Anderson v. Comm'r of Internal Revenue , No. 7425–02.
| Decision Date | 19 August 2004 |
| Docket Number | No. 7425–02. |
| Citation | 123 T.C. 219,123 T.C. No. 12 |
| Parties | James E. ANDERSON and Cheryl J. Latos, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James E. Anderson and Cheryl J. Latos, pro sese.
John Aletta, for respondent.
Sec. 3121(b)(20), I.R.C., classifies as self-employed those crew members of a fishing boat, with a crew of fewer than 10, who are compensated with a share of the boat's catch of fish or a share of the proceeds from the sale of the catch if the amounts of their shares depend on the amount of the catch. Sec. 31.3121(b)(20)–1(a), Employment Tax Regs., provides that if a crew member's share “ depends solely on the amount of the boat's * * * catch of fish” (emphasis added), it qualifies as income from self-employment.
During 1997, P worked as a crew member or captain on fishing boats with crews of fewer than five members. The fishing boat owners' expenses for fuel, ice, and lubricating oil were subtracted from the proceeds of sale of the catches of fish to determine P's compensatory share of the proceeds of each voyage.
On their 1997 joint Federal income tax return, Ps failed to report self-employment tax on compensation P received for working as a crew member or captain on small fishing boats during 1997. R determined Ps are liable under sec. 1401, I.R.C., for self-employment tax with respect to Ps' 1997 tax year on the ground that P was a self-employed fishing boat worker during 1997.
Ps argue P was an employee under sec. 3121(b)(20), I.R.C., on the ground that his share of proceeds of the catches of fish did not depend solely on the amount of the catch because operating expenses were subtracted in computing his share.
Held: P was self-employed under sec. 3121(b)(20), I.R.C., because proceeds from the sale of the catches of fish after subtraction of operating expenses depend on the amount of each catch. We interpret the “depends solely” provision of sec. 31.3121(b)(20)–1, Employment Tax Regs., as excluding only additional fixed payments to crew members, and P did not receive any such payments.
Respondent determined petitioners are liable under section 1401 for self-employment tax of $5,764 with respect to their 1997 tax year.1
The issue for decision is whether, during 1997, James Anderson (petitioner) was a self-employed worker on fishing boats under section 3121(b)(20), making petitioners liable for self-employment tax under section 1401. We uphold respondent's determination that petitioner was self-employed.
This case is before the Court fully stipulated, and the facts are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
Petitioners were married and resided in Wood River Junction, Rhode Island, when they filed their petition in this case.
During January 1997, petitioner worked as a crew member on the fishing boat Enterprise, and thereafter, through December 1997, on the fishing boat Elizabeth R. The Enterprise and Elizabeth R. (the boats) were owned, respectively, by Dan Barlow and Doug Rowell (collectively, the boat owners). At the times petitioner worked on the boats during 1997, the boats had crews of fewer than five people. Petitioner sometimes worked on the boats as captain and sometimes as a crew member. More precisely, schedules computing the shares of proceeds earned by petitioner and the other crew members from each voyage of the Elizabeth R. during 1997 indicate petitioner worked as captain for only one voyage of the Elizabeth R. There are no such schedules in the record for petitioner's fishing voyages on the Enterprise.
Proceeds from catches of fish during 1997 by the Enterprise and the Elizabeth R. were divided as follows. The boat's expenses for fuel, ice, and lubricating oil were subtracted from the gross proceeds of the sale of the catch to determine the net proceeds of the voyage. The crew members, including the captain, were allocated 50 percent of the net proceeds (the crew members' share), and the boat owner and the captain were allocated 50 percent of the net proceeds. The crew members, including the captain, shared the crew members' share equally after subtracting the crew's total expenses for food, payments to “lumpers” (laborers employed to help unload the catch), and other miscellaneous items. When petitioner worked as captain, he received a crew member's share and a percentage of the 50–percent share allocated to the boat owner and the captain.2
Dapper Fisheries, Inc., and Rowell Fisheries, Inc.,3 issued Forms 1099–MISC, Miscellaneous Income, to petitioner reflecting “fishing boat proceeds” of $3,832.23 and $46,653.96 he received for his work during 1997 on the Enterprise and the Elizabeth R ., respectively.
Petitioner did not receive health insurance benefits 4 or any other payments from the boat owners on account of his fishing activities during 1997.
On Schedule C, Profit or Loss From Business, of their 1997 Federal income tax return, petitioners reported gross income of $50,486 from petitioner's fishing activities and claimed no expenses as deductions. On Schedule A, Itemized Deductions, of their 1997 return, petitioners claimed unreimbursed employee business expenses of $4,438 and gross medical expenses of $7,137, which included health insurance premiums of $5,077. Petitioners did not pay their reported 1997 income tax liability of $3,491. Petitioners also failed to report or pay self-employment tax on petitioner's fishing activities.
On May 10, 1999, petitioners filed Form 1040X, Amended U.S. Individual Income Tax Return, for 1997, reporting no income tax liability for income petitioner received from his fishing activities .5
During 2000 and 2001, petitioners and respondent agreed to extend the period of limitations on assessment of petitioners' 1997 income tax liability to March 31, 2002, most likely to give respondent time to issue a technical advice memorandum (Tech. Adv. Mem.2002–11–005 (Mar. 15, 2002)) relating to facts substantially identical to those of this case.6
On February 12, 2002, respondent issued a statutory notice of deficiency to petitioners for 1997; respondent determined petitioners were liable for self-employment tax of $5,764 for compensation petitioner received from his fishing activities; respondent also reclassified $2,031 of petitioners' health insurance premiums and all $4,438 of petitioners' unreimbursed employee business expenses as business expenses reportable on Schedule C.7
Petitioners argue they are not liable for self-employment tax on the ground that petitioner was an employee of the boat owners or operators when he worked as a crew member or captain in 1997. Respondent argues petitioner was self-employed.
Inasmuch as respondent has determined that petitioner was self-employed and that petitioners are liable for self-employment tax under section 1401, and petitioners have filed a timely petition with this Court, we have jurisdiction of this case. See secs. 6211(a), 6213(a); Philbin v. Commissioner, 26 T.C. 1159, 1956 WL 756 (1956); Anderson v. Commissioner, T.C. Memo.2003–112; sec. 1.1401–1(a), Income Tax Regs.
It seems likely respondent's examination of petitioners' 1997 return and amended 1997 return began after July 22, 1998, and that section 7491(a) would apply to the case at hand. The parties do not address whether the burden of proof on the deficiency at issue should shift to respondent under section 7491(a). We need not decide that question because our decision on petitioners' 1997 self-employment tax liability does not depend on the burden of proof.
Section 1401 imposes a tax on self-employment income attributable to a taxpayer from any trade or business carried on by the taxpayer. Secs. 1401(a), 1402(a) and (b); sec. 1.1401–1(a), Income Tax Regs. The term “trade or business” has the same meaning under section 1402(a), defining “net earnings from self-employment”, as under section 162. Sec. 1402(c); Bot v. Commissioner, 118 T.C. 138, 146, 2002 WL 229736 (2002), affd. 353 F.3d 595 (8th Cir.2003). “Trade or business” under section 162 has been interpreted to mean an activity conducted “with continuity and regularity” and with the primary purpose of making income or a profit. Commissioner v. Groetzinger, 480 U.S. 23, 35, 107 S.Ct. 980, 94 L.Ed.2d 25 (1987); Bot v. Commissioner, supra. The carrying on of a trade or business for purposes of self-employment tax generally does not include the performance of services as an employee. Sec. 1402(c)(2); Robinson v. Commissioner, 117 T.C. 308, 320, 2001 WL 1631867 (2001).
Under section 3121(b)(20),8 crew members of a fishing boat, with a crew of fewer than 10, who are compensated with a share of the boat's catch or a share of the proceeds from the sale of the catch are classified as self-employed.
Petitioners argue petitioner is an employee under section 3121(b)(20) on the ground that his share of proceeds of the catch of fish after subtraction of operating expenses does not depend solely on the amount of the catch, as provided by section 31.3121(b)(20)–1(a), Employment Tax Regs., and the congressional intent underlying section 3121(b)(20). Petitioners argue that Rev. Rul. 77–102, 1977–1 C.B. 299, under which petitioner would be regarded as self-employed, is inconsistent with the intent of Congress and has been revoked by section 31.3121(b)(20)–1(a), Employment Tax Regs. Petitioners argue that the canon of statutory interpretation “expressio unius est exclusio alterius” precludes an exception for the subtraction of operating expenses from being read into section 3121(b)(20) because Congress had previously amended the statute to provide for the $100 cash payment exception under section 3121(b)(20)(A) and for no other exception.
Respondent argues petitioner was self-employed under section 3121(b)(20) because he was compensated for his services exclusively through a share of the proceeds from the sale of the catch of fish, with the amount...
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