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received net rental income in the amounts of $19,180, $24,442 and
$22,671 in 1993, 1994, and 1995, respectively. On line 7, Wages,
salaries, tips, etc., of their Forms 1040, petitioners reported
that they received wages in the amounts of $30,603, $30,466, and
$31,252 for 1993, 1994, and 1995, respectively. Elsewhere on
their 1993, 1994, and 1995 returns, Mr. McNamara and Mrs.
McNamara reported earnings from McNamara Farms of $28,019 and
$2,584, respectively (total of $30,603), $27,775 and $2,691,
respectively, (total of $30,466) and $28,561 and $2,691,
respectively (total of $31,252). Contrary to the terms of the
Employment Agreements, McNamara Farms failed to withhold Federal
income taxes and State income taxes from their earnings.
McNamara Farms withheld Federal Insurance Contribution Act taxes
and Medicare tax for all 3 years from their earnings.
In the notice of deficiency, respondent determined that the
real estate rental payments petitioners received from McNamara
Farms during the taxable years at issue are includible in
petitioners' net earnings from self-employment under section
1402(a)(1), and thus subject to self-employment tax income.
Respondent divided the amounts equally between petitioners with
respect to self-employment income and self-employment tax.
Respondent also allowed petitioners a deduction for one-half of
the self-employment taxes imposed for the taxable years at issue.
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