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“other deductions” on Forms 1120, while Mr. Van Roekel reported
the fees as business income on Schedules C.7 Accordingly, the
amounts petitioner paid to Mr. Van Roekel are irrelevant in
calculating the allowable limits of section 415, because Mr. Van
Roekel received no employee compensation--a situation fatal to
the trust’s qualified status.
Petitioner argues that Mr. Van Roekel’s compensation was his
earned income as a self–employed person. A sole proprietor,
however, is considered to be his own employer. See sec.
401(c)(4); sec. 1.401–10(e), Income Tax Regs. Therefore, during
fiscal 1994, 1995, and 1996, Mr. Van Roekel had one employer;
i.e., himself. Furthermore, only the income an employee earns
from the employer sponsoring the plan may be taken into account
for purposes of that employer’s plan. See sec. 415(c)(3)(A);
sec. 1.401–10(b), Income Tax Regs. If Mr. Van Roekel had
sponsored his own retirement plan as a self–employed individual,
then “participant’s compensation” would have been his earned
income. Sec. 415(c)(3)(B). Here, however, petitioner is Mr. Van
Roekel’s hirer, not his employer. Accordingly, Mr. Van Roekel’s
earnings as an independent contractor are not “participant’s
compensation” with respect to petitioner’s plan.
7We note that, in doing so, Mr. Van Roekel enjoyed the
ability to deduct business expenses under sec. 62(a)(1), rather
than under sec. 67(a), which imposes a 2-percent adjusted gross
income limitation on Schedule A deductions.
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