Fred and Yvonne Michael - Page 3

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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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