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333.12 In reliance on McNamara II, petitioners contend that
the Johnsons are receiving fair market value rental
payments. Although this may result in little or no
other compensation being paid to the taxpayers for the
services they provide to the corporation, this does not
establish the required nexus between the rental pay-
ments and the material participation required to trig-
ger the inclusion of the payments within the definition
of self-employment income. To the contrary, adoption
of the Commissioner’s position would compel the conclu-
sion that the taxpayers, as landlords, are required to
rent property to the corporation at below fair market
value and below the rates paid to third parties. The
“missing link” in the Commissioner’s argument is the
same as in the McNamara case: the corporation’s obli-
gation to make the rental payments is separate and
distinct from the taxpayers’ participation in the
farming operation.
Respondent counters that McNamara II does not require the
result advocated by petitioners in the instant case. Respondent
argues that
The Eighth Circuit in McNamara * * * created a
judicial exception for fair rental value when the
landlord has two independent arrangements with the
lessee for rent and wages and there is no nexus between
the two arrangements.
Petitioners fail to meet the Eighth Circuit’s
standard because they failed to enter into a separate
employment agreement with their corporation, and to the
extent they did, it was so inextricably interrelated
with the oral lease that the nexus is obvious and
cannot be overlooked. Petitioners’ classification of
all funds from the corporation as rent and none as
wages demonstrates that there were not independent
arrangements with respect to real estate rentals and
compensation for services. Moreover, the transaction
12We shall refer to our respective opinions that the Court
of Appeals for the Eighth Circuit reversed and remanded as Bot I,
Hennen I, and McNamara I and to the opinion of that Court as
McNamara II.
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