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who is an independent contractor are “self-employment income”
subject to self-employment tax. Simpson v. Commissioner, 64 T.C.
974 (1975); Erickson v. Commissioner, T.C. Memo. 1992-585, affd.
without published opinion 1 F.3d 1231 (1st Cir. 1993).
In Newberry v. Commissioner, 76 T.C. 441, 444 (1981), this
Court held that, for income to be taxable as self-employment
income, “there must be a nexus between the income received and a
trade or business that is, or was, actually carried on.” Under
our interpretation of the “nexus” standard, any income must arise
from some actual (whether present, past, or future) income-
producing activity of the taxpayer before such income becomes
subject to self-employment tax. Id. at 446. Additionally,
section 1.1402(a)-1(c), Income Tax Regs., provides that gross
income derived from an individual’s trade or business may be
subject to self-employment tax even when it is attributable in
whole or part to services rendered in a prior taxable year. This
Court and others have repeatedly applied the “nexus” test.
In applying the statutory definition of self-employment
income, we must decide whether the income from the renewal
commission payments satisfies three requirements: That it was
(1) derived; (2) from a trade or business; (3) carried on by
petitioner. In order to be derived from a trade or business the
payment received by an insurance agent after termination must be
tied to the quantity or quality of the taxpayer’s prior labor,
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Last modified: May 25, 2011