Paul I. Yoshihara, Laura L. Yoshihara, and Krista A. Yoshihara - Page 14




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          Issue 2.  Self-Employment Tax                                               
               In the notice of deficiency issued to petitioner Paul I.               
          Yoshihara, respondent determined that he was liable for self-               
          employment tax on the unreported income from landscaping                    
          services.  Section 1401 imposes a tax on the self-employment                
          income of every individual.  An individual's self-employment                
          income depends on his "net earnings from self-employment".  Sec.            
          1402(b).  In relevant part, the term "net earnings from self-               
          employment" means the gross income derived by an individual from            
          any trade or business carried on by such individual less                    
          allowable deductions attributable to such trade or business.  See           
          sec. 1402(a).  Under section 1402(a)(5), where the income from a            
          trade or business is community income, as in this case, all of              
          the gross income and deductions attributable to such trade or               
          business shall be treated as the gross income and deductions of             
          the husband, unless the wife exercises substantially all of the             
          management and control of the trade or business, in which case              
          all such gross income and deductions shall be treated as hers.              
          Accordingly, under section 1401, the spouse deemed to have                  
          management and control of the business activity is subject to               
          self-employment tax, and the tax is computed on the total gross             
          income less the total deductions of the business, notwithstanding           
          the attribution of one-half of the income to the other spouse for           
          income tax purposes.                                                        





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