                        T.C. Memo. 2004-182




                      UNITED STATES TAX COURT



              VINCENT MICHAEL COOMES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8544-03.               Filed August 10, 2004.


     Vincent Michael Coomes, pro se.

     Richard J. Hassebrock, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   Respondent determined deficiencies in

petitioner’s 1993, 1994, 1995, 1996, 1997, and 1998 Federal

income taxes and additions to tax as follows:
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                                        Additions to Tax
Year             Deficiency     Sec. 6651(f)        Sec. 66541

1993              $12,253         $9,189.75          $513.41
1994                6,698          5,023.50           347.56
1995                5,554          4,165.50           301.16
1996                3,256          2,442.00           173.32
1997                5,269          3,951.75           281.90
1998                4,431          3,323.25           202.76

     1
        The notice of deficiency cites sec. 6653 as the basis for
the addition to tax, but respondent’s answer clarified that sec.
6654 is the correct basis for this addition to tax.

       After concessions,1 the remaining issues for decision are

(1) whether petitioner’s asserted vow of poverty causes him to be

exempt from liability for Federal income taxes, including self-

employment tax, for taxable years 1993, 1994, 1995, 1996, 1997,

and 1998; and (2) whether the doctrine of collateral estoppel

limits the aggregate amount of petitioner’s tax deficiencies and

additions to tax due for 1994, 1995, 1996, and 1997 to the amount

of restitution ordered at petitioner’s prior criminal proceeding.

We hold that petitioner is liable for income taxes, and the

doctrine of collateral estoppel is not applicable.

       Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect during the years in issue,




       1
      Petitioner concedes that he operated Imperial
Communications, Inc., as a sole proprietorship, and that he was
remunerated in 1993, 1994, 1995, 1996, 1997, and 1998 in
connection with services he provided. Petitioner also concedes
that if the deficiencies are sustained, he is liable for the
additions to tax as determined in the notice of deficiency.
                               - 3 -

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated.      The stipulation of

facts and the attached exhibits are incorporated herein by this

reference.   Petitioner resided in Cincinnati, Ohio, at the time

his petition was filed.

     Petitioner operated Imperial Communications, Inc.

(Imperial), as a sole proprietorship during the years at issue.

Imperial did not have any employees.   The services petitioner

provides through Imperial include installing and maintaining

telephone systems.   Petitioner was directly compensated by

Imperial’s clientele for the services provided and goods sold for

1993, 1994, 1995, 1996, 1997, and 1998.      Moreover, petitioner

received interest income in 1997 and 1998 and dividend income in

1998.

     Petitioner failed to file Federal income tax returns for

1993, 1994, 1995, 1996, 1997, and 1998.      Petitioner also failed

to make estimated tax payments during these years in connection

with his income from Imperial’s business and from other sources.2

Accordingly, on March 11, 2003, respondent issued a notice of

deficiency to petitioner which determined the amount of tax owed



     2
      Other sources includes the interest and dividends
petitioner received.
                                 - 4 -

for each year plus additions to tax under sections 6651(f) and

6654.   Petitioner timely filed his petition seeking a

redetermination.

      On August 7, 2003, in the U.S. District Court for the

Southern District of Ohio, petitioner pleaded nolo contendere to

four counts under section 7203 of willfully failing to file

Federal income tax returns for 1994, 1995, 1996, and 1997.

Petitioner was sentenced to four 2-year terms of probation to be

served concurrently and ordered to pay a fine of $2,000 and

restitution of $27,475.97 in respect of his income tax

liabilities for 1994, 1995, 1996, and 1997.

                              OPINION

I.   Unreported Income

     Pursuant to section 61(a), gross income includes “all income

from whatever source derived”.    Section 61(a)(1) provides that

gross income includes compensation received in exchange for

services rendered.   With respect to such income it is well

settled that the person who earns income is taxed on the income.

Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949).

Generally, a sole proprietor who derives income from a trade or

business is considered to have received self-employment income.

Secs. 1.1401-1(c), 1.1402(c)-1, Income Tax Regs.    Self-employed

individuals are also liable for self-employment tax pursuant to

section 1401 as part of their Federal income tax liability.    See
                                 - 5 -

also secs. 1.1401-1(a), 1.6017-1(a)(1), Income Tax Regs.    Subject

to statutory exclusions, the amount of self-employment tax an

individual owes is based on his “net earnings from self-

employment”.   Sec. 1402(a).   “Net earnings from self-employment”

include “the gross income derived by an individual from any trade

or business carried on by such individual, less the deductions

allowed” which are attributable to the trade or business.       Id.;

sec. 1.1402(a)-1(a)(1), Income Tax Regs.

     Petitioner conceded that he operated Imperial as a sole

proprietorship and that Imperial had no employees.    Petitioner

failed to offer any evidence to contradict respondent’s position

that petitioner personally managed and controlled Imperial’s

telephone services business.    Relying on invoices issued by

Imperial and bank deposits made by petitioner, respondent

appropriately reconstructed petitioner’s income for 1993, 1994,

1995, 1996, 1997, and 1998.    See, e.g., Holland v. United States,

348 U.S. 121, 133 (1954); Bevan v. Commissioner, 472 F.2d 1381

(6th Cir. 1973), affg. T.C. Memo. 1972-312; Woods v.

Commissioner, T.C. Memo. 1989-611, affd. without published

opinion 929 F.2d 702 (6th Cir. 1991).      Petitioner did not

challenge respondent’s computations but rather admitted that he

was directly remunerated by Imperial’s clientele for services he

provided through Imperial.     Applying the law to these facts, we

conclude that petitioner was indeed self-employed and liable for
                                   - 6 -

income taxes on his income from self-employment, including self-

employment taxes under section 1401, for each of the years at

issue.      Petitioner is, however, entitled to the deductions

stipulated by the parties.

       With respect to the interest and dividend income petitioner

received, there is no question that these funds must be included

in petitioner’s gross income as provided by section 61(a)(3) and

(7).       See also secs. 1.61-7(a), 1.61-9(a), Income Tax Regs.

Petitioner, in fact, conceded that he received interest income in

1997 and 1998 and dividend income in 1998.

       A.     Additions to Tax

       Petitioner has conceded that he owes additions to tax under

sections 6651(f) and 6654.       We need not engage in a discussion

regarding these additions since petitioner concedes their

applicability.

       B.     Petitioner’s Asserted Vow of Poverty

       The issue raised is whether petitioner’s asserted vow of

poverty exempts the income he received for the years at issue

from gross income.       In short, it does not.

       Petitioner contends that his taking a vow of poverty

assigning all income to a religious institution provides him with

an exemption from Federal income taxes for all years at issue.3


       3
      We see no reason to address whether the Universal Christian
Church is a sec. 501(c)(3) organization since petitioner did not
                                                   (continued...)
                               - 7 -

Other than his testimony, petitioner has not offered any evidence

to substantiate his asserted vow of poverty.   Even assuming

petitioner took such a vow, his argument fails.

     Merely taking a vow of poverty does not necessarily exempt a

taxpayer from Federal income taxes, including self-employment

taxes.   This Court has held that when “secular services are

rendered by individuals, income received by them in an individual

capacity and not on behalf of a separate and distinct principal

is taxable to the individuals.”   Yoshihara v. Commissioner, T.C.

Memo. 1999-375; Stephenson v. Commissioner, 79 T.C. 995 (1982),

affd. 748 F.2d 331 (6th Cir. 1984); McGahen v. Commissioner, 76

T.C. 468, 478-479 (1981), affd. without published opinion 720

F.2d 664 (3d Cir. 1983); see also sec. 1.1402(c)-5(a)(2), Income

Tax Regs.

     Petitioner has offered nothing to support that any of the

income he received was received on behalf of a separate and

distinct principal.   It is also patently obvious that the

telephone services petitioner provided were secular.

Accordingly, we find that petitioner is liable for Federal income

taxes on the compensation he earned and on the interest and

dividend income he received.


     3
      (...continued)
assert at trial or on brief that income assigned to the Universal
Christian Church qualified for a charitable deduction under sec.
170. Additionally, petitioner did not establish there was a
transfer of funds to a religious charity.
                               - 8 -

II.   Restitution Ordered by the District Court

      Petitioner appears to argue that the District Court’s

judgment in his prior criminal proceeding, which ordered him to

pay restitution, disposed of his tax liabilities for 1994, 1995,

1996, and 1997.   This raises the issue of whether the doctrine of

collateral estoppel applies with respect to petitioner’s tax

liabilities for 1994, 1995, 1996, and 1997.

      The purposes of applying the doctrine of collateral estoppel

(a.k.a. issue preclusion) are to prevent litigants from having to

relitigate identical issues and to promote judicial economy.    See

Meier v. Commissioner, 91 T.C. 273, 283 (1988).   Collateral

estoppel applies “once an issue is actually and necessarily

determined by a court of competent jurisdiction, [and] that

determination is conclusive in subsequent suits based on a

different cause of action involving a party to the prior

litigation.”   Montana v. United States, 440 U.S. 147, 153 (1979).

Building on the Supreme Court’s decision, the Court of Appeals

for the Sixth Circuit has identified four conditions for

collateral estoppel to be enforced.    Hickman v. Commissioner, 183

F.3d 535, 536 (6th Cir. 1999), affg. T.C. Memo. 1997-566.     First,

the issue in the subsequent litigation must be identical to that

resolved in the prior litigation.   Second, the issue must have

been actually litigated and judicially determined in the prior

action.   Third, the issue in the prior litigation must have been
                               - 9 -

necessary and essential to a judgment on the merits.   Fourth,

collateral estoppel can be invoked only against parties and their

privies who were part of the prior litigation.    Id.; see also

Montana v. United States, supra at 153-155; M.J. Wood Associates,

Inc. v. Commissioner, T.C. Memo. 1998-375.

     Petitioner pleaded nolo contendere to charges under section

7203 for willfully failing to file Federal income tax returns and

pay taxes.   Not a single issue, including petitioner’s tax

liabilities and additions to tax for the years at issue, was

actually litigated during petitioner’s criminal proceeding as a

result of his nolo plea.   In the criminal proceeding a judicial

determination did not occur with respect to petitioner’s tax

liability since it was not litigated nor was it an essential

element of the Government’s case.    See Hickman v. Commissioner,

supra at 538.   Consequently, petitioner cannot invoke collateral

estoppel to limit his tax liability to the amount of restitution

ordered by the District Court.4   See id.; see also Morse v.

Commissioner, T.C. Memo. 2003-332.




     4
      This does not, however, change the fact that the District
Court ordered petitioner to pay restitution. Given the factual
circumstances of this case, we believe that the restitution
ordered was to be paid to respondent. We therefore expect
petitioner’s tax liability to be offset by any payments of
restitution petitioner made. See Toney v. Commissioner, T.C.
Memo. 2003-333; Wallace v. Commissioner, T.C. Memo. 2000-49; cf.
M.J. Wood Associates, Inc. v. Commissioner, T.C. Memo. 1998-375.
                               - 10 -

III.   Conclusion

       In sum, we hold for respondent with respect to all

substantive matters.    All arguments made by the parties have been

considered by this Court, and those arguments not discussed

herein have been found irrelevant, moot, and/or without merit.

To reflect the foregoing,


                                          Decision will be entered

                                     under Rule 155.
