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Dr. Sadanaga. Rather, the issue in this case is whether the
distributions paid to Dr. Sadanaga are wages paid to Dr. Sadanaga
as an employee of petitioner.
Petitioner asserts that Durando v. United States, supra, holds
that an S corporation shareholder is not an employee for purposes
of deducting contributions to a Keogh plan.3 Petitioner misstates
the holding of Durando v. United States. Contrary to petitioner’s
assertion, the taxpayers in the Durando case did not claim to be
employees of an S corporation. Rather, such taxpayers were self-
employed individuals, who in that capacity earned income reportable
on Schedule C, Profit (or Loss) From Business or Profession, and
were shareholders in several S corporations. They claimed Keogh
retirement plan deductions by adding their shares of income from
the several S corporations to the amounts reported on their
Schedules C and taking a deduction of 15 percent of the total. The
Commissioner disallowed the deductions attributable to the income
from the S corporations. The taxpayers’ Keogh plans were not
qualified plans established by the S corporations for their
employees. Citing section 1372, the court specifically noted that
“S corporations can establish retirement plans for their employees,
including those who are also shareholders” and that shareholders
3 Keogh plans are retirement plans for self-employed
individuals. A self-employed individual can deduct contributions
to a qualified retirement plan up to a limit of 15 percent of his
or her earned income. Sec. 404(a)(3)(A), (8)(D).
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