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Prior to the year in issue, during the 1981 and 1982 taxable
years, petitioner worked as a furniture lumper. A lumper is a
laborer employed to handle freight or cargo. On their 1981 and
1982 Federal income tax returns, petitioners claimed withholdings
were made on petitioner's behalf in the amounts of $11,060.84 and
$12,601.25, respectively. Following an audit, the Commissioner
determined that these amounts, which were claimed as withholding
for the taxable years 1981 and 1982, were never withheld or paid
to the Service during the taxable years 1981 and 1982. The
Commissioner further determined that petitioner was an indepen-
dent contractor during the 1981 and 1982 taxable years in which
he worked as a furniture lumper. The Commissioner determined
that, as an independent contractor, petitioner was liable for
self-employment tax in the amounts of $2,245 and $2,356 for the
tax years 1981 and 1982, respectively. Petitioners paid $42,700
in interest in 1991 to the Service on account of their tax
liabilities arising from the overstatement of credits for with-
holding and the failure to pay self-employment tax during the
1981 and 1982 tax years.
On Schedule C of their 1991 Federal income tax return,
petitioners claimed this interest expense as a business expense.
Respondent disallowed the entire $42,700 deduction as a Schedule
C interest expense.
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