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Subject to irrelevant exclusions, self-employment income means
net earnings from self-employment. See sec. 1402(b). Net
earnings from self-employment generally include gross income
derived from any trade or business carried on by the individual,
less allowable deductions attributable to such a trade or
business. See sec. 1402(a). However, in a community property
State, if any of the income derived from a trade or business is
community property under that State’s community property laws,
“all of the gross income and deductions attributable to such
trade or business shall be treated as the gross income and
deductions of the husband unless the wife exercises substantially
all of the management and control of such trade or business”.
Sec. 1402(a)(5)(A).
Respondent points out that Ms. McGowan did not exercise any
management or control over petitioner’s business during the year
in issue, and argues that pursuant to section 1402(a)(5)(A),
petitioner’s 1995 self-employment tax liability is computed
without taking into account the community property laws of
California.
According to petitioner, section 1402(a)(5)(A) does not
apply because it “only serves as a protection to taxpayers who,
in the absence of such provision, could be subject to double the
amount of self-employment tax intended by Congress.” In effect,
petitioner argues that in the case of a taxpayer subject to
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Last modified: May 25, 2011