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Taking into account the three factors listed above, we find
that Malone Music, if a trade or business within the meaning of
section 162(a), was not, during the years in issue, petitioner’s
trade or business, but the trade or business of one or more of
the Malone children.8 It follows that the items of income9 and
deductions attributable to Malone Music are not properly
includable on petitioners’ return for either year in issue and we
so hold.10
For each year in issue, respondent imposed a section 6662(a)
accuracy-related penalty upon the ground that the underpayment of
tax required to be shown on petitioners’ return for each year is
due to negligence or disregard of rules or regulations. Sec.
8 Obviously, we have no jurisdiction in this proceeding
with respect to any of the Malone children for any year and make
no findings regarding the Federal income tax liabilities of any
of them.
9 The issues presented and positions of the parties in this
case focus our attention on disallowed deductions. Nevertheless,
with respect to the income reported on the Schedules C, we note
that our conclusion is entirely consistent with Lucas v. Earl,
281 U.S. 111 (1930) (income is taxed to the person who earned
it). Our conclusion is further consistent with sec. 73, which
provides, in general, that amounts received in respect of
services rendered by a child are includable in the child’s gross
income and not in the gross income of the child’s parents, even
though such amounts are not received by the child, sec. 73(a),
and expenditures paid by the parent or the child attributable to
amounts which are includable in the gross income of the child are
generally treated as paid or incurred by the child, sec. 73(b).
10 Our holding in this regard makes it unnecessary to
address respondent’s other grounds for the disallowance of the
deductions claimed on the Schedules C.
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