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I. Self-Employment Tax
Section 1401 imposes self-employment tax on self-employment
income. Section 1402 defines net earnings from self-employment
as the gross income derived by an individual from the carrying on
of any trade or business by such individual less allowable
deductions attributable to such trade or business.
A fundamental principle of tax law is that income is taxed
to the person who earns it. Commissioner v. Culbertson, 337 U.S.
733, 739 (1949); Lucas v. Earl, 281 U.S. 111, 114 (1930);
Johnston v. Commissioner, T.C. Memo. 2000-315. The existence of
a validly organized and operated corporation does not preclude
taxation of income to the service provider instead of the
corporation. Wilson v. United States, 530 F.2d 772, 777-778 (8th
Cir. 1976); Haag v. Commissioner, 88 T.C. 604, 610-611 (1987),
affd. without published opinion 855 F.2d 855 (8th Cir. 1988); see
also Commissioner v. Culbertson, supra at 739-740. Deciding
whether the corporation or the service provider earned the income
requires that we decide whether the corporation or its
service-performing agent or shareholder controls the earning of
the income. Johnson v. Commissioner, 78 T.C. 882, 891 (1982)
(and cases cited thereat), affd. without published opinion 734
F.2d 20 (9th Cir. 1984).
A corporation earns the income if: (a) The service provider
is an employee of a corporation which has the right to direct or
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