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income from self-employment and therefore subject to the tax
thereon. 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 * * * 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 any such * * * commodity.
[Sec. 1402(a)(1).]
In other words, if the income is derived under an arrangement
which provides for the production of agricultural products on the
land of the owner or tenant (the owner), and if the arrangement
obligates the owner to materially participate in the production
or the management of the production of agricultural commodities,
and if the owner actually materially participates in the
production or the management of the production of agricultural
commodities, then the income received by the owner pursuant to
the arrangement is considered earnings from self-employment. See
sec. 1.1402(a)-4(b)(3)(i), Income Tax Regs.
"The term 'production' * * * refers to the physical work
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