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256, Hennen v. Commissioner, T.C. Memo. 1999-306, and McNamara v.
Commissioner, T.C. Memo. 1999-333.19 In reliance on McNamara II,
petitioners contend that
the Solvies are receiving fair market value rental
payments. The Solvies are also receiving other compen-
sation for the services they provide to the corpora-
tion. The simple fact that they are participating in
the farming operation does not establish the required
nexus between the rental payments and the material
participation necessary to trigger the inclusion of the
payments within the definition of self-employment
income. To the contrary, adoption of the Commis-
sioner’s position would compel the conclusion that the
Solvies, 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 obligation 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 establish the fair
rental value of the new facilities used by the corpora-
tion in 1995 or that a separate employment agreement
existed for petitioners’ services related to the addi-
tional activities carried on in the new facilities.
19We 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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