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All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated. All dollar amounts are rounded to the nearest dollar,
unless otherwise indicated.
After concessions by the parties,1 the issues for decision
are: (1) Whether the amounts reported by petitioners as
royalties are gross receipts from petitioners' trade or business.
We hold they are. (2) Whether the net profit from petitioners'
trade or business is subject to self-employment tax. We hold it
is.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulated facts and accompanying exhibits are incorporated
into our findings by this reference. At the time the petition in
1 In the notice of deficiency, respondent disallowed for
lack of substantiation deductions for the cost of goods sold and
several expenses of petitioners' business, including returns and
allowances, commissions expense, and additional Schedule C
expenses. Respondent concedes that petitioners paid the expenses
disallowed in the notice of deficiency. Respondent further
concedes that petitioners are not liable for the accuracy-related
penalty under sec. 6662(a).
The parties agree that if this Court decides that the
reported royalties are income subject to self-employment tax,
then petitioner's 1994 self-employment tax liability is $10,632,
and petitioners are liable for a deficiency in that year of
$9,026.
In light of these concessions, and the parties' agreement, a
Rule 155 computation is necessary.
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Last modified: May 25, 2011