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farming, Mrs. Hennen was to perform bookkeeping, run errands for
the business, and help with livestock chores and field work. In
essence, the Agreement memorialized almost the same duties that
Mrs. Hennen had been performing since Mr. and Mrs. Hennen began
farming together. The Agreement also said Mrs. Hennen could
participate in her husband's Health and Accident Insurance Plan,
according to the terms and provisions of that plan. Mrs. Hennen
would have continued to do the same farming jobs even if there
had been no Agreement.
For all 3 years in issue, petitioners filed their Forms 1040
income tax returns on a married, filing jointly basis. On their
Schedules E, Supplemental Income and Loss, petitioners reported
that they received net rental income for 1994, 1995, and 1996,
from "FARM AND HOUSE", "FARMS", and "FARMS", respectively, in the
amounts of $14,322, $12,940, and $12,766, respectively. On line
7, Wages, salaries, tips, etc., of their Forms 1040, petitioners
reported that Mrs. Hennen received wages from Mr. Hennen in the
amounts of $3,137.11, $3,250, and $3,487 for 1994, 1995, and
1996, respectively, and, in 1994, petitioners also reported that
Mrs. Hennen received wages from World Book, Inc. in the amount of
$221.45. The amounts deducted as labor hired on the respective
Schedules F, Profit or Loss From Farming, for the 3 years in
issue exceeded the amounts purportedly paid to Mrs. Hennen. Mr.
Hennen failed to withhold Federal income taxes, State income
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