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farmed the property and produced cotton, rice, and soybeans as
partners in Mizell Farm pursuant to the leases that Mizell Farm
had entered into with petitioner. Mizell Farm was responsible
for all of the expenses related to raising and harvesting the
crops. Petitioner derived rental income for each of the years in
issue pursuant to the leases. The actual amount of the rental
income received was based upon the level of sales of the
agricultural products by the partnership. Although petitioner
included in his income the rents received pursuant to the leases,
he did not treat such income as earnings from self-employment.
As of the date of trial, petitioner had not leased the
property to a non-related entity or person.
OPINION
Section 1401 provides that, in addition to other taxes, a
tax shall be imposed on the self-employment income of every
individual. Generally, rentals from real estate are excluded
from the computation of net earnings from self-employment. Sec.
1402(a)(1). There is an exception to the exclusion, however,
with respect 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 * * * commodities (including
livestock * * *) on such land, and that there shall be
material participation by the owner or tenant * * * in the
production or the management of the production of such
agricultural * * * commodities, and (B) there is material
participation by the owner or tenant * * * with respect to
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