Charles E. King - Page 7

                  The term "earned income" is defined by section 401(c) as the                            
            net earnings from self-employment as defined in section 1402(a),                              
            but "only with respect to a trade or business in which personal                               
            services of the taxpayer are a material income-producing factor."                             
            Sec. 401(c)(2)(A)(i).  Under section 1402(a), "net earnings from                              
            self-employment" is defined, in relevant part, as gross income                                
            earned by a taxpayer from a business carried on by the taxpayer,                              
            less deductions allowed which are attributable to such business.                              
                  For the year at issue, petitioner reported a net loss for                               
            King International and, consequently, had no net earnings from                                
            self-employment.  We reject petitioner's argument that his                                    
            interest income should be taken into consideration because such                               
            income is not "derived by an individual from any trade or                                     
            business carried on by such individual".  Sec. 1402(a).  We find                              
            that petitioner had no "earned income" from his business                                      
            activities within the meaning of section 401(c) and, therefore,                               
            is not entitled to deduct self-employed health insurance                                      
            expenses.  Respondent is sustained on this issue.                                             
                  The final issue for consideration is whether petitioner is                              
            entitled to a deduction for a contribution of $950 to an IRA.  In                             
            general, a taxpayer is entitled to deduct amounts contributed to                              
            an IRA.  Sec. 219(a); sec. 1.219-1(a), Income Tax Regs.  The                                  
            deduction in any taxable year, however, may not exceed the lesser                             
            of $2,000 or an amount equal to the compensation includable in                                
            the taxpayer's gross income for such taxable year.  Sec.                                      

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