [79-1 USTC ¶ 9328], 603 F.2d 211 (2nd Cir. 1979), cert. denied, 444 U.S. 872 (1979); Basic Bible Church v. Commissioner [Dec. 37,095], 74 T.C. 846 (1980); McGahen v. Commissioner, supra; Rev. Rul. 78-232, 1978-1 C.B. 69.12 The final issue is whether petitioners are liable for the additions to tax for negligence under section 6653(a). The burden of proof with respect to this issue is on petitioners. Hatfield v. Commissioner [Dec. 34,628], 68 T.C. 895 (1977). Petitioners have offered no evidence to establish that they did not act negligently in failing to report the income earned by their pet shop, or in claiming a charitable contribution deduction for Mary's entire salary. On the record before us, we sustain respondent's determination. Bixby v. Commissioner [Dec. 31,493], 58 T.C. 757, 792 (1972). Because of concessions, Decisions will be entered under Rule 155 in Docket Nos. 10036-80, 20549-80, and 20550-80. Decision will be entered for petitioner in Docket No. 20669-80.

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