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Marcos Eliseo Escobar de Paz (Mr. Escobar) and Teodora C.
Escobar de Paz filed a joint Federal income tax return for 1996
on which they reported wages of $25,851. The Escobars’ 1996
return did not include a Schedule C, Profit or Loss from
Business, or Schedule E, Supplemental Income or Loss, nor did it
contain any schedule listing expenses. In the notice of
deficiency, respondent determined that the Escobars had received
unreported self-employment income of $64,481 resulting in the
aforesaid deficiency of $22,389. Included therein was self-
employment tax of $9,111, one-half of which was allowed as a
deduction.
During 1996, Mr. Escobar received compensation of $64,481
from Shipper’s Transport Express (Shipper’s Transport) for
transporting shipping containers with his own truck. The amount
of wages reported on line 7 of the 1996 Escobar return reflects a
reduction of the income from Shipper’s Transport of $38,630.
The parties have agreed that Mr. Escobar incurred business
expenses of $28,947 in 1996 for the operation of his truck.
Respondent is no longer contesting the identification of the
income from Shipper’s Transport as wage income and agrees that
the imposition of the self-employment tax (and corresponding
deduction) is erroneous. However, respondent contends that the
entire amount of compensation received from Shipper’s Transport
is reportable as gross wages, and that the Escobars are entitled
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Last modified: May 25, 2011