- 24 -
required to make value-added payments as further consideration
for the corn delivered by petitioners. The amount of value-added
payments petitioners received from MCP was based on petitioners’
patronage; i.e., the amount of corn acquired and delivered by
petitioners to MCP during the processing year.
In Shumaker v. Commissioner, T.C. Memo. 1979-71, affd. on
this issue and revd. on another ground 648 F.2d 1198 (9th Cir.
1981), we concluded without discussion that patronage
distributions were subject to self-employment tax under sections
1401 and 1402. On appeal, the Court of Appeals for the Ninth
Circuit affirmed our conclusion, holding that “patronage
dividends from farmer’s cooperatives was properly subject to
self-employment tax.” Shumaker v. Commissioner, 648 F.2d at
1200.
Because the value-added payments were directly related to
the volume of corn acquired and delivered by petitioners to MCP
and were paid in consideration for petitioners’ patronage, the
value-added payments had a direct nexus to petitioners’ trade or
business and, consequently, were derived from that trade or
business. Therefore, unless the exclusion under either section
1402(a)(3) or (2) applies to the value-added payments, those
payments must be included in calculating petitioners’ net
earnings from self-employment.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011