T.C. Summary Opinion 2009-161
UNITED STATES TAX COURT
ROBERT T. AND MARGARET M. FITZPATRICK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1075-08S. Filed October 19, 2009.
Robert T. Fitzpatrick, pro se.
Daniel Ryan, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
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section references are to the Internal Revenue Code in effect for
the year in issue.
Respondent determined a deficiency of $2,852 in petitioners’
Federal income tax for 2005. The sole issue for decision is
whether Robert T. Fitzpatrick (petitioner) is subject to
self-employment tax on the fee-based income that he received
as a bail magistrate.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts, the supplemental stipulation of facts,
and the attached exhibits are incorporated herein by this
reference. Petitioners resided in the Commonwealth of
Massachusetts (Commonwealth) when the petition was filed.
During 2005 petitioner was employed as a salaried assistant
clerk magistrate for the West Roxbury District Court in Forest
Hills, Massachusetts. Petitioner rightly did not pay employment
taxes on this salary income because as an employee of the
Commonwealth he participated in its retirement system. At the
time of trial petitioner was eligible for maximum retirement
benefits under the Commonwealth’s retirement system.
As an assistant clerk magistrate, petitioner had the option
of also serving as a bail magistrate. Bail magistrates are
authorized under Mass. Ann. Laws ch. 276, sec. 57 (Lexis Nexis
2002), and petitioner was sworn in as a bail magistrate by a
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superior court judge. Petitioner worked as a bail magistrate for
many years, and he was compensated for his work with fee-based
income received from the public. The fee-based income was paid
to petitioner, by those being held in custody, for determining
the terms of bail. Petitioner received $40 in cash each time he
performed this service. Petitioner did not participate in the
retirement system of the Commonwealth by virtue of this position.
Before 2005 petitioner reported his fee-based income on
Schedule C, Profit or Loss From Business, of his Federal income
tax return and paid self-employment taxes on the net income. He
stopped paying self-employment tax on this income in 2005 on the
basis of a newsletter that he received from an association of
clerks. The newsletter stated that fee-based income received by
bail magistrates for setting bail might not be subject to self-
employment tax.
Discussion
In order for individuals to be liable for payment of the
self-employment tax they must have “‘net earnings from self-
employment’, * * * [which is] the gross income derived by an
individual from any trade or business carried on by such
individual”. Sec. 1402(a). For purposes of self-employment
income, the term “trade or business” has “the same meaning as
when used in section 162 (relating to trade or business
expenses)”. Sec. 1402(c).
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Those who derive income from the performance of the
functions of a public office are generally not subject to self-
employment tax because the income is not derived from a “trade or
business”. See sec. 1402(c)(1); Ekren v. Commissioner, T.C.
Memo. 1986-509; see also Porter v. Commissioner, 88 T.C. 548, 561
(1987), revd. 856 F.2d 1205 (8th Cir. 1988), affd. sub nom. Adams
v. Commissioner, 841 F.2d 62 (3d Cir. 1988). However, those who
perform the functions of a public office, “with respect to fees
received in any period in which the functions are performed in a
position compensated solely on a fee basis and in which such
functions are not covered under an agreement entered into by such
State and the Commissioner of Social Security pursuant to section
218 of the Social Security Act”, 42 U.S.C. sec. 418 (2006), are
required to pay self-employment tax on the fee-based income
received, sec. 1402(c)(1).
A public office for this purpose “includes any elective or
appointive office of the United States or any possession thereof,
of the District of Columbia, of a State or its political
subdivisions, or a wholly-owned instrumentality of any one or
more of the foregoing.” Sec. 1.1402(c)-2(b), Income Tax Regs.
The examples provided in the regulations include a judge, a
justice of the peace, a county or city attorney, and a notary
public. Id. Petitioner was sworn into office as a bail
magistrate by a superior court judge, and his position was
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authorized under the laws of the Commonwealth. We find that
petitioner does hold a public office.
It is clear that as a bail magistrate petitioner received
fee-based income for performing the duties of a public office;
however, in order for petitioner to be exempt from paying self-
employment tax on this income, it is necessary that this
position be covered by an agreement between the Commonwealth
and the Social Security Administration “pursuant to section 218
of the Social Security Act” (SSA). Although petitioner holds
two public offices, each position is treated separately. See
sec. 1.1402(c)-3(f)(1)(i), Income Tax Regs.
The Commonwealth and the Social Security Administration
established an agreement to extend Social Security coverage to
employees of instrumentalities of the Commonwealth of
Massachusetts, pursuant to SSA section 218, on August 13, 1952.
This agreement extended the insurance system established by SSA
title II to services performed by individuals as employees of
specific instrumentalities of the Commonwealth. The original
agreement has been amended 11 times.
The instrumentalities covered by the original SSA section
218 agreement and subsequent amendments include: (1) The
Greenfield and Montague Transportation Area; (2) the
Massachusetts Market Authority; (3) the Mystic River Bridge
Authority; (4) the Nashoba Associated Boards of Health; (5) the
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Massachusetts Turnpike Authority (coverage terminated by the
second amendment); (6) the Boston Arena Authority; (7) the
Massachusetts Health and Educational Facilities Authority; (8)
the Massachusetts Board of Bar Overseers; (9) the Springfield
Parking Authority; (10) the Pioneer Valley Transit Authority;
(11) the North East Solid Waste Committee; (12) the Greater
Lawrence Sanitary District; (13) the Montachusett Regional
Planning Board; (14) the Southeastern Regional Planning and
Economic Development District; and (15) the Pioneer Valley
Planning Commission.
We find that petitioner did not work for an instrumentality
of the Commonwealth that is covered under the original SSA
section 218 agreement and subsequent amendments. Therefore,
petitioner is required to pay self-employment tax on the
fee-based income that he received as a bail magistrate.
See sec. 1402(c)(1).
To reflect the foregoing,
Decision will be entered
for respondent.