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held in McNamara I that the rent at issue in that case, reduced
by the deductions attributable to such rent, was subject to self-
employment tax because it constituted includible farm rental
income under section 1402(a)(1).
The taxpayers in Bot I, Hennen I, and McNamara I appealed
our respective decisions in those cases to the Court of Appeals
for the Eighth Circuit. That Court decided those appeals in one
opinion in McNamara II. In McNamara II, the Court of Appeals for
the Eighth Circuit concluded:
we cannot say the Tax Court clearly erred in conclud-
ing, as a factual matter, that Mrs. McNamara, Mrs. Bot,
and Mrs. Hennen were required–-by their respective
employment agreements or by more informal “arrange-
ments”–-to materially participate in agricultural
production and management, and that all three did in
fact materially participate in those activities. See
Treas. Reg. � 1.1402(a)-4(b) (as amended in 1980).
More promising, however, is taxpayers’ argument
that the lessor-lessee relationships should stand on
their own apart from the employer-employee relation-
ships. To this end, taxpayers insist that the rents in
question were consistent with market rates for agricul-
tural land. In fact, the transcripts of each trial
contain uncontradicted testimony that the rents were at
or slightly below fair market value. * * * The Tax
Court’s decision, however, contains no factual finding
in this regard. Moreover, the Commissioner apparently
did not pursue the issue at trial because, as it con-
tended at oral argument, the amount of the rent is
irrelevant. We disagree.
What is missing from both the Commissioner’s and
the Tax Court’s analyses is any mention of a nexus
between the rents received by Taxpayers and the “ar-
rangement” that requires the landlords’ material par-
ticipation. We believe this omission overlooks �
1402(a)(1)’s requirement that rents be “derived under”
such an arrangement. That is to say, the mere exis-
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