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On the Forms 4797, Sales of Business Property, attached to
their returns, Mr. and Mrs. Bot reported gains from the sales of
sows in 1993, gains from sales of sows in 1994, losses from sales
of gilts and boars in 1994, and losses form the sale of boars in
1995. One of the adjustments to their income which is not in
issue was that Mr. and Mrs. Bot each received Minnesota Corn
Processors Income.
OPINION
Section 1401 provides that a tax shall be imposed on the
self-employment income of every individual. Generally, rentals
from real estate are excluded from the computation of net
earnings from self-employment. Sec. 1402(a)(1). However,
section 1402(a)(1) also provides that rentals derived by the
owner or tenant of land are not excluded from the computation of
net earnings from self-employment 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 * * *
commodities (including livestock * * *) 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 * * * commodities, and (B)
there is material participation by the owner or tenant * * *
with respect to any such agricultural * * * commodity;
In other words, as the regulations provide in pertinent
part, if the rental income is derived under an arrangement
between the owner of land (owner) and another person which
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Last modified: May 25, 2011