- 14 - income from real estate rentals; and (b) was derived from Mr. Arnold’s personal services. Thus, petitioners received $17,995 in self-employment income that Pacific paid to Mr. Arnold in 2001 for labor provided by Mr. Arnold. We sustain respondent’s determination that the $17,995 that petitioners reported as leased payroll income is self-employment income. 2. Whether Petitioners May Deduct $28,067 As Leased Payroll Expenses Petitioners contend that they may deduct the following $28,067 in expenses related to their leased payroll activity: (a) $14,396 for labor; (b) $10,471 for interest; and (c) $3,200 for repairs and improvements. We disagree for reasons stated below. a. Labor Expenses Petitioners contend that Mr. Arnold paid $14,396 for labor in 2001. Petitioners rely on Forms W-2, Wage and Tax Statement, and Forms 1099-MISC, Miscellaneous Income, showing payments made to various individuals in 2000. A taxpayer may deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Sec. 162(a). The forms have several different employer identification numbers (EIN), none of which match petitioners’ Social Security numbers. The forms do not show that either petitioner paid $14,396 for labor or that the payments relate to Mr. Arnold’s leased payroll activity. Petitioners do not explain why 2000Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011