                         T.C. Memo. 1998-283



                       UNITED STATES TAX COURT



         NELSON J. AND VICTORIA A. SECRETARIO, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10693-97.                      Filed August 5, 1998.


     Nelson J. and Victoria A. Secretario, pro sese.

     Jonathan J. Ono, for respondent.


               MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:    Respondent determined a deficiency of $6,014

in petitioners' 1994 Federal income tax.    Respondent further

determined an accuracy-related penalty pursuant to section

6662(a)1 in the amount of $1,203.

     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
                                                   (continued...)
                               - 2 -


     After concessions, the issues remaining for decision are:

(1) Whether petitioners are liable for self-employment tax on the

net self-employment income earned by Mr. Secretario during 1994;

and (2) whether petitioners are liable for an accuracy-related

penalty pursuant to section 6662(a).


                         FINDINGS OF FACT


     Some of the facts have been stipulated and are so found.

The stipulation of facts is incorporated herein by this

reference.   At the time the petition was filed, petitioners

resided at Kapaa, Hawaii.

     During 1994, Mr. Secretario was self-employed as an

insurance salesman doing business as "Planning Concepts".    For

the taxable year 1994, petitioners timely filed their joint

Federal income tax return with respondent's Fresno, California,

Service Center.   On Schedule C, Profit or Loss From Business, Mr.

Secretario reported income and expenses from his insurance sales

as a sole proprietorship.

     In the notice of deficiency dated February 26, 1997,

respondent determined that petitioners underreported gross

receipts on Schedule C of their 1994 joint return in the amount

of $3,743.   Subsequent to the issuance of the notice of


     1
      (...continued)
Procedure.
                                 - 3 -


deficiency, petitioners filed a Form 1040X, Amended U.S.

Individual Income Tax Return, for 1994 that was received by

respondent on April 23, 1997.    On their amended return,

petitioners increased reported gross receipts by $3,749 and also

increased claimed total Schedule C expenses by $8,320, resulting

in a reported net profit from Mr. Secretario's business of

$33,357.   Respondent now agrees that this is the correct amount.

     Notwithstanding their receipt of net income of $33,357 from

Mr. Secretario's activities as a self-employed insurance

salesman, petitioners failed to file a computation for self-

employment tax and failed to report and pay any self-employment

tax on their original or amended joint returns for 1994.


                                OPINION


     Petitioners argue that they need not pay self-employment

taxes; i.e., Social Security taxes, and therefore did not report

or pay such taxes for their 1994 tax year.    Petitioners do not

dispute that Mr. Secretario's income constitutes self-employment

income within the meaning of sections 1401 and 1402.2   However,

     2
      Sec. 1401 imposes a tax on "self-employment income" of
every individual. Sec. 1402(b) defines "self-employment income"
as "net earnings from self-employment". Sec. 1402(a) generally
defines "net earnings from self-employment" as gross income
derived by an individual from any trade or business carried on by
such individual, less deductions allowed. The net income derived
from Mr. Secretario's insurance sales business, as reported on
petitioners' original and amended joint income tax returns for
                                                   (continued...)
                               - 4 -


petitioners appear to argue that the imposition of Social

Security taxes upon them is unconstitutional because there is no

assurance that Social Security taxes paid by petitioners in the

past will be available, as "promised" by the Government, to be

paid out as future retirement benefits.

     The constitutionality of the Social Security system and its

limited exceptions have been upheld repeatedly and are not

subject to further dispute.   Palmer v. Commissioner, 52 T.C. 310,

312-313 (1969); see United States v. Lee, 455 U.S. 252 (1982);

Patterson v. Commissioner, 740 F.2d 927 (11th Cir. 1984), affg.

T.C. Memo. 1983-655; Jaggard v. Commissioner, 582 F.2d 1189 (8th

Cir. 1978), affg. T.C. Memo. 1978-78; Hughes v. Commissioner, 81

T.C. 683 (1983).   This conclusion also extends to the self-

employment taxes imposed by section 1401, here in issue.     Cain v.

United States, 211 F.2d 375 (5th Cir. 1954).

     There is no legal authority supporting petitioners'

position.   A claim that taxpayers need not pay self-employment

tax because the Social Security fund may be insolvent and,

therefore, may be unable to pay benefits was specifically

rejected in our decisions in Diffley v. Commissioner, T.C. Memo.

1984-372, and Fiorito v. Commissioner, T.C. Memo. 1981-576, affd.

without published opinion 720 F.2d 682 (7th Cir. 1983).


     2
      (...continued)
1994, constitutes net self-employment income.
                                - 5 -


Petitioners' general assertions concerning the fiscal soundness

of the Social Security system are more properly addressed to

Congress than this Court.    Fiorito v. Commissioner, supra.     We

hold that there is no basis for relieving petitioners of their

liability under existing statutes.

     Respondent determined that petitioners are liable for an

accuracy-related penalty pursuant to section 6662.     Section

6662(a) imposes a penalty in an amount equal to 20 percent of the

portion of the underpayment of tax attributable to a taxpayer's

negligence or disregard of rules or regulations.     Sec. 6662(a)

and (b)(1).   Negligence has been defined as the failure to do

what a reasonable and ordinarily prudent person would do under

the circumstances.    Neely v. Commissioner, 85 T.C. 934, 947

(1985).

     The accuracy-related penalty will apply unless petitioners

can demonstrate that there was reasonable cause for the

underpayment and that they acted in good faith with respect to

the underpayment.    Sec. 6664(c).   Petitioners have previously

litigated and lost their claims regarding their self-employment

tax obligations for an earlier year.3    On the basis of the entire


     3
      In a prior summary opinion concerning petitioners' tax
liability for that year, we relied on Steiner v. Commissioner, 55
T.C. 1018 (1971), affd. per curiam without published opinion 29
AFTR 2d 72-848, 72-1 USTC par. 9327 (D.C. Cir. 1972), and
rejected petitioners' claim that they need not pay self-
employment tax after they have paid for 40 consecutive quarters.
                               - 6 -


record, we conclude that petitioners have not established that

their underpayment was due to reasonable cause or that they acted

in good faith.   Accordingly, we hold that petitioners are liable

for a section 6662(a) accuracy-related penalty for the tax year

1994 as determined by respondent.


                                            Decision will be entered

                                       under Rule 155.
