Michael and Nancy McNamara - Page 2




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                                 FINDINGS OF FACT                                    
               The sole issue for decision is whether rental payments                 
          received by petitioners from McNamara Farms, Inc. (McNamara                 
          Farms), a corporation solely owned by petitioner Michael McNamara           
          (Mr. McNamara), are includible in petitioners' net earnings from            
          self-employment under section 1402(a)(1) and thus subject to                
          self-employment taxes.                                                      
               Some of the facts have been stipulated and are so found.               
          Petitioners resided in Bird Island, Minnesota, at the time the              
          petition was filed.                                                         
               Mr. McNamara began farming in 1977.  Mr. McNamara has farmed           
          for approximately 21 years.  Mr. McNamara operated the farm as a            
          joint venture with his wife until he incorporated the farm on               
          January 17, 1992.  Mr. McNamara is the sole shareholder, officer,           
          and director of McNamara Farms.  During the farming seasons,                
          McNamara Farms employed 10 to 20 employees and laid them off                
          during the off-season.                                                      
               McNamara Farms carries on its business on approximately                
          1,250 acres of farmland.  McNamara Farms rents the farmland from            
          three landlords.  Petitioners are one set of landlords, and Mr.             
          McNamara's father is one of the other landlords.                            
               During the taxable years at issue, McNamara Farms rented 460           
          acres of farmland, including a house, from petitioners under a              
          lease characterized as a Cash Rent Farm Lease.  Petitioners owned           





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