- 3 - 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.Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011