                        T.C. Memo. 1996-436



                      UNITED STATES TAX COURT



          CONNIE D. RAY AND ROMA KAY RAY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21636-94.               Filed September 25, 1996.



     Ron Lewis, for petitioners.

     Candace M. Williams, for respondent.



                        MEMORANDUM OPINION

     KÖRNER, Judge:   Respondent determined deficiencies in and

accuracy-related penalties on petitioners' Federal income taxes

for the years and in the amounts as follows:
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                                            Penalty
               Year       Deficiency       Sec. 6662

            1990           $1,859           $372
            1991            6,891          1,378
            1992            1,157            231

       All statutory references are to the Internal Revenue Code

in effect for the years in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure, except as

otherwise noted.

     By stipulation of the parties, this case was submitted under

Rule 122.   By further stipulation, petitioners have conceded the

deficiencies in tax that were determined by respondent for the

years 1991 and 1992.       As to the year 1990, petitioners have

conceded all respondent's adjustments to income except

respondent's determination that petitioners' receipt of $43,469

of income in that year constituted income subject to self-

employment tax, rather than rental income as claimed by

petitioners.    As to the penalties, petitioners have explicitly

not conceded the determined penalties for the years 1991 and

1992; the determined penalties for the year 1990 are not

mentioned in the parties' stipulation of settled issues, and we

therefore consider this item still to be in dispute.

     Petitioners Connie D. Ray and Roma Kay Ray, husband and

wife, filed joint income tax returns for the years 1989, 1990,

1991, and 1992.       At the time the petition herein was filed,

petitioners were residents of Texas.
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     In the years in question, petitioner Connie Ray was engaged

in the active trade or business of farming and/or cattle grazing.

In addition to the land that he already owned and used for these

purposes, petitioners purchased an additional 1,022 acres of land

in the years 1987 and 1989.   This land, known hereafter as the

CRP land, had been placed under contract by the prior owner with

the Commodity Credit Corp. (CCC) in the Federal Conservation

Reserve Program (CRP) for a 10-year period.   Upon acquisition of

this tract, petitioner executed an agreement with the CCC to

continue the contract that existed with respect to these tracts

of land.   The CRP contract required petitioner to maintain

vegetative ground cover, to undertake conservation practices to

reduce soil erosion, and to carry on other activities to sustain

the productive capacity of the land.   The contract also provided

the following:   (1) Petitioners were not permitted to graze,

harvest, and/or use the land for any other commercial reasons;

and (2) the CCC was required to pay petitioners an annual fee per

acre.   In 1990, apparently in accordance with the contract with

CCC, petitioner did not farm the property, but he did apply

herbicide and shredded natural grasses to the CRP tract.   For

1989, 1991, and 1992, petitioners reported income from CRP (CCC)

on Schedule F of their tax returns as self-employment income.

However, for the year 1990, petitioners reported such income from

CRP as farm rental income not subject to self-employment tax.
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They did, however, apparently deduct the expenses incurred on the

CRP land as expenses incurred in a trade or business on Schedule

F of their return; i.e., taxes, interest, shredding, spraying,

and depreciation.

       Initially, we note that there is no dispute as to the

taxability of the CRP receipts to petitioners in 1990 as being

ordinary taxable income.    Petitioners concede that this is so,

and so reported it in their 1990 return.    The dispute is rather

whether such income received by petitioners is income from self-

employment and subject to the tax thereon.

       Section 1401 imposes taxes on the self-employment income of

every individual, and this is in addition to the ordinary income

tax.    Section 1402(a) defines an individual's net earnings from

self-employment as the "gross income derived by an individual

from any trade or business carried on by any such individual",

and, in turn, section 1402(b) defines self-employment income as

the "net earnings from self-employment derived by an individual".

       In considering the application of this tax, this Court has

stated that the income in question must derive from a trade or

business carried on by an individual, and that there must be a

nexus between such trade or business and the income that the

individual has received.    In Newberry v. Commissioner, 76 T.C.

441, 444 (1981), the taxpayers received insurance proceeds

intended to compensate them for lost income after their grocery
                                  5

business was destroyed by fire.       The Court found that these

"business interruption proceeds" did not constitute self-

employment income because the taxpayers' failure (inability) to

operate the grocery store business after the fire was what gave

rise to the payment of the proceeds:       that event caused the

complete cessation of business activity.       The Court thus deemed

that the insurance proceeds did not come from self-employment.

     The situation presented in Newberry is not present in the

instant case.   Petitioner Connie Ray was a farmer and rancher and

had apparently been so for some years.       He owned and operated

farmlands in Texas.   As an addition to his holdings, he acquired

the CRP tract and, by agreement with the CCC, he continued in

effect the existing contractual relationship under the CRP

program.   Under this program, he was required to tend and nourish

the land, fight diseases, and control soil erosion.       What he

could not do is to farm or graze the land.       In other words, in

return for nurturing and conserving the CRP acreage, but not

farming or grazing it, he would and did receive a fee from CCC.

Since the CRP acreage was added to his existing farmland, and

since petitioner Connie Ray was already in the business of

farming and ranching, this was a payment to him in connection

with his ongoing trade or business.       There is no evidence in the

record that the CCC would have included the acreage here in

question in the CRP program, and would have paid petitioners
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money for not farming it, if the land were not appropriate for

farming in the first place.

     Supporting our conclusion herein, we consider the provisions

of Rev. Rul. 60-32, 1960-1 C.B. 23.   In this ruling, it was

emphasized that there should exist a connection or nexus between

the payments received by the taxpayer and some trade or business

from which they were derived. Rev. Rul 60-32, supra, specifically

concludes that earnings are from self-employment if the taxpayer

derives them from his operation of a farm.   While we recognize

that respondent's revenue rulings do not have the force or effect

of law, they can still be helpful in interpreting the statute, as

is Rev. Rul. 60-32, supra, in the present case.   See Stubbs,

Overbeck & Association, Inc. v. United States, 445 F.2d 1142 (5th

Cir. 1971).   In this case, we are satisfied that the payments

that petitioner Connie Ray received from the CRP program were in

return for caring for the farmland that he owned, as required by

the contract with CCC.   Petitioner Connie Ray was an active

farmer/rancher with respect to additional acreage, and the

payments received here had a direct nexus to his trade or

business.   We think that these payments were income that was

subject to the self-employment tax of section 1401, and we decide

this issue in favor of respondent.

     We have left for consideration the imposition of penalties

under section 6662, which were determined by respondent for each
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of the years in issue.   This case was submitted to the Court on a

basis of a brief stipulation of facts, and no trial was held.      In

this limited and scanty record that we have before us, there is

no evidence to show any error on the part of respondent in

determining the penalties that are in issue here.   In cases such

as this, where respondent has determined additions to the tax or

penalties under section 6662, the burden of proof to show error

by respondent is placed upon petitioner.   Rule 142(a); Neely v.

Commissioner, 85 T.C. 934 (1985); Bixby v. Commissioner, 58 T.C.

757 (1972); Enoch v. Commissioner, 57 T.C. 781 (1972).    Except

for the one substantive issue that we have decided, petitioner

conceded all other adjustments to income for the years in issue.

We cannot tell what attempts, if any, petitioners made to report

their income tax in a proper and accurate manner.   This being

true, we cannot hold that respondent was in error in making the

determinations of penalties under section 6662.

                                     Decision will be entered

                               for respondent.
