                       T.C. Memo. 2001-105



                     UNITED STATES TAX COURT



        MORTIMER Z. LANDSBERG, PROPRIETOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10468-99.                       Filed May 2, 2001.



     Mortimer Z. Landsberg, pro se.

     Wendy K. Abkin, for respondent.


                       MEMORANDUM OPINION


     CARLUZZO, Special Trial Judge:    Respondent determined a

deficiency of $2,719 in petitioner’s 1995 Federal income tax.

     The issue for decision is whether petitioner’s 1995 net

earnings from self-employment and self-employment tax are

computed with reference to California’s community property laws.
                                - 2 -

Background

     Some of the facts have been stipulated and are so found.

Petitioner married Molly McGowan in 1980.       They separated towards

the end of 1995 and were subsequently divorced.      During 1995,

both were residents of California.

     During 1995, each was the sole proprietor of a business.

Petitioner was, and is, an independent sales representative for a

company that manufactures designer plumbing fixtures.      Ms.

McGowan was an interior decorator.      Ms. McGowan did not

participate in any manner in petitioner’s business, nor did he in

hers.

     Petitioner and Ms. McGowan filed separate Federal income tax

returns for 1995.    Taking into account one-half of the income and

one-half of the deductions attributable to petitioner’s sole

proprietorship, petitioner reported net profit of $20,947 on a

Schedule C, Profit or Loss from Business, included with his 1995

return.1    On the basis of the net profit reported on the Schedule

C, on a Schedule SE, Self-Employment Tax, included with his 1995

return, petitioner reported net-earnings from self-employment of

$19,345 and a self-employment tax of $2,960.2




     1
       The 1995 Federal income tax return filed by Ms. McGowan
also includes a Schedule C on which one-half of the income and
one-half of the deductions attributable to petitioner’s sole
proprietorship are reported.
     2
         Ms. McGowan apparently did the same.
                              - 3 -

     In the notice of deficiency, respondent determined that

petitioner understated his self-employment tax liability.

According to the explanation contained in the notice of

deficiency, “in a community property State, where self-employment

income is earned by the husband, unless the wife exercises

substantially all of the management and control of the trade or

business, all of the income will be treated as the income of the

husband for self-employment tax purposes.”

Discussion

     The parties agree that because of California’s community

property laws, for purposes of the tax imposed pursuant to

section 1,3 petitioner properly reported items of income and

deductions attributable to his sole proprietorship on the

Schedule C included with his 1995 return.    They disagree,

however, as to the consequences of the community property laws on

petitioner’s self-employment tax liability.    According to

petitioner, California’s community property laws must be taken

into account not only in determining his section 1 tax liability,

but also in determining his liability for the self-employment tax

imposed by section 1401.

     In addition to other taxes, an individual's self-employment

income is subject to a self-employment tax.    See sec. 1401.



     3
       Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, in effect for 1995.
                                - 4 -

Subject to irrelevant exclusions, self-employment income means

net earnings from self-employment.      See sec. 1402(b).   Net

earnings from self-employment generally include gross income

derived from any trade or business carried on by the individual,

less allowable deductions attributable to such a trade or

business.   See sec. 1402(a).   However, in a community property

State, if any of the income derived from a trade or business is

community property under that State’s community property laws,

“all of the gross income and deductions attributable to such

trade or business shall be treated as the gross income and

deductions of the husband unless the wife exercises substantially

all of the management and control of such trade or business”.

Sec. 1402(a)(5)(A).

     Respondent points out that Ms. McGowan did not exercise any

management or control over petitioner’s business during the year

in issue, and argues that pursuant to section 1402(a)(5)(A),

petitioner’s 1995 self-employment tax liability is computed

without taking into account the community property laws of

California.

     According to petitioner, section 1402(a)(5)(A) does not

apply because it “only serves as a protection to taxpayers who,

in the absence of such provision, could be subject to double the

amount of self-employment tax intended by Congress.”        In effect,

petitioner argues that in the case of a taxpayer subject to
                               - 5 -

community property laws, the intended and exclusive purpose of

section 1402(a)(5)(A) is to prevent the application of the self-

employment tax to that part of the taxpayer’s net earnings from

self-employment that would otherwise exceed the contribution and

benefits base as determined under section 230 of the Social

Security Act.   Section 1402(a)(5)(A) provides the “protection”

that petitioner suggests, but it also provides support for

the determination of a deficiency.     See, e.g., Charlton v.

Commissioner, 114 T.C. 333 (2000); Webb v. Commissioner,

T.C. Memo. 1996-550; Klingler v. Commissioner, T.C. Memo.

1987-46; Heidig v. Commissioner, T.C. Memo. 1986-411; Chang v.

Commissioner, T.C. Memo. 1984-259.

     Respondent’s brief cites only Webb v. Commissioner, supra.

As in this case, the taxpayer and the taxpayer’s spouse in Webb

were subject to California’s community property laws.    In that

case, we sustained the Commissioner’s determination that under

the provisions of section 1402(a)(5)(A), all of the taxpayer’s

nonemployee compensation must be taken into account in the

computation of the taxpayer’s self-employment tax liability,

although that same compensation was subject to the community

property laws of California for purposes of computing the

taxpayer’s taxable income and section 1 tax liability.

     Petitioner argues that we should not follow Webb for two

reasons:   (1) It is factually distinct, and (2) “there was no
                                 - 6 -

discussion by the Court as to the reasoning and rational behind

this holding other than citing * * * [section 1402(a)(5)(A)] and

the related Treasury Regulation.”    We agree that there are

factual distinctions between this case and Webb.    However, it

would serve little purpose to discuss those distinctions in

detail because we find that none is of any consequence.

Furthermore, we think the language of section 1402(a)(5)(A) is

sufficiently clear so that reference to the statute is all that

was necessary in that case, as it is in this case, to support its

application.

     On brief, petitioner invites us to ignore several other

cases that support respondent’s determination because “none * * *

take into account * * * the practical aspects of how to treat

such an attribution of income * * * [to a married individual who

files a separate] tax return.”    Except as provided by section

6017,4 however, we fail to see how the filing status of the

taxpayer makes any difference for purposes of section

1402(a)(5)(A).

     In accordance with the provisions of section 1402(a)(5)(A)

petitioner must take into account all of the income and


     4
       Sec. 6017 states, in relevant part: “In the case of a
husband and wife filing a joint return * * * [the self-employment
tax] shall not be computed on the aggregate income but shall be
the sum of the [self-employment] taxes computed * * * on the
separate self-employment income of each spouse.” The concept of
“separate self-employment income of each spouse” in sec. 6017 is
entirely consistent with sec. 1402(a)(5)(A).
                                 - 7 -

deductions attributable to his sole proprietorship in computing

his 1995 self-employment tax.    Respondent’s determination in this

regard is therefore sustained.

     To reflect the foregoing,

                                              Decision will be

                                         entered for respondent.
