Self-Employment Tax Memo, Essay Example

Issue: Should Terry Hutchison have to pay self-employments on income received from a job that occurred 5 years ago, although he is retired now?

Applicable Law: CFR 26. U.S. Code § 1402 (a). Net earnings from self-employment.

Robert Schelbleand Susan Schelble, Petitioners-Appellants, v. Commissioner of Internal Revenue Respondent-Appellee. The Coalition of Exclusive Agent Associations, Inc., Amicus Curiae. No. 96-9010. (1997)

Floyd Walker and Virginia G. Walker v. U.S., (2000, CA10) 85 AFTR 2d 2000-742, 202 F3d 1290.

Conclusion: Based on the facts of the case as well as previous cases that followed the same logic, yes, Mr. Hutchison should have to pay self-employment taxes on the income of $90,000, because the income was earned from self-employment work it is still subject to self-employment taxes, even though he did not receive the amount until after he retired. Based on the Reg. §1.1402(a)-1(c).

Analysis: IRS SEC 26 Reg. §1.1402(a)-1(c), defines self-employment tax will consist of net earnings derived from a business or trade carried by the individual as a sole proprietor stated in the section §§1.1402(c)-2 to 1.1402(c)-7. This also pertains to income accrued in the taxable year although the income was not subject to tax on the self-employment income, which was attributed to services that was rendered in a prior taxable year. Looking at the case of Scheible vs. Commissioner of Internal Revenue (1997), in which the Scheible’s received extended earning payment by an independent insurance agent after he terminated the agreement with the agency qualified for self-employment income. Thus based on Reg §§1.1402(c)-2 to 1.1402(c)-7, is subject to self-employment tax under the law for the taxable years of 1989 to 1991.  In contrast, in Floyd Walker and Virginia G. Walker v. U.S., (2000, CA10), the Walkers previously were granted summary judgment in their favor, as they stipulated that Floyd Walker another self-employed lawyer, retired in 1989. Mr. Walker in 1972 worked on a case that wasn’t settled until 1975, but it wasn’t until 1981 after litigation in the Oklahoma States courts, that Mr. Walker and Telex Corporation, the client he represented, agreed on paying Mr. Walker his contingency fees. The settlement agreed to Mr. Walker was $2,350,000, paid over a 20 year period, in which he would receive two payments of $75,000, and eighty quarterly payments of $27,500. Telex paid Mr. Walker until they declared bankruptcy in 1996. Floyd and his wife Virginia paid taxes each year on the payments received, including self-employment taxes in 1992 to 1994, but did not pay self-employment taxes in 1995. He amended his tax returns, seeking refunds for payments he made in 1992 to 1994. Both the IRS and Mr. Walker filed motions for summary judgment in which the courts initially agreed with Mr. Walker. However the United States Appeal Court reversed the order under the §§1.1402(c)-2 to 1.1402(c)-7, that income received for earning accrued in the taxable year must be subject to self-employment taxes.

Works Cited

CFR 26. U.S. Code § 1402 (a). Net earnings from self-employment.

Floyd Walker and Virginia G. Walker v. U.S., (2000, CA10) 85 AFTR 2d 2000-742, 202 F3d 1290.

Robert Schelble and Susan Schelble, Petitioners-Appellants, v. Commissioner of Internal Revenue Respondent-Appellee. The Coalition of Exclusive Agent Associations, Inc., Amicus Curiae. No. 96-9010. (1997)