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factual issues and apply section 7491(a) to each on the basis of
the circumstances involved.
II. Factual Issues in This Case
Respondent determined deficiencies in petitioners’ Federal
income taxes and self-employment taxes. The adjustments to
petitioners’ income resulted from adjustments made to the income of
the Bitker partnership as reported on its tax returns for 1996 and
1997 and from a determination that it made distributions to the
partners.
For purposes of Federal income tax liability, a partnership is
not taxed at the entity level. Sec. 701. Instead, the
partnership’s income is passed through to its partners, and each
partner is individually taxed on his/her distributive share of
partnership income. Secs. 701-704, 761(a).
An individual’s self-employment income is subject to a
self-employment tax in addition to Federal income tax. Sec. 1401.
Subject to exclusions not relevant to this case, self-employment
income means net earnings from self-employment. Sec. 1402(b). Net
earnings from self-employment include, inter alia, an individual’s
distributive share, whether or not distributed, of income or loss
(as described in section 702(a)(8)) from any trade or business
carried on by a partnership in which the individual is a partner.
Sec. 1402(a).
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