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involved building computers for airplanes and submarines for the
U.S. Navy (the Navy). In 1989, petitioner retired from IBM. At
that time, petitioner was living in Manassas, Virginia.
Before his retirement, petitioner had discussions with his
contacts in the Navy in which they indicated their desire to have
petitioner consult for them. Approximately 2 years after
petitioner retired from IBM, he was contacted by Navy personnel
at Crystal City, Virginia, to discuss a formal consulting
arrangement. Soon thereafter, petitioner attended a meeting with
a group of Navy personnel, including a captain who, during the
meeting, called in a representative of the Navy’s contract
administrator. At that meeting petitioner negotiated to work on
a contract basis for the Navy at a rate of $50 per hour. The
work would involve document review and extensive travel.
The contract administrator for the Navy was a company called
Techmatics, which had headquarters in Fairfax, Virginia. After
he commenced his services, petitioner submitted invoices to
Techmatics from time to time listing his hours and mileage.
Techmatics paid him by check for the hours worked and his
expenses. The checks listed petitioner as a “vendor”. For the
first several years of their affiliation, prior to 1998,
Techmatics reported these payments to petitioner on Forms 1099-
MISC, Miscellaneous Income, and petitioner reported the income on
his Federal income tax returns on Schedule C.
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