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that year. Respondent disagrees. According to respondent,
petitioners were engaged during 1994 in a business as real estate
dealers with respect to the ten parcels in question and received
the rental payments from those parcels in the course of that
business. Respondent maintains that, therefore, those payments
are required to be included in calculating petitioners' net
earnings from self-employment and self-employment tax for 1994.
Section 1401 imposes a tax on an individual's "self-employ-
ment income". As applicable here, the term "self-employment
income" means the net earnings from self-employment derived by an
individual during any taxable year, sec. 1402(b), and the term
"net earnings from self-employment" means
the gross income derived by an individual from any
trade or business carried on by such individual, less
the deductions allowed by this subtitle which are
attributable to such trade or business * * * except
that in computing such gross income and deductions
* * * --
(1) there shall be excluded rentals
from real estate * * * together with the
deductions attributable thereto, unless
such rentals are received in the course
of a trade or business as a real estate
dealer * * * [Sec. 1402(a)(1).]
Section 1.1402(a)-4(a), Income Tax Regs., elaborates on the
foregoing exception from the definition of the term "net earnings
from self-employment", as follows:
(a) In general. Rentals from real estate * * * and the
deductions attributable thereto, unless such rentals
are received by an individual in the course of a trade
or business as a real-estate dealer, are excluded.
Whether or not an individual is engaged in the trade or
business of a real-estate dealer is determined by the
application of the principles followed in respect of
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