1996 Tax Ct. Memo LEXIS 453 | Tax Ct. | 1996
1996 Tax Ct. Memo LEXIS 453">*453 Decision will be entered for respondent.
MEMORANDUM OPINION
KORNER,
Penalty | ||
Year | Deficiency | Sec. 6662 |
1990 | $ 1,859 | $ 372 |
1991 | 6,891 | 1,378 |
1992 | 1,157 | 231 |
All statutory references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, except as otherwise noted.
By stipulation of the parties, this case was submitted under Rule 122. By further stipulation, petitioners have conceded the deficiencies in tax that were determined by respondent for the years 1991 and 1992. As to the year 1990, petitioners have conceded all respondent's adjustments to income except respondent's determination that petitioners' receipt of $ 43,469 of income in that year constituted income subject to self-employment tax, rather than rental income as claimed by petitioners. As to the penalties, petitioners have explicitly not conceded the determined penalties1996 Tax Ct. Memo LEXIS 453">*454 for the years 1991 and 1992; the determined penalties for the year 1990 are not mentioned in the parties' stipulation of settled issues, and we therefore consider this item still to be in dispute.
Petitioners Connie D. Ray and Roma Kay Ray, husband and wife, filed joint income tax returns for the years 1989, 1990, 1991, and 1992. At the time the petition herein was filed, petitioners were residents of Texas.
In the years in question, petitioner Connie Ray was engaged in the active trade or business of farming and/or cattle grazing. In addition to the land that he already owned and used for these purposes, petitioners purchased an additional 1,022 acres of land in the years 1987 and 1989. This land, known hereafter as the CRP land, had been placed under contract by the prior owner with the Commodity Credit Corp. (CCC) in the Federal Conservation Reserve Program (CRP) for a 10-year period. Upon acquisition of this tract, petitioner executed an agreement with the CCC to continue the contract that existed with respect to these tracts of land. The CRP contract required petitioner to maintain vegetative ground cover, to undertake conservation practices to reduce soil erosion, and to carry1996 Tax Ct. Memo LEXIS 453">*455 on other activities to sustain the productive capacity of the land. The contract also provided the following: (1) Petitioners were not permitted to graze, harvest, and/or use the land for any other commercial reasons; and (2) the CCC was required to pay petitioners an annual fee per acre. In 1990, apparently in accordance with the contract with CCC, petitioner did not farm the property, but he did apply herbicide and shredded natural grasses to the CRP tract. For 1989, 1991, and 1992, petitioners reported income from CRP (CCC) on Schedule F of their tax returns as self-employment income. However, for the year 1990, petitioners reported such income from CRP as farm rental income not subject to self-employment tax. They did, however, apparently deduct the expenses incurred on the CRP land as expenses incurred in a trade or business on Schedule F of their return; i.e., taxes, interest, shredding, spraying, and depreciation.
Initially, we note that there is no dispute as to the taxability of the CRP receipts to petitioners in 1990 as being ordinary taxable income. Petitioners concede that this is so, and so reported it in their 1990 return. The dispute is rather whether such income received1996 Tax Ct. Memo LEXIS 453">*456 by petitioners is income from self-employment and subject to the tax thereon.
In considering the application of this tax, this Court has stated that the income in question must derive from a trade or business carried on by an individual, and that there must be a nexus between such trade or business and the income that the individual has received. In
The situation presented in
Supporting our conclusion herein, we consider the provisions of
We have left for consideration the imposition of penalties under