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net earnings from self-employment, has the same meaning as when
used in section 162 (relating to trade or business expenses).
Sec. 1402(c). The Supreme Court has interpreted the "trade or
business" terminology of section 162 as follows: "the taxpayer
must be involved in the activity with continuity and regularity
and that taxpayer's primary purpose for engaging in the activity
must be for income or profit." Commissioner v. Groetzinger,
supra at 35.
At trial, petitioner argued that the payments were like
dividends. Dividends on any share of stock are excluded from
gross income and deductions in computing net income from self-
employment. Sec. 1402(a)(2). The term "dividend" is defined for
purposes of subtitle A6 as any distribution of property made by a
corporation to its shareholders out of its earnings and profits
accumulated after February 28, 1913, or out of its earnings and
profits of the taxable year. Sec. 316(a). Petitioner did not
claim to own shares of stock in any of the companies that made
payments to him. Nor did he claim that the payments were made on
account of anything other than the agreements he had with the
companies to pay him a commission on the sales made by his down-
line distributors.
6 Secs. 1401 and 1402 are contained in subtit. A of the
Internal Revenue Code.
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Last modified: May 25, 2011