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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
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