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in which Nordic agreed to pay petitioner $500,000, in five
installments, for the past use of petitioner's patent.
Petitioner and Nordic also entered into a license agreement
relating to Nordic's continued use of petitioner's patent. In
1990, petitioner and Regal entered into a settlement agreement in
which Regal agreed to pay petitioner $210,000, in three
installments, for the past use of petitioner's patent.
Petitioner and Regal also entered into a license agreement
relating to Regal's continued use of petitioner's patent.
On his 1993 and 1994 returns, petitioner reported royalties
of $158,611 (i.e., $145,000 relating to Regal's settlement
payments and $13,611 from various companies) and $75,810 (i.e.,
$75,000 relating to Nordic's settlement payment and $810 from
various companies), respectively. Petitioner also reported
$72,227 and $34,201 of business expenses relating to 1993 and
1994, respectively.
OPINION
Respondent contends that the settlement awards and royalties
petitioner received in 1993 and 1994 are subject, pursuant to
section 1401, to self-employment tax. Petitioner contends he is
not in the trade or business of inventing and, therefore, not
liable for self-employment tax.
Section 1401(a) imposes a tax on the self-employment income
of every individual. In general, self-employment income consists
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