Nelson J. and Victoria A. Secretario - Page 3

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          deficiency, petitioners filed a Form 1040X, Amended U.S.                    
          Individual Income Tax Return, for 1994 that was received by                 
          respondent on April 23, 1997.  On their amended return,                     
          petitioners increased reported gross receipts by $3,749 and also            
          increased claimed total Schedule C expenses by $8,320, resulting            
          in a reported net profit from Mr. Secretario's business of                  
          $33,357.  Respondent now agrees that this is the correct amount.            
               Notwithstanding their receipt of net income of $33,357 from            
          Mr. Secretario's activities as a self-employed insurance                    
          salesman, petitioners failed to file a computation for self-                
          employment tax and failed to report and pay any self-employment             
          tax on their original or amended joint returns for 1994.                    


               Petitioners argue that they need not pay self-employment               
          taxes; i.e., Social Security taxes, and therefore did not report            
          or pay such taxes for their 1994 tax year.  Petitioners do not              
          dispute that Mr. Secretario's income constitutes self-employment            
          income within the meaning of sections 1401 and 1402.2  However,             

               2Sec. 1401 imposes a tax on "self-employment income" of                
          every individual.  Sec. 1402(b) defines "self-employment income"            
          as "net earnings from self-employment".  Sec. 1402(a) generally             
          defines "net earnings from self-employment" as gross income                 
          derived by an individual from any trade or business carried on by           
          such individual, less deductions allowed.  The net income derived           
          from Mr. Secretario's insurance sales business, as reported on              
          petitioners' original and amended joint income tax returns for              

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