§1402 — Definitions
106 cases·14 followed·12 distinguished·3 questioned·3 criticized·3 overruled·71 cited—13% support
Statute Text — 26 U.S.C. §1402
The term “net earnings from self-employment” means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss described in section 702(a)(8) from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary income or loss—
there shall be excluded rentals from real estate and from personal property leased with the real estate (including such rentals paid in crop shares, and including payments under section 1233(a)(2) of the Food Security Act of 1985 (
16 U.S.C. 3833(a)(2)
) to individuals receiving benefits under section 202 or 223 of the Social Security Act) together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer; except that the preceding provisions of this paragraph shall not apply to any income derived by the owner or tenant of land if (A) such income is derived under an arrangement, between the owner or tenant and another individual, which provides that such other individual shall produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land, and that there shall be material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) in the production or the management of the production of such agricultural or horticultural commodities, and (B) there is material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) with respect to any such agricultural or horticultural commodity;
there shall be excluded dividends on any share of stock, and interest on any bond, debenture, note, or certificate, or other evidence of indebtedness, issued with interest coupons or in registered form by any corporation (including one issued by a government or political subdivision thereof), unless such dividends and interest are received in the course of a trade or business as a dealer in stocks or securities;
there shall be excluded any gain or loss—
which is considered as gain or loss from the sale or exchange of a capital asset,
from the cutting of timber, or the disposal of timber, coal, or iron ore, if section 631 applies to such gain or loss, or
from the sale, exchange, involuntary conversion, or other disposition of property if such property is neither—
stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, nor
property held primarily for sale to customers in the ordinary course of the trade or business;
the deduction for net operating losses provided in section 172 shall not be allowed;
if—
any of the income derived from a trade or business (other than a trade or business carried on by a partnership) is community income under community property laws applicable to such income, the gross income and deductions attributable to such trade or business shall be treated as the gross income and deductions of the spouse carrying on such trade or business or, if such trade or business is jointly operated, treated as the gross income and deductions of each spouse on the basis of their respective distributive share of the gross income and deductions; and
any portion of a partner’s distributive share of the ordinary income or loss from a trade or business carried on by a partnership is community income or loss under the community property laws applicable to such share, all of such distributive share shall be included in computing the net earnings from self-employment of such partner, and no part of such share shall be taken into account in computing the net earnings from self-employment of the spouse of such partner;
a resident of Puerto Rico shall compute his net earnings from self-employment in the same manner as a citizen of the United States but without regard to section 933;
the deduction for personal exemptions provided in section 151 shall not be allowed;
an individual who is a duly ordained, commissioned, or licensed minister of a church or a member of a religious order shall compute his net earnings from self-employment derived from the performance of service described in subsection (c)(4) without regard to section 107 (relating to rental value of parsonages), section 119 (relating to meals and lodging furnished for the convenience of the employer), and section 911 (relating to citizens or residents of the United States living abroad), but shall not include in such net earnings from self-employment the rental value of any parsonage or any parsonage allowance (whether or not excludable under section 107) provided after the individual retires, or any other retirement benefit received by such individual from a church plan (as defined in section 414(e)) after the individual retires;
the exclusion from gross income provided by section 931 shall not apply;
there shall be excluded amounts received by a partner pursuant to a written plan of the partnership, which meets such requirements as are prescribed by the Secretary, and which provides for payments on account of retirement, on a periodic basis, to partners generally or to a class or classes of partners, such payments to continue at least until such partner’s death, if—
such partner rendered no services with respect to any trade or business carried on by such partnership (or its successors) during the taxable year of such partnership (or its successors), ending within or with his taxable year, in which such amounts were received, and
no obligation exists (as of the close of the partnership’s taxable year referred to in subparagraph (A)) from the other partners to such partner except with respect to retirement payments under such plan, and
such partner’s share, if any, of the capital of the partnership has been paid to him in full before the close of the partnership’s taxable year referred to in subparagraph (A);
the exclusion from gross income provided by section 911(a)(1) shall not apply;
in lieu of the deduction provided by section 164(f) (relating to deduction for one-half of self-employment taxes), there shall be allowed a deduction equal to the product of—
the taxpayer’s net earnings from self-employment for the taxable year (determined without regard to this paragraph), and
one-half of the sum of the rates imposed by subsections (a) and (b) of section 1401 for such year (determined without regard to the rate imposed under paragraph (2) of section 1401(b));
there shall be excluded the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in section 707(c) to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services;
in the case of church employee income, the special rules of subsection (j)(1) shall apply;
in the case of a member of an Indian tribe, the special rules of section 7873 (relating to income derived by Indians from exercise of fishing rights) shall apply;
the deduction provided by section 199
1
1 See References in Text note below.
shall not be allowed; and
notwithstanding the preceding provisions of this subsection, each spouse’s share of income or loss from a qualified joint venture shall be taken into account as provided in section 761(f) in determining net earnings from self-employment of such spouse.
in the case of an individual, if the gross income derived by him from such trade or business is not more than the upper limit, the net earnings from self-employment derived by him from such trade or business may, at his option, be deemed to be 66⅔ percent of such gross income; or
in the case of an individual, if the gross income derived by him from such trade or business is more than the upper limit and the net earnings from self-employment derived by him from such trade or business (computed under this subsection without regard to this sentence) are less than the lower limit, the net earnings from self-employment derived by him from such trade or business may, at his option, be deemed to be the lower limit; and
in the case of a member of a partnership, if his distributive share of the gross income of the partnership derived from such trade or business (after such gross income has been reduced by the sum of all payments to which section 707(c) applies) is not more than the upper limit, his distributive share of income described in section 702(a)(8) derived from such trade or business may, at his option, be deemed to be an amount equal to 66⅔ percent of his distributive share of such gross income (after such gross income has been so reduced); or
in the case of a member of a partnership, if his distributive share of the gross income of the partnership derived from such trade or business (after such gross income has been reduced by the sum of all payments to which section 707(c) applies) is more than the upper limit and his distributive share (whether or not distributed) of income described in section 702(a)(8) derived from such trade or business (computed under this subsection without regard to this sentence) is less than the lower limit, his distributive share of income described in section 702(a)(8) derived from such trade or business may, at his option, be deemed to be the lower limit.
in the case of any such trade or business in which the income is computed under a cash receipts and disbursements method, the gross receipts from such trade or business reduced by the cost or other basis of property which was purchased and sold in carrying on such trade or business, adjusted (after such reduction) in accordance with the provisions of paragraphs (1) through (7) and paragraph (9) of this subsection; and
in the case of any such trade or business in which the income is computed under an accrual method, the gross income from such trade or business, adjusted in accordance with the provisions of paragraphs (1) through (7) and paragraph (9) of this subsection;
If the taxable year of a partner is different from that of the partnership, the distributive share which he is required to include in computing his net earnings from self-employment shall be based on the ordinary income or loss of the partnership for any taxable year of the partnership ending within or with his taxable year. In the case of any trade or business which is carried on by an individual or by a partnership and in which, if such trade or business were carried on exclusively by employees, the major portion of the services would constitute agricultural labor as defined in section 3121(g)—
The term “self-employment income” means the net earnings from self-employment derived by an individual (other than a nonresident alien individual, except as provided by an agreement under section 233 of the Social Security Act) during any taxable year; except that such term shall not include—
in the case of the tax imposed by section 1401(a), that part of the net earnings from self-employment which is in excess of (i) an amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) which is effective for the calendar year in which such taxable year begins, minus (ii) the amount of the wages paid to such individual during such taxable years; or
the net earnings from self-employment, if such net earnings for the taxable year are less than $400.
For purposes of paragraph (1), the term “wages” (A) includes such remuneration paid to an employee for services included under an agreement entered into pursuant to the provisions of section 3121(
l
) (relating to coverage of citizens of the United States who are employees of foreign affiliates of American employers), as would be wages under section 3121(a) if such services constituted employment under section 3121(b), and (B) includes compensation which is subject to the tax imposed by section 3201 or 3211. An individual who is not a citizen of the United States but who is a resident of the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa shall not, for purposes of this chapter be considered to be a nonresident alien individual. In the case of church employee income, the special rules of subsection (j)(2) shall apply for purposes of paragraph (2).
The term “trade or business”, when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 (relating to trade or business expenses), except that such term shall not include—
the performance of the functions of a public office, other than the functions of a public office of a State or a political subdivision thereof with respect to fees received in any period in which the functions are performed in a position compensated solely on a fee basis and in which such functions are not covered under an agreement entered into by such State and the Commissioner of Social Security pursuant to section 218 of the Social Security Act;
the performance of service by an individual as an employee, other than—
service described in section 3121(b)(14)(B) performed by an individual who has attained the age of 18,
service described in section 3121(b)(16),
service described in section 3121(b)(11), (12), or (15) performed in the United States (as defined in section 3121(e)(2)) by a citizen of the United States, except service which constitutes “employment” under section 3121(y),
service described in paragraph (4) of this subsection,
service performed by an individual as an employee of a State or a political subdivision thereof in a position compensated solely on a fee basis with respect to fees received in any period in which such service is not covered under an agreement entered into by such State and the Commissioner of Social Security pursuant to section 218 of the Social Security Act,
service described in section 3121(b) (20), and
service described in section 3121(b)(8)(B);
the performance of service by an individual as an employee or employee representative as defined in section 3231;
the performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order;
the performance of service by an individual in the exercise of his profession as a Christian Science practitioner; or
the performance of service by an individual during the period for which an exemption under subsection (g) is effective with respect to him.
The provisions of paragraph (4) or (5) shall not apply to service (other than service performed by a member of a religious order who has taken a vow of poverty as a member of such order) performed by an individual unless an exemption under subsection (e) is effective with respect to him.
The term “employee” and the term “wages” shall have the same meaning as when used in chapter 21 (sec. 3101 and following, relating to Federal Insurance Contributions Act).
Subject to paragraph (2), any individual who is (A) a duly ordained, commissioned, or licensed minister of a church or a member of a religious order (other than a member of a religious order who has taken a vow of poverty as a member of such order) or (B) a Christian Science practitioner, upon filing an application (in such form and manner, and with such official, as may be prescribed by regulations made under this chapter) together with a statement that either he is conscientiously opposed to, or because of religious principles he is opposed to, the acceptance (with respect to services performed by him as such minister, member, or practitioner) of any public insurance which makes payments in the event of death, disability, old age, or retirement or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act) and, in the case of an individual described in subparagraph (A), that he has informed the ordaining, commissioning, or licensing body of the church or order that he is opposed to such insurance, shall receive an exemption from the tax imposed by this chapter with respect to services performed by him as such minister, member, or practitioner. Notwithstanding the preceding sentence, an exemption may not be granted to an individual under this subsection if he had filed an effective waiver certificate under this section as it was in effect before its amendment in 1967.
The Secretary may approve an application for an exemption filed pursuant to paragraph (1) only if the Secretary has verified that the individual applying for the exemption is aware of the grounds on which the individual may receive an exemption pursuant to this subsection and that the individual seeks exemption on such grounds. The Secretary (or the Commissioner of Social Security under an agreement with the Secretary) shall make such verification by such means as prescribed in regulations.
Any individual who desires to file an application pursuant to paragraph (1) must file such application on or before the due date of the return (including any extension thereof) for the second taxable year for which he has net earnings from self-employment (computed without regard to subsections (c)(4) and (c)(5)) of $400 or more, any part of which was derived from the performance of service described in subsection (c)(4) or (c)(5).
An exemption received by an individual pursuant to this subsection shall be effective for the first taxable year for which he has net earnings from self-employment (computed without regard to subsections (c)(4) and (c)(5)) of $400 or more, any part of which was derived from the performance of service described in subsection (c)(4) or (c)(5), and for all succeeding taxable years. An exemption received pursuant to this subsection shall be irrevocable.
In computing a partner’s net earnings from self-employment for his taxable year which ends as a result of his death (but only if such taxable year ends within, and not with, the taxable year of the partnership), there shall be included so much of the deceased partner’s distributive share of the partnership’s ordinary income or loss for the partnership taxable year as is not attributable to an interest in the partnership during any period beginning on or after the first day of the first calendar month following the month in which such partner died. For purposes of this subsection—
in determining the portion of the distributive share which is attributable to any period specified in the preceding sentence, the ordinary income or loss of the partnership shall be treated as having been realized or sustained ratably over the partnership taxable year; and
the term “deceased partner’s distributive share” includes the share of his estate or of any other person succeeding, by reason of his death, to rights with respect to his partnership interest.
Any individual may file an application (in such form and manner, and with such official, as may be prescribed by regulations under this chapter) for an exemption from the tax imposed by this chapter if he is a member of a recognized religious sect or division thereof and is an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act). Such exemption may be granted only if the application contains or is accompanied by—
such evidence of such individual’s membership in, and adherence to the tenets or teachings of, the sect or division thereof as the Secretary may require for purposes of determining such individual’s compliance with the preceding sentence, and
his waiver of all benefits and other payments under titles II and XVIII of the Social Security Act on the basis of his wages and self-employment income as well as all such benefits and other payments to him on the basis of the wages and self-employment income of any other person,
such sect or division thereof has the established tenets or teachings referred to in the preceding sentence,
it is the practice, and has been for a period of time which he deems to be substantial, for members of such sect or division thereof to make provision for their dependent members which in his judgment is reasonable in view of their general level of living, and
such sect or division thereof has been in existence at all times since
December 31, 1950
.
and only if the Commissioner of Social Security finds that—
An exemption granted to any individual pursuant to this subsection shall apply with respect to all taxable years beginning after
December 31, 1950
, except that such exemption shall not apply for any taxable year—
beginning (i) before the taxable year in which such individual first met the requirements of the first sentence of paragraph (1), or (ii) before the time as of which the Commissioner of Social Security finds that the sect or division thereof of which such individual is a member met the requirements of subparagraphs (C) and (D), or
ending (i) after the time such individual ceases to meet the requirements of the first sentence of paragraph (1), or (ii) after the time as of which the Commissioner of Social Security finds that the sect or division thereof of which he is a member ceases to meet the requirements of subparagraph (C) or (D).
This subsection shall apply with respect to services which are described in subparagraph (B) of section 3121(b)(8) (and are not described in subparagraph (A) of such section).
An individual shall be deemed to be self-employed on a regular basis in a taxable year, or to be a member of a partnership on a regular basis in such year, if he had net earnings from self-employment, as defined in the first sentence of subsection (a), of not less than $400 in at least two of the three consecutive taxable years immediately preceding such taxable year from trades or businesses carried on by such individual or such partnership.
Notwithstanding subsection (a)(3)(A), in determining the net earnings from self-employment of any options dealer or commodities dealer, there shall not be excluded any gain or loss (in the normal course of the taxpayer’s activity of dealing in or trading section 1256 contracts) from section 1256 contracts or property related to such contracts.
For purposes of this subsection—
The term “options dealer” has the meaning given such term by section 1256(g)(8).
The term “commodities dealer” means a person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission.
The term “section 1256 contract” has the meaning given to such term by section 1256(b).
In applying subsection (a)—
church employee income shall not be reduced by any deduction;
church employee income and deductions attributable to such income shall not be taken into account in determining the amount of other net earnings from self-employment.
Paragraph (2) of subsection (b) shall be applied separately—
to church employee income, and
to other net earnings from self-employment.
In applying paragraph (2) of subsection (b) to church employee income, “$100” shall be substituted for “$400”.
Paragraph (1) shall not apply to any amount allowable as a deduction under subsection (a)(12), and paragraph (1) shall be applied before determining the amount so allowable.
For purposes of this section, the term “church employee income” means gross income for services which are described in section 3121(b)(8)(B) (and are not described in section 3121(b)(8)(A)).
Nothing in subsection (a) shall be construed as including in the net earnings from self-employment of an individual any amount received during the taxable year from an insurance company on account of services performed by such individual as an insurance salesman for such company if—
such amount is received after termination of such individual’s agreement to perform such services for such company,
such individual performs no services for such company after such termination and before the close of such taxable year,
such individual enters into a covenant not to compete against such company which applies to at least the 1-year period beginning on the date of such termination, and
the amount of such payment—
depends primarily on policies sold by or credited to the account of such individual during the last year of such agreement or the extent to which such policies remain in force for some period after such termination, or both, and
does not depend to any extent on length of service or overall earnings from services performed for such company (without regard to whether eligibility for payment depends on length of service).
For purposes of subsection (a)—
The lower limit for any taxable year is the sum of the amounts required under section 213(d) of the Social Security Act for a quarter of coverage in effect with respect to each calendar quarter ending with or within such taxable year.
The upper limit for any taxable year is the amount equal to 150 percent of the lower limit for such taxable year.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1402(e)(1)-1 Election by ministers, members of religious orders, and Christian Science practitioners for self-employment coverage
- Treas. Reg. §Treas. Reg. §1.1402(e)(1)-1(a) In general.
- Treas. Reg. §Treas. Reg. §1.1402(e)(1)-1(b) Waiver certificate.
- Treas. Reg. §Treas. Reg. §1.1402(e)(2)-1 Time limitation for filing waiver certificate
- Treas. Reg. §Treas. Reg. §1.1402(e)(2)-1(a) §1.1402(e)(2)-1(a)
- Treas. Reg. §Treas. Reg. §1.1402(e)(2)-1(b) Effect of death.
- Treas. Reg. §Treas. Reg. §1.1402(e)(2)-1(c) Computation of net earnings without regard to election.
- Treas. Reg. §Treas. Reg. §1.1402(e)(2)-1(i) §1.1402(e)(2)-1(i)
- Treas. Reg. §Treas. Reg. §1.1402(e)(3)-1 Effective date of waiver certificate
- Treas. Reg. §Treas. Reg. §1.1402(e)(3)-1(a) §1.1402(e)(3)-1(a)
- Treas. Reg. §Treas. Reg. §1.1402(e)(3)-1(b) Filed after August 30, 1957, and before the due date of the 1958 return.
- Treas. Reg. §Treas. Reg. §1.1402(e)(3)-1(c) Filed after due date of 1958 return—(1) In general.
- Treas. Reg. §Treas. Reg. §1.1402(e)(3)-1(d) Election irrevocable.
- Treas. Reg. §Treas. Reg. §1.1402(e)(4)-1 Treatment of certain remuneration paid in 1955 and 1956 as wages
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1 Optional provision for certain certificates filed before April 15, 1962
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1(a) Certificates.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1(b) Supplemental certificates.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1(c) Underpayment of tax.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1(d) Nonapplicability of section 6401.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-1(i) §1.1402(e)(5)-1(i)
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-2 Optional provisions for certain certificates filed on or before April 17, 1967
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-2(a) In general—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-2(b) Underpayment of tax.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-2(c) Nonapplicability of section 6401.
- Treas. Reg. §Treas. Reg. §1.1402(e)(5)-2(d) Applicability of §§ 1.
106 Citing Cases
2000), is overruled.
§ 1402(a)(13) does not apply to a partner who is limited in name only.
Self-employmenttaxes apply to all net earnings from a "trade or business" as defined in section 1402. S_e_e sec. 1402(a), (c) (cross-referencing sec. 162). Section 1402(c)(2) generally excludes from the definition ofa "trade or business" services performed by a tax- payer as an employee. But this exclusion does not apply to services performed in - 17 - [*17] the United States by an employee ofan "international organization." See sec.
7537-98 (July 10, 2002)." Respondent has not argued that the instant case is distinguishable from McNamara I.
Section 1402(a)(2) Petitioners alternatively argue that, if the exclusion under - 27 - section 1402(a)(3) does not apply, the exclusion under section 1402(a)(2) operates to exclude the value-added payments because those payments were really dividends paid with respect to petitioners’ MCP stock.
I believe that the Ninth Circuit has overemphasized parallels between the wage tax acts (the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA)) and SECA, forgetting that SECA, unlike FICA and FUTA, does not impose a levy solely against labor, but, rather, imposes a levy against certain trade or business income of an individual. Compare sections 3121(a) and 3306(b) with section 1402(a).
Therefore, we hold that petitioner's commission income was subject to self-employmenttax under section 1402.
Vigil's work as a minister, pursuant to section 1402(e) .
As noted supra, for purposes of section 1402 a taxpayer may conduct his trade or business personally or through an agent.
For purposes of section 1402, “The trade or business must be carried on by the individual, either personally or through agents or employees.” Sec.
- 12 - Commissioner, supra, we hold that the earnings in dispute are earnings from self-employment under section 1402, subject to the tax imposed by section 1401.
“source” of such payments. Thus, respondent construes both decisions as adding a “salary reduction agreement” or “direct tracing” requirement to the “derived from trade or business” standard that is not supported by other case law or the language of section 1402. Second, respondent argues that the existence of post-termination conditions upon the agent’s right to receive the termination payments should play no role in deciding whether such payments are subject to self-employment tax. Respondent
Kaiser constitutes earnings from self-employment within the meaning of section 1402, subject to tax imposed by section 1401.
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business. Respondent argues that the law firm was a partnership, and thus petitioner was subject to self-employment tax. Petition
The sole issue for decision is whether SERVE DEC 10 2008 2 petitioners are liable for self-employment tax under section 1402 .' We hold that they are liable .
Payne and other Edwards agency workers were employees of Mr . Edwards's deemed sole proprietorship . Accordingly, this Court finds that Edwards agency income constitutes gross income derived from a trade or business carried on by Mr . Edwards under section 1402 . In reaching these holdings, the Court has considered all arguments made and, to the extent not mentioned, concludes that they are moot, irrelevant, or without merit . 9 To reflect the foregoing, Decision will be entered for respondent
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on - 14 - of any trade or business by such individual less allowable deductions attributable to such trade or business. We agree with respondent. We conclude that petitioners are liable for self-employment tax in 1995 in accordance
We conclude that petitioner is liable for self-employment tax on the $25,218 that he reported on his 1993 tax return as net income of Stan’s Pawn Shop in 1993. - 11 - E. Whether Petitioner Realized $5,369 of Capital Gains From the Sale of Stock in 1993 Respondent determined that petitioner is liable for capital gains tax on $5,369 of ca
ers during 1994, that the rental payments which they received during that year were not received by them in the course of such a business, and that such rental payments are not includible in the computation of net earnings from self-employment under section 1402. Sec. - 8 - 1402(a)(1). Accordingly, we hold that petitioners are not liable for self-employment tax for 1994.3 Claimed Deductions Claimed Deductions Relating to the Ten Parcels Petitioners claimed in their 1994 Schedule C various ex- pe
Even if petitioner could prove that income derived from his counseling practice is income derived from a religious ministry, he cannot prove that he is opposed to public insurance as a conscientious or religious principle, as is required by section 1402 in order to qualify for exemption from self-employment tax.
Even if petitioner could prove that income derived from his counseling practice is income derived from a religious ministry, he cannot prove that he is opposed to public insurance as a conscientious or religious principle, as is required by section 1402 in order to qualify for exemption from self-employment tax.
4 The notice does not treat the income petitioner earned and received from BMW or Devex as net earnings from self-employment subject to the tax imposed by section 1402, and respondent does not argue for that treatment here.
The income derived from these activities constitutes “self-employment income” under section 1402 and is subject to the self-employment taxes of section 1401.
1402; see also Parker v. Commissioner, T.C. Memo. 2002-305, 2002 WL 31818019, at *1. - 21 - [*21] all income--no matter the source--unless specifically excluded. See sec. 61. This includes income that is paid directly to a taxpayer and income that a taxpayer receives indirectly--for example, through nominees or alter egos or sham entities. Se
Both parties are well represented in this case, but neither focused on this distinction. We will follow their lead and proceed as though the distinction need not be taken into account in connection with the relief petitioner seeks in this proceeding. 4Substantially all of the marital assets were awarded to Mr. Leon, including the busines
th respect to which such plan is established”. Section 404(a)(8)(B) provides that “earned income” has the meaning assigned by section 401(c)(2), which, in turn, provides that “earned income” means the net earnings from self- employment as defined by section 1402. However, for purposes of section 401(c), such net earnings are determined only with respect to a trade or business in which the personal services of the taxpayer are a material income-producing factor. Sec. 401(c)(2)(A)(i). Petitioner’s
1402; see also Parker v. Commissioner, T.C. Memo. 2002-305, 2002 WL 31818019, at *1. - 21 - [*21] all income--no matter the source--unless specifically excluded. See sec. 61. This includes income that is paid directly to a taxpayer and income that a taxpayer receives indirectly--for example, through nominees or alter egos or sham entities. Se
To be engaged in a trade or business within the meaning ofsection 162, and by extension section 1402, an individual must be involved in an activity with continuity and regularity, and the primary purpose for engaging in the activity must be for income and profit.
1.1402(a)-1, Income Tax Regs.; see also Tietig v Commissioner, T.C. Memo. 2001-190, 82 T.C.M. (CCH) 304, 316 (2001), afCd, 57 F. App'x 414 (1 lth Cir. 2003). Petitioners bear the burden ofproving that they are not liable for the self-employmenttax that respondent determined. See Rule 142(a); Tietig v. Commissioner, 82 T.C.M. (CCH) a
1.1402(a)-1, Income Tax Regs.; see also Tietig v Commissioner, T.C. Memo. 2001-190, 82 T.C.M. (CCH) 304, 316 (2001), afCd, 57 F. App'x 414 (1 lth Cir. 2003). Petitioners bear the burden ofproving that they are not liable for the self-employmenttax that respondent determined. See Rule 142(a); Tietig v. Commissioner, 82 T.C.M. (CCH) a
at 2170-2171. - 29 - IV.B., section 7623(b)(1) establishes the manner in which the Secretary calculates the award to be made to a whistleblowerwho qualifies for the mandatory award program. The statute explicitly instructs the Secretaryto pay the whistleblower who qualifies for the mandatory award program an award of 15% to 30%
at 2170-2171. - 29 - IV.B., section 7623(b)(1) establishes the manner in which the Secretary calculates the award to be made to a whistleblowerwho qualifies for the mandatory award program. The statute explicitly instructs the Secretaryto pay the whistleblower who qualifies for the mandatory award program an award of 15% to 30%
Section 1401 imposes a tax on "self-employment income." Section 1402 defines self-employment income as "net earnings from self-employment" which it defines as "the gross income derived by an individual from any trade or business carried on by such individual." Sec.
hall not include-- (1) the performance ofthe functions ofa public office, other than the functions ofa public office ofa State or a - 12 - political subdivision thereofwith respect to fees received in any period in which the functions are performed in a position compensatedsolely on afee basis * * * [Emphasis added.] There's nothing useful in the section 1402 regulations on this question, but the Commissioner does have some subregulatory guidance.
* * * For purposes ofthis paragraph, section 01(c)(2) shall be applied as ifthe term trade or business for purpo(cid:16)041eosfsection 1402 included service described in subsection (c)(6).
Generally section 1402 defines "self-employment income" as "net earnings from self-employment." Section 1402 defines net earnings from self-employment as gross income derived from any trade or business carried on by such individual, less the deductions allowed which are attributable to such trade or business.
Section 1402 (a') defines net earnings from self-employment as "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 such trade or business". Mr. Norwood provided his services to Mr. Pore and - 4 - P & P, and the income he received was classi
Compensation includes earnedr income, which is defined as "the net earnings from self-employment (as defined in section 1402( ))".
Section 1402(a) defines net earnings from self-employment as: the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss des
for the staxable year, plus ( i) the amoùnt of the taxp'ayer' s net earn- ings f om selfiemployment for the taxable year (withi the meaning of section 1402 (a) ) , but such net ea nings shall be determined with regard to the de uction allowed to the taxpayer by section 164 (f) Section 32 (c) (2) B) provides that for purposes, of section 32 (c) (2) (A) the t erm "earned income" does not include amounts received as a per sion or-an annuity.
The term "net earnings from self- employment" is defined as ."the gross income derived by an individual from any trade or business carried on by * * * [the] individual, less the deductions allowed by this subtitle [i.e. subtitle A of title 26) which are attributable to * * * [the] trade or business". Sec. 1402(a). A trade or business
Section 1402(a) defines net earnings from self-employment as: the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss des
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business. í Respondent determined that petitioner's income during 2004, 2005, and 2006 is subject to self-employment tax. Petitio
Section 1402 (c) explains that the term "trade or business" in the self-employment context has the same meaning as when used to apply the expense provisions of section 162 . See Bot v . Commissioner, 118 T . C. 138 , 146 (2002), affd. 353 F .3d 595 ( 8th Cir . 2003 ) ; see also sec . 1 .1402 ( c)-1, Income Tax Regs . "Trade or business " under sect
Petitioner's termination payments fall outside the protection of section 1402"(k) and the court's : holding in Milligan.
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business . A fundamental principle of tax law is that income is taxed to the person who earns it . Commissioner v . Culbertson ,
For purposes of calculating the maximum amount of an IRA deduction, compensation is defined, in pertinent part, in section 219(f)(1) as follows : (1) Compensation .--For purposes of this section, the term "compensation" includes earned income (as defined in section 401(c)(2)) .
Section 1402 defines net earnings from self-employment - 7 - as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business. Respondent determined that petitioner’s income from Maronda and Rain-Tile is subject to self-employment tax. Pet
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business. Respondent argues that petitioner is a "qualified real estate agent" within the meaning of section 3508, and that he is
Section 1402 defines net earnings from self-employment as the gross'income derived by an individual from the carrying on . of any trade or business by such individual less allowable deductions attributable to such trade or business. - 17 - We conclude in accordance with section 1401 that petitioner is liable for additional self-employment tax in 1
in 2000 and 2001 is earnings from self-employment under section 1402, subject to the tax imposed by section 1401.
Section 1402 noted in paragraph (b) defines income subject to self-employment tax. In the past, and currently, Mr. Hoyt has used Revenue Rulings 56-496, 57-58, and 64-32 as authorities for investors having met the material participation requirement. These rulings and the court cases he has cited are prior to the enactment of section 469 and all ref
Section 1402 noted in paragraph (b) defines income subject to self-employment tax. In the past, and currently, Mr. Hoyt has used Revenue Rulings 56-496, 57-58, and 64-32 as authorities for investors having met the material participation requirement. These rulings and the court cases he has cited are prior to the enactment of section 469 and all ref
Section 1402 noted in paragraph (b) defines income subject to self-employment tax. In the past, and currently, Mr. Hoyt has used Revenue Rulings 56-496, 57-58, and 64-32 as authorities for investors having met the material participation requirement. These rulings and the court cases he has cited are prior to the enactment of section 469 and all ref
Respondent also determined that petitioners were liable for self-employment tax under section 1402 on the earnings from Gene’s.
me tax purposes. Respondent maintains that Richard Pelham created a mere paper entity, the trust, and transferred the business operations of his sole proprietorship, Lake Lock & Key, to the trust for the purpose of avoiding self-employment tax under section 1402. Petitioners argue that the trust should be treated as a separate entity because: (1) The trust is a valid trust under State law; (2) a business may lawfully change from one form of entity to another, provided that the legal requirements
The term “trade or business” in section 1402 has the same meaning as it does for purposes of section 162.
Respondent further determined that such income constitutes net earnings from self- employment within the meaning of section 1402 and is therefore subject to the self-employment tax imposed by section 1401.
purposes. Respondent maintains that the Morrows created a mere paper entity, the trust, and transferred the business operations of their sole proprietorship, I.D.F. Pest Control Co., to the trust for the purpose of avoiding self-employment tax under section 1402. Petitioners argue that the trust should be treated as a separate entity because: (1) The trust is a valid trust under State law; (2) a business may lawfully change from one form of entity to another, provided that the legal requirements
1.1402(a)-1, Income Tax Regs. Section 1402(a)(2) specifically excludes interest from the term “net earnings from self-employment.” Petitioner bears the burden of proving that he is not liable for the self-employment tax. See Rule 142(a). Petitioner argues that he acted as a mere conduit in collecting funds distributed by the partner
ion from the tax on self-employment income, which in turn depends upon whether the services he performed as a licensed local pastor in the United Methodist Church constitute the performance of services by a minister of a church within the meaning of section 1402. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue. FINDINGS OF FACT Some of the facts have been stipulated and are so found. Petitioners are husband and wife. They filed a t
nt we find that petitioner was an independent contractor, petitioners are liable for self-employment tax. Petitioners do not address the question of self-employment tax on brief, and we find that petitioners are liable for self-employment tax.7 See sec. 1402. However, petitioners may, to the extent permitted by 6 Because we have found that petitioner was an independent contractor, it is unnecessary for us to consider petitioners’ argument that petitioner could not be an employee because the Fair
Section 1402 defines net earnings from self-employment as the gross income derived by an individual from the carrying on of any trade or business by such individual less allowable deductions attributable to such trade or business. We agree with respondent. We conclude that petitioner is liable for additional self-employment tax in 1986 and 1987 in
his down- line distributors. 6 Secs. 1401 and 1402 are contained in subtit. A of the Internal Revenue Code. - 12 - We therefore find that the payments petitioner received from the companies are not dividends excluded from self-employment tax under section 1402. Petitioner also referred to the payments as royalties. Royalties are defined as payments received for the right to use intangible property rights, and that definition does not include payments for services. Sierra Club, Inc. v. Commissio
The issues are: (1) Whether petitioner is liable for tax on additional wage income in the amount of $170 earned by Debra Schroeder (petitioner's deceased wife); (2) whether certain income earned by petitioner constitutes earnings from self-employment within the meaning of section 1402, subject to tax imposed by section 1401; (3) whether Social Security benefits received by petitioner and Mrs.
Section 1402 defines net earnings from self-employment as gross income derived from a trade or business. Petitioner did not appear at trial or present any information or evidence that the commissions received were not self-employment income. The evidence adduced by respondent establishes that these commissions were income from self-employment. Acco
S Corporation Pass-Through Items Neither section 1402, which provides the definition of net earnings from self-employment, nor the regulations promulgated - 6 - thereunder contain any reference to S corporation pass-through items.
assessing taxes for those years have expired. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulations of facts and attached exhibits are incorporated 1(...continued) for additional self-employment taxes pursuant to sec. 1402 for each of the years in issue. This issue will be resolved under Rule 155 computations for any year in which we find that there are increases in petitioner's taxable income. 2 Respondent's determination of unreported income entails four co
Section 1402 defines net earnings from self-employment as gross income derived from a trade or business less certain deductions. Commission income from Kemp was reported on a Schedule C. Petitioner does not seriously dispute that the commission income is not subject to self-employment tax. Respondent is sustained on this issue. Petitioner makes a v
er self-employed is insufficient to overcome the contrary presumption on the point, and in the absence of any evidence to rebut the reconstruction of his unreported income, including the use of BLS statistics, we find that all of the income attributable to petitioner for the year 1989 constitutes earnings from self-employment within the meaning of section 1402, subject to the tax imposed by section 1401.
1402(al (1994) provides: (a) Any civil action in a district court against the United States under subsection (a) of section 1346 of this title may be prosecuted only: : S (1) Except as provided in paragraph (2), in the judicial district where the plaintiff resides; (2) In the case of a civil action by a corporation under paragraph (1) of subse
ment tax is due from him for 1987 because petitioner wife had already reported and paid the maximum self-employment tax for 1987, which was $5,387.4 There is an upward limit on the amount upon which a Social Security self-employment tax is assessed, sec. 1402,5 but this in no way diminishes the obligation to report and pay income tax on self-employment income, sec. 1401(a). Petitioner wife received income of $15,000 on account of a referral fee from another lawyer. It was her self-employment inc
Whether a payment is derived from a trade or - 31 - business for purposes of section 1402 depends on whether, under all the facts and circumstances, a nexus exists between the payment and the carrying on of the trade or business.
* * * * * * For purposes of this subtitle, in the case of futures transactions in any commodity subject to the rules of a board of trade or commodity exchange, the length of the holding period taken into account under this section or under any other section amended by section 1402 of the Tax Reform Act of 1976 shall be determined without regard to the amendments made by subsections (a) and (b) of such section 1402.