Rev. Rul. 84-13

1984-1 C.B. 21.

                       Internal Revenue Service
                                 Revenue Ruling

       CHARITY-PAYEE;  RELIGIOUS ORDER;  VOW OF POVERTY;  MEMBER'S OUTSIDE
                           EARNINGS REMITTED TO ORDER

                          Published: January 23, 1984

26 CFR 1.61-2: Compensation for services, including fees, commissions, and similar items

  Charity-payee;  religious order;  vow of poverty;  member's outside earnings remitted to order.  Amounts received by a member of a religious order, who has taken vows of poverty and obedience, from the member's private practice as a psychologist are includible in the member's gross income.

ISSUE

  Are amounts received by A, a member of a religious order who has taken vows of poverty and obedience, as compensation from A's private practice as a psychologist includible in A's gross income under section 61 of the Internal Revenue Code?

FACTS

  A is a member of a religious order who, as a condition of membership in the order, has taken vows of poverty and obedience by which all claims to earnings from personal industry are renounced. The purposes of the order are teaching, sacred ministry, and missionary and charitable works.

  A obtained permission from the order to establish a private practice as a psychologist.  The order, except for the approval of A's yearly budget, concerning estimated income and expenses for the practice, imposes no restrictions concerning whom A may counsel in A's private practice or the manner in which A must operate the practice.

  A's practice is not restricted to members of A's religious order.  A provides individual and group counseling services for members of religious orders and for non-members.  A selects clients, establishes and charges competitive fees, maintains all records and pays all expenses.

ANALYSIS

  Section 61 of the Code provides that gross income means all income from whatever source derived, including compensation for services.

  Rev. Rul. 77-290, 1977-2 C.B. 26, holds that when a member of a religious order receives income as an agent of the order, such income is the income of the order and not of the member.

  Rev. Rul. 76-323, 1976-2 C.B. 18, holds that in order for a member of a religious order to be considered as performing services constituting the exercise of duties required by such order, the services must be of the type that are ordinarily the duties of members of the order and must be performed by the member as part of the duties for or on behalf of the religious order. Ordinarily, a member is performing services as the agent of the religious order only if the order is engaged in the performance of the services as a principal.

  Rev. Rul. 79-132, 1979-1 C.B. 62, holds that the vow of poverty does not cause the member to be considered an agent;  rather, an agency relationship is established when it appears, based on all the facts and circumstances, that the payor of the income is looking directly to the order, rather than to the individual member, for the performance of the services.

  It is the basic principle of income tax law that an assignment or similar transfer of compensation for personal services to another individual or entity is ineffectual to relieve the taxpayer of tax liability on such compensation, regardless of the motive behind the transfer.  See Lucas v. Earl, 281 U.S. 111 (1930);  Helvering v. Horst, 311 U.S. 112 (1940), 1940-2 C.B. 206;  Helvering v. Eubank, 311 U.S. 122 (1940), 1940-2 C.B. 209.

  A received permission from the order to establish a private practice as a psychologist and counsels members of religious orders as well as non- members.  Although there is an annual review of A's budget by the order, A controls not only the details of A's practice but also the means by which A's work as a psychologist is accomplished.  A's private practice as a psychologist does not make A an agent of the religious order.  The psychology services provided by A are not the type of services that are provided by the order, and A's clients look directly to A and not to the religious order for the performance of the services offered by A.  The income earned or received by A as a psychologist is earned or received in A's individual capacity.  A selects clients, establishes and charges competitive fees, maintains all records and pays all expenses.  See Rev.Ruls. 76-323, 77-290, and 79-132.  Thus, the fact that A, pursuant to the vows of poverty, must turn over A's income to the order is immaterial.  See, McGahen v. Commissioner, 76 T.C. 468 (1981);  Kelly v. Commissioner, 62 T.C. 131 (1974).

HOLDING

  For federal income tax purposes, A is required, under section 61 of the Code, to include in A's gross income the fees derived from A's private practice as a psychologist.

Rev. Rul. 84-13, 1984-1 C.B. 21.