Keith M. Rudman - Page 4




                                        - 4 -                                         
          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                        





Page:  Previous  1  2  3  4  5  6  7  Next

Last modified: May 25, 2011