Roblene, Inc. - Page 14




                                       - 14 -                                         

               Section 415(c)(3)(A) defines "participant's compensation" as           
          "the compensation of the participant from the employer for the              
          year."  Petitioner argues that Robert and Charlene Peers'                   
          respective compensation was their earned income as self-employed            
          persons.  In advancing its argument that the self-employment                
          income, which Robert and Charlene Peers reported on their                   
          Schedule C, constitutes "participant's compensation" for purposes           
          of determining the section 415 limitations of the ESOP,                     
          petitioner cites a portion of a pre-ERISA regulation in the                 
          following manner:                                                           
               Treatment of a self-employed individual as an employee.                
               (1) For purposes of section 401, a self-employed                       
               individual who receives earned income from an                          
               employer during a taxable year of such employer                        
               beginning after December 31, 1962, shall be                            
               considered an employee of such employer for such                       
               taxable year. * * * [Sec. 1.401-10(b)(1), Income Tax Regs.]            
               Petitioner is correct that for a self-employed individual              
          "participant's compensation" is the participant's earned income.            
          See sec. 415(c)(3)(B).  What petitioner fails to recognize is               
          that a sole proprietor is considered to be his own employer.  See           
          Howard E. Clendenen, Inc. v. Commissioner, T.C. Memo. 1998-318.             
          Section 401(c)(4) provides that "An individual who owns the                 
          entire interest in an unincorporated trade or business shall be             
          treated as his own employer."  Furthermore, the definition of               








Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  Next

Last modified: May 25, 2011