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Business, of his income tax return, petitioner claimed $160,446
as ordinary and necessary business expenses relating to his
commodity trading activity, and petitioner indicated that he was
in the trade or business of a commodities dealer. The record
does not indicate that the $89,000 in commission expenses paid to
the floor broker was not included in the ordinary and necessary
expenses claimed on petitioner’s 1994 Federal income tax return.
In a notice of deficiency mailed to petitioner, respondent
determined that the earnings relating to petitioner’s trading in
futures contracts were subject to self-employment tax.
Discussion
Section 1401 imposes a tax on self-employment income from a
taxpayer’s trade or business. Generally, capital gains are
excluded from self-employment income. See sec. 1402(a)(3)(A).
In 1984, however, Congress enacted section 1402(i) which
provided that gains realized by commodities dealers in the
ordinary course of trading in futures contracts are subject to
self-employment tax. Deficit Reduction Act of 1984, Pub. L. 98-
369, sec. 102(c), 98 Stat. 622.
Section 1402(i)(1) specifically states that
in determining the net earnings from self-
employment of any options dealer or
commodities dealer, there shall not be
excluded any gain or loss (in the normal
course of the taxpayer’s activity of dealing
in or trading section 1256 contracts) from
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