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OPINION
Section 1401 provides that a tax shall be imposed on the
self-employment income of every individual. Generally, rentals
from real estate are excluded from the computation of net
earnings from self-employment. Sec. 1402(a)(1). However,
section 1402(a)(1) also provides that rentals derived by the
owner or tenant of land are not excluded from the computation of
net earnings from self-employment if:
(A) such income is derived under an arrangement, between the
owner or tenant and another individual, which provides that
such other individual shall produce agricultural * * *
commodities * * * on such land, and that there shall be
material participation by the owner or tenant * * * in the
production or the management of the production of such
agricultural * * * commodities, and (B) there is material
participation by the owner or tenant * * * with respect to
any such agricultural * * * commodity;
In other words, as the regulations under section 1402(a)(1)
provide in pertinent part, there is a special rule when:
The income is derived under an arrangement between the owner
* * * of land and another person which provides that such
other person shall produce agricultural * * * commodities on
such land, and that there shall be material participation by
the owner * * * in the production or the management of the
production of such agricultural * * * commodities; and * * *
There is material participation by the owner * * * with
respect to any such agricultural * * * commodity. [Sec.
1.1402(a)-4(b)(1)(i) and (ii), Income Tax Regs.]
Under those circumstances, such income is characterized as
"includible farm rental income". Sec. 1.1402(a)-4(b)(1), Income
Tax Regs. The includible farm rental income received by the
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Last modified: May 25, 2011