Summary
In a 1997 joint income tax return, the petitioners failed to report self-employment tax on compensation H received working on fishing boats with crews of fewer than five. After expenses for fuel, ice, and lubricating oil were subtracted from gross proceeds of the sale of fish, 50% of net proceeds was allocated to the captain and boat owner, 50% of net proceeds was allocated to the crew and divided equally after subtraction of the crew's total expenses. The Commissioner determined the petitioners were liable for self-employment tax under Section 1401 and the petitioners contended H was an employee of boat owners or operators, arguing that H's shares was not solely dependent on the amount of catch because operating expenses were subtracted in computing H's share. The Court determined "depends solely" provision in Reg. 31-3121(b)(20)-1 meant excluding from self-employment income only additional fixed payments to crew members (which H did not receive), and H was self-employed under Section 3121(b)(20), since H's fishing income, proceeds from sale of catch after subtracting operating expenses, depended on the amount of the boat's catch.
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Extract
James E. Anderson and Cheryl J. Latos, Petitioners V. Commissioner of Internal Revenue, Respondent
Docket No. 7425-02. Filed August 19, 2004.
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)-l(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)-l, Employment Tax Regs., as excluding only additional fixed payments to crew members, and P did not receive any such payments.James E. Anderson and Cheryl J. Latos, pro sese.John Aletta, for respondent.OPINIONBEGHE, Judge: Respondent determined petitioners are liable under section 1401 for self-employment tax of $5,764 with respect to their 1997 tax year.1The 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.BackgroundThis 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 En...See the full content of this document
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