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their 1995 Federal tax return. Petitioners did not report or pay
any self-employment tax on this amount.
In pertinent part, respondent determined that petitioner was
subject to self-employment tax of $7,928, which, after the
deduction for one-half of the self-employment tax under section
164(f), resulted in a net adjustment of $3,964.
Section 1401 imposes a tax upon a taxpayer's self-employment
income. Self-employment income includes the "net earnings from
self-employment" derived by an individual during the taxable
year. Sec. 1402(b). Section 1402(a) provides, subject to
exceptions, that "net earnings from self-employment" includes a
partner's distributive share of partnership trade or business
income. One of the exceptions to the general rule provides that
a limited partner's share of partnership income is not subject to
self-employment tax. Sec. 1402(a)(13). Neither party contends
that any of the other exceptions would be relevant in this case.
Petitioners argue that petitioner's interest in Gallant is
passive, and, therefore, any distributions from the partnership
should not be subject to self-employment tax. Respondent
contends that the distribution from Gallant is subject to self-
employment tax regardless of whether petitioner's involvement is
passive or active, because petitioner is a general partner.
We agree with respondent. It is undisputed that
petitioner's interest in Gallant was a general partnership
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Last modified: May 25, 2011