- 8 -
is, or was, actually carried on by the individual. Newberry v.
Commissioner, supra. Under this Court's interpretation of the
"nexus" standard, income must arise from some income-producing
activity of the taxpayer before such income is subject to self-
employment tax. Jackson v. Commissioner, supra.
Generally, net earnings from self-employment do not include
rentals from real estate and the deductions attributable thereto.
Sec. 1402(a)(1); sec. 1.1402(a)-4(d), Income Tax Regs. An
exception to the exclusion exists under sec. 1402(a)(1)(A) and
(B) for certain arrangements with respect to the production of
agricultural or horticultural commodities.6 Respondent does not
contend that the exception to the exclusion applies in these
circumstances, nor do we think that it applies. Simply put,
6 Sec. 1402(a)(1) provides that the exclusion shall not apply:
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 or
horticultural commodities (including livestock, bees,
poultry, and fur-bearing animals and wildlife) 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 or horticultural
commodities, and (B) there is material participation by the
owner or tenant * * * with respect to such agricultural or
horticultural commodity;
The arrangement must impose an obligation to produce one or more
agricultural or horticultural commodities. Sec. 1.1402(a)-
4(b)(3), Income Tax Regs.
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