Michael and Nancy McNamara - Page 5




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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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