T.C. Memo. 1998-144
UNITED STATES TAX COURT
DAVID CORDERO BASADA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18467-96. Filed April 20, 1998.
David Cordero Basada, pro se.
Allan D. Hill, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: This case was heard pursuant to
section 7443A(b)(3) of the Code and Rules 180, 181, and 182. All
section references are to the Internal Revenue Code in effect for
the years in issue. All Rule references are to the Tax Court
Rules of Practice and Procedure. Respondent determined
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deficiencies in petitioner's 1993 and 1994 Federal income taxes
in the amounts of $1,090 and $1,339, respectively.
After a concession by respondent, the issues are: (1)
Whether petitioner is liable for self-employment taxes; and (2)
whether petitioner is entitled to a dependency exemption
deduction.
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference. Petitioner resided in Oakland,
California, at the time the petition was filed.
On his 1993 and 1994 Federal income tax returns, petitioner
reported income from "Wages, salaries, tips, etc." in the amounts
of $4,500 and $8,200, respectively. No Forms W-2 were attached
to his return for either year in issue. Petitioner listed his
occupation as "unemployed part-time salesman" on both returns.
Respondent determined that the $4,500 and $8,200 income
petitioner reported on his 1993 and 1994 returns, respectively,
constituted earnings from self-employment, and therefore
petitioner was liable for self-employment taxes. Further,
respondent allowed petitioner a deduction for one-half of the
self-employment taxes, and made computational adjustments to
petitioner's earned income credits. In his amended petition,
petitioner sought to claim a dependency exemption deduction for
his "eldest son", for both years in issue.
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Without detailing the source of income or the amount of time
he spent on each activity, petitioner explained that during the
years in issue he earned income from street hustling, pimping,
panhandling, and gambling. We group these activities as "street-
hustling".
Section 1401 imposes a tax on a taxpayer's self-employment
income. Self-employment income includes the net earnings from
self-employment derived by an individual during the taxable year.
Sec. 1402(b). Net earnings from self-employment means gross
income derived by an individual from any trade or business
carried on by such individual, less allowable deductions
attributable to such trade or business, plus certain items not
relevant here. Sec. 1402(a). The term trade or business for
purposes of the self-employment tax generally has the same
meaning it has for purposes of section 162. Sec. 1402(c).
To be engaged in a trade or business within the meaning of
section 1402(a), an individual must be involved in an activity
with continuity and regularity, and the primary purpose for
engaging in the activity must be for income or profit.
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). A sporadic
activity, a hobby, or an amusement diversion does not qualify.
Commissioner v. Groetzinger, supra at 35. Whether an individual
is carrying on a trade or business requires an examination of the
facts involved in each case. Higgins v. Commissioner, 312 U.S.
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212, 217 (1941). These provisions are to be broadly construed to
favor treatment of income as earnings from self-employment.
Hornaday v. Commissioner, 81 T.C. 830, 834 (1983). Respondent's
determination that petitioner is liable for self-employment taxes
under section 1401 is presumed correct, and petitioner bears the
burden to prove otherwise. Rule 142(a); Siebert v. Commissioner,
T.C. Memo. 1997-6.
Petitioner argues that because he claimed he was unemployed
during the years in issue, he is not subject to self-employment
taxes under section 1401. We disagree.
After a review of the record, we find that petitioner was
engaged in the trade or business of street-hustling during the
years in issue. Petitioner was engaged in street-hustling with
continuity and regularity, and with the primary objective of
earning an income or profit. Further, petitioner's activities
were regular, frequent, and substantial. They were not sporadic,
nor do we believe that they were a hobby or an amusement
diversion of petitioner.
On this record, we are satisfied that the $4,500 and $8,200
petitioner reported on his 1993 and 1994 returns were derived
from petitioner's trade or business of street-hustling. Indeed,
petitioner admitted that, aside from the interest income reported
on his return for both years, his only source of income was from
street-hustling.
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We observe that there is no evidence in the record that
petitioner was employed by anyone but himself. Petitioner had no
Forms W-2 for either year in issue. We find that petitioner's
net earnings from self-employment exceeded $400 during each year
in issue. Accordingly, we hold that petitioner is subject to
self-employment taxes on his earnings during 1993 and 1994.
We sustain respondent's determination that petitioner's
liability for self-employment tax for 1994 is $1,159. Respondent
has conceded that petitioner's liability for self-employment tax
for 1993 should be reduced to $676. Petitioner will be entitled
to deduct one-half of his self-employment taxes under section
164(f).
In his amended petition, petitioner states that he is
entitled to a dependency exemption deduction for his eldest son
for both years in issue. Section 151(c) allows a taxpayer to
deduct an exemption amount for each dependent as defined in
section 152. As relevant in the instant case, a dependent is
generally defined as a son of the taxpayer over half of whose
support was received from the taxpayer in the calendar year in
which the taxpayer's taxable year begins. Sec. 152(a)(1).
Because petitioner failed to prove that he provided more than
half of the support of his eldest son in 1993 or in 1994, we rule
for respondent on this issue.
To reflect the foregoing,
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Decision will be entered
under Rule 155.