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In the notice of deficiency, respondent determined that
petitioner understated his self-employment tax liability.
According to the explanation contained in the notice of
deficiency, “in a community property State, where self-employment
income is earned by the husband, unless the wife exercises
substantially all of the management and control of the trade or
business, all of the income will be treated as the income of the
husband for self-employment tax purposes.”
Discussion
The parties agree that because of California’s community
property laws, for purposes of the tax imposed pursuant to
section 1,3 petitioner properly reported items of income and
deductions attributable to his sole proprietorship on the
Schedule C included with his 1995 return. They disagree,
however, as to the consequences of the community property laws on
petitioner’s self-employment tax liability. According to
petitioner, California’s community property laws must be taken
into account not only in determining his section 1 tax liability,
but also in determining his liability for the self-employment tax
imposed by section 1401.
In addition to other taxes, an individual's self-employment
income is subject to a self-employment tax. See sec. 1401.
3 Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, in effect for 1995.
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