                      123 T.C. No. 12



                UNITED STATES TAX COURT



 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)-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
                                  - 2 -

     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.



     James E. Anderson and Cheryl J. Latos, pro sese.

     John Aletta, for respondent.



                                 OPINION


         BEGHE, Judge:   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-



     1
      Unless otherwise specified, all section references are to
the Internal Revenue Code in effect for the year at issue.
                               - 3 -

employment tax under section 1401.     We uphold respondent’s

determination that petitioner was self-employed.

Background

     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
                               - 4 -

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



     2
      The settlement sheet for the voyage of the Elizabeth R. on
which petitioner served as captain indicates that his captain’s
share amounted to 15 percent of the boat owner’s and captain’s
50-percent share of the net proceeds, unreduced by expenses for
food, payments to lumpers, and miscellaneous items. Other
settlement sheets maintained for the Elizabeth R. indicate that
petitioner’s crew member’s share for four voyages was charged for
“clothing” and for one voyage was charged for “supplies.”
     3
      Although Dan Barlow and Doug Rowell owned the Enterprise
and Elizabeth R., respectively, Dapper Fisheries, Inc., and
Rowell Fisheries, Inc., were listed as the “payers” on the Forms
1099-MISC, Miscellaneous Income, issued to petitioner. Whether
the fishing boat owner’s shares and payments referred to supra
note 2 and the text were actually received or paid by the boat
owners or the corporations has no bearing on the outcome of this
case.
                               - 5 -

for his work during 1997 on the Enterprise and the Elizabeth R.,

respectively.

     Petitioner did not receive health insurance benefits4 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


     4
      We interpret this inartfully drafted stipulation to mean
that neither the boat owners nor the corporations paid petitioner
any additional amount to fund his payments of health insurance
premiums.
     5
      Petitioners were the petitioners in Anderson v.
Commissioner, T.C. Memo. 2003-112, a case under sec. 6330
concerning their failure to pay Federal income tax reported on
                                                   (continued...)
                              - 6 -

     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


     5
      (...continued)
their original 1997 return. Petitioners argued that the boat
owners’ failure to withhold 1996 and 1997 Federal income tax from
petitioner’s wages relieved them from liability for the income
tax. The Court, among other things, upheld respondent’s
determination to collect by levy the income tax liability shown
on their 1997 return. See also Anderson v. Commissioner, T.C.
Memo. 2000-311.
     6
      The technical advice memorandum generally reflected
respondent’s position in this case. Technical advice memoranda
are a type of private letter ruling that is not to be cited as
precedent unless regulations so provide. Sec. 6110(k)(3). No
regulations so provide here.
     7
      In the statutory notice, respondent determined petitioners
are liable for self-employment tax of $6,605, which was
thereafter reduced to $5,764 because respondent allowed
                                                   (continued...)
                                 - 7 -

Discussion

     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); 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


     7
      (...continued)
petitioners more 1997 Schedule C expense deductions than they had
claimed on their original return.
                                - 8 -

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), 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 (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).
                          - 9 -

Under section 3121(b)(20),8 crew members of a fishing boat,


8
 Sec. 3121(b) provides:

     SEC. 3121 (b). Employment.--For purposes of
this chapter, the term “employment” means any
service, of whatever nature, performed (A) by an
employee for the person employing him * * *;
except that such term shall not include --

          *    *    *     *       *   *   *

          (20) service (other than service
     described in paragraph 3(A)) performed by an
     individual on a boat engaged in catching fish
     or other forms of aquatic animal life under
     an arrangement with the owner or operator of
     such boat pursuant to which--

               (A) such individual does not
          receive any cash remuneration other
          than as provided in subparagraph
          (B) and other than cash
          remuneration

                    (i) which does not exceed $100
               per trip;

                    (ii) which is contingent on a
               minimum catch; and

                    (iii) which is paid solely for
               additional duties (such as mate,
               engineer, or cook) for which
               additional cash remuneration is
               traditional in the industry,

               (B) such individual receives a
          share of the boat’s (or the boats’
          in the case of a fishing operation
          involving more than one boat) catch
          of fish or other forms of aquatic
          animal life or a share of the
          proceeds from the sale of such
          catch, and

                                                (continued...)
                              - 10 -

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



     8
      (...continued)
                    (C) the amount of such
               individual’s share depends on the
               amount of the boat’s (or the boats’
               in the case of a fishing operation
               involving more than one boat) catch
               of fish or other forms of aquatic
               animal life,

     but only if the operating crew of such boat (or
     each boat from which the individual receives a
     share in the case of a fishing operation involving
     more than one boat) is normally made up of fewer
     than 10 individuals * * *.
                              - 11 -

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 of compensation depending on the

amount of the catch for each voyage, according to respondent’s

interpretation of section 3121(b)(20) and the regulation in

accordance with the congressional intent underlying section

3121(b)(20).   Respondent argues the Secretary did not revoke Rev.

Rul. 77-102, supra, and that the revenue ruling is consistent

with section 3121(b)(20) and the regulation.   Respondent argues

that the quoted canon of statutory construction does not apply;

the issue of statutory construction presented is not whether to

create another exception analogous to the $100 cash payment

exception created by section 3121(b)(20)(A), but to construe the

original text of section 3121(b)(20) to determine whether

subtraction of operating expenses from the proceeds of the catch

prevents an individual’s share of the proceeds from depending on

the amount of the catch.

     Petitioners make two other arguments, which respondent

disputes, that we briefly address at the end of this Opinion.
                               - 12 -

     To decide this case, we must answer a question of first

impression in this Court:   whether the requirement of section

3121(b)(20) that the individual crew member receive a share of

the “proceeds” from the sale of the catch that “depends on the

amount” of the boat’s catch means that only gross proceeds can

depend on the amount of the boat’s catch, as petitioners contend,

or that proceeds after subtraction of operating expenses can also

depend on the amount of the catch, as respondent contends.     The

statute, conference report and other legislative history,

regulation and its preamble, and caselaw do not specifically

address this question.

     As explained below, we hold petitioner was self-employed

under section 3121(b)(20) on the ground that proceeds from the

sale of the catch after subtraction of operating expenses depend

on the amount of the boat’s catch.

     Respondent explicitly acknowledges in his reply brief and

petitioners implicitly acknowledge (by recourse to and use of

legislative history) that section 3121(b)(20) is ambiguous and

requires interpretation.    In arriving at our interpretation, we

examine the legislative history of section 3121(b)(20) and the

history of commercial practices of the fishing industry, which

were referred to in the legislative history, to understand the

commercial context of the employment tax issue that Congress

addressed.
                                - 13 -

      We address the issue under four headings.    First, we examine

the history of the commercial practices and employment tax

treatment of fishing boat workers and fishing boat owners.

Second, we interpret the requirement that an individual receive a

share of the “proceeds” from the sale of the catch that “depends

on the amount” of the boat’s catch.      In arriving at our

interpretation, we examine:     (a) The general meaning of the terms

in section 3121(b)(20) and section 31.3121(b)(20)-1(a),

Employment Tax Regs.; (b) the legislative history and

congressional intent underlying section 3121(b)(20) and the

issuance of section 31.3121(b)(20)-1(a), Employment Tax Regs.;

(c) Rev. Rul. 77-102, supra, and (d) the $100 exception in

section 3121(b)(20)(A) and whether and how the canon of statutory

construction “expressio unius est exclusio alterius” bears on the

question.    Third, we apply section 3121(b)(20) to petitioner’s

fishing activities in light of our interpretation of the statute

and the regulation that his share of the proceeds after

subtraction of operating expenses depended on the amount of the

catch.     Fourth, we consider petitioners’ other arguments.

1.   History of Compensation Arrangements for Fishing Boat Workers

      a.    The Lay System

      It has been customary in the fishing industry for fishing

boat owners to compensate their workers under the “lay” or

“share” system; under this system, workers on fishing boats
                               - 14 -

receive a share of the proceeds from fishing operations on a

voyage basis rather than previously agreed-upon wages or fees.

See, e.g., Cromwell v. Slaney, 65 F.2d 940, 941 (1st Cir. 1933);

United States v. Laflin, 24 F.2d 683, 685 (9th Cir. 1928) (“It

has been the maritime law [for more than 700 years] that

agreements, by which seamen, engaged in a fishing or whaling

voyage, are to receive for their services shares of the profits

of the voyage, are contracts of hiring, and the shares so agreed

upon are in the nature of wages, to recover which actions may be

maintained after the end of the voyage.”); The Carrier Dove, 97

F. 111, 112 (1st Cir. 1899); Cape Shore Fish Co. v. United

States, 165 Ct. Cl. 630, 638, 330 F.2d 961, 965 (1964); Brown v.

Hicks, 24 F. 811, 812 (C.C.D. Mass. 1885) (shipmaster contracted

with the boat owner for the “the one-fifteenth lay or share of

the net proceeds of the cargo”).9




     9
      In Cape Shore Fish Co. v. United States, 165 Ct. Cl. 630,
643 n.13, 330 F.2d 961, 969 n.13 (1964), the Court of Claims
quoted the following passage from Melville’s Moby Dick 57-58
(Intl. Collectors Lib. ed.) regarding lays:

         “I was already aware that in the whaling business
         they paid no wages; but all hands, including the
         captain, received certain shares of the profits
         called lays, and that these lays were proportioned to
         the degree of importance pertaining to the respective
         duties of the ship’s company.”
                                - 15 -

     b.   Pre-Section 3121(b)(20) Classification of Fishing Boat
          Workers

     Under the Federal Insurance Contributions Act (FICA) and

Federal Unemployment Tax Act (FUTA), the term “employee” includes

“any individual who, under the usual common law rules applicable

in determining the employer-employee relationship, has the status

of an employee”.   Secs. 3111, 3121(d)(2), 3301, 3306(i).

     To determine whether fishing boat workers were employees or

independent contractors, courts considered the facts and

circumstances of each boat owner/worker relationship and relied

on a multiplicity of factors.    See Enochs v. Williams Packing &

Navigation Co., 370 U.S. 1, 3 (1962); see also secs.

31.3121(d)-1(c)(2), 31.3306(i)-1(b), 31.3401(c)-1(b), Employment

Tax Regs.   The multifactor facts and circumstances analysis and

disagreement among the courts over the application of common law

or maritime law to determine the employment status of fishing

boat workers led to inconsistent results,10 which made it

difficult for boat owners to predict and determine whether their

workers would be held to be independent contractors or employees.




     10
      See Enochs v. Williams Packing & Navigation Co., 370 U.S.
1 (1962) (holding fishermen were employees); United States v.
Crawford Packing Co., 330 F.2d 194, 196 (5th Cir. 1964) (holding
fishermen were not employees); Cape Shore Fish Co. v. United
States, supra (holding fishermen were employees; United States v.
W.M. Webb, Inc., 402 F.2d 956 (5th Cir. 1968) (holding fishermen
were not employees), revd. 397 U.S. 179 (1970).
                               - 16 -

     In United States v. W.M. Webb, Inc., 397 U.S. 179 (1970),

the Supreme Court finally held that the employment status of

fishing boat captains and crew members should be decided under

maritime law.   This had the effect of increasing the likelihood

that many fishing boat workers would be classified as employees

for employment tax purposes.   See Marmoll, “Employment Status--

Employee v. Independent Contractor”, 391-3rd Tax Management

Portfolio (BNA), A-79 (2001) (citing Anderson v. United States,

450 F.2d 567 (5th Cir. 1971); Rev. Rul. 72-385, 1972-2 C.B. 535).

     c.   1976 Version of Section 3121(b)(20)

     In 1976, Congress responded to the plight of the small

fishing boat owners by enacting the first version of section

3121(b)(20), with an effective date of December 31, 1971, under

the Tax Reform Act of 1976, Pub. L. 94-455, sec. 1207(e)(1)(A)

and (f)(4), 90 Stat. 1706, 1708.   Under the Revenue Act of 1978,

Pub. L. 95-600, sec. 701(z)(1), 92 Stat. 2921, section

3121(b)(20) was made retroactive to December 31, 1954.

     In explaining the genesis of section 3121(b)(20), the report

by the Senate Committee on Finance summarized the practical

problems that would be encountered by small fishing boat owners

if they were required to treat their workers as employees:

            The crews that work on boats used in fishing
       * * * are frequently “pickup” crews composed of
       individuals who may work for only a few voyages, and
       sometimes even for only one voyage. * * * Thus, the
       voyage partakes more of the nature of a joint venture
       than it does of an employment situation.
                             - 17 -


            Under these circumstances, it is difficult and
       impractical for the boat operator to keep the
       necessary records to calculate his tax obligations as
       an employer, and it is equally difficult for him to
       withhold the appropriate taxes for payment. * * *

            Another factor contributing to the difficulty in
       which such boat operators find themselves is the
       nature of the remuneration paid to their crewmen. In
       many cases, the crewmen are paid no regular salary,
       but instead receive a portion of the catch. In
       practice, the catch is often sold upon return to
       shore, usually by the boat operator, and each crewman
       is immediately paid a percentage of the proceeds of
       the catch that is equivalent to the portion of the
       catch for which he agreed to work. In view of the
       basic informality of these arrangements, and the
       consequent difficulty in adhering to the obligations
       required of employers by the Internal Revenue Code,
       the committee believes it appropriate to remove these
       obligations from certain small boat operators by
       treating their crewmen as self-employed individuals.
       The committee believes that this will recognize the
       basic nature of the arrangement between the boat
       operators and the crewmen since the crewmen, under
       these arrangements, should find it much simpler and
       more convenient to calculate and report their own
       income for tax purposes than do the boat operators.

             In treating these situations as instances of
       employment of crewmen by boat operators, the Internal
       Revenue Service has not only required current payment
       of employment taxes by the boat operators, but has
       also assessed these taxes retroactively for all tax
       years still open under the statute of limitations.
       As a result of possibly sizeable assessments, many
       boat operators may face bankruptcy. [S. Rept. 94-938
       (Pt. I), at 385 (1976), 1976-3 C.B. (Vol. 3) 49,
       423.]

     As alluded to in the Senate report and explained in more

detail by the Joint Committee on Taxation in its General

Explanation of the Revenue Act of 1976, Congress extended

retroactive relief to small fishing boat owners to prevent
                              - 18 -

financial hardship arising from proposed tax assessments for

prior years in cases where they had not treated their workers as

employees.   See id.; Staff of Joint Comm. on Taxation, General

Explanation of the Tax Reform Act of 1976, at 380-381 (J. Comm.

Print 1976), 1976-3 C.B. (Vol. 2) 1, 392-393.11

     d.   Rev. Rul. 77-102

     Following enactment of section 3121(b)(20) in 1976, the

Commissioner issued Rev. Rul. 77-102, 1977-1 C.B. 299, which

explains respondent’s position in this case that proceeds after

subtraction of operating expenses depend on the amount of the

boat’s catch of fish under section 3121(b)(20).     In situation 1

of Rev. Rul. 77-102, supra, the boat owner employs a captain and

eight other crew members to perform services.     Six of the nine

crew members receive remuneration by dividing equally 60 percent

of the net proceeds from the sale of the catch after subtracting

from the gross proceeds certain specified expenses such as ice

and fuel and a payment of $25 each to the mate, engineer, and


     11
      As explained by the Joint Committee on Taxation, the
retroactive effective date barred retroactive deficiency
assessments against boat owners who treated fishing boat workers
as self-employed before enactment of sec. 3121(b)(20) for past
years still open under the statute of limitations. See Staff of
Joint Comm. on Taxation, General Explanation of the Tax Reform
Act of 1976, at 382 (J. Comm. Print 1976), 1976-3 C.B. (Vol. 2)
1, 394. However, crew members treated as employees before
enactment of sec. 3121(b)(20) were not required to pay the higher
rate of Social Security tax required of self-employed
individuals, nor were refunds of the employer’s share of social
security taxes to be made to boat owners who had paid them. See
id.
                                - 19 -

cook.     The Commissioner ruled that the 6 crew members are self-

employed under section 3121(b)(20) because they do not receive

any cash remuneration other than a share of the proceeds from the

sale of the catch after subtraction of operating expenses, their

share depends on the amount of the catch, and the operating crew

of the boat normally consists of fewer than 10 individuals.     The

Commissioner also ruled that the mate, the cook, and the engineer

were employees under section 3121(b)(20) because the $25 flat fee

compensation for services they performed at sea did “not depend

on the amount of the boat’s catch of fish”.

     e.     Section 31.3121(b)(20)-1(a), Employment Tax Regs.

        In 1980, the Commissioner promulgated section

31.3121(b)(20)-1(a), Employment Tax Regs., which purports to

paraphrase section 3121(b)(20) and provides that if a crew

member’s share “depends solely on the amount of the boat’s * * *

catch of fish” (emphasis added), he qualifies for self-employment
                                - 20 -

status.12    See 45 Fed. Reg. 57122 (Aug. 27, 1980); see also T.D.

7716, 1980-2 C.B. 241.

     f.     Flamingo Fish Corp. v. United States

     In Flamingo Fish Corp. v. United States, 32 Fed. Cl. 377

(1994), the taxpayer allocated a “per”, which is “a small

additional sum of money * * *, usually $25 or a multiple thereof,



     12
      Sec. 31.3121(b)(20)-1(a), Employment Tax Regs., provides
in pertinent part:

          (a) In general. (1) Service performed * * * by an
     individual on a boat engaged in catching fish * * * are
     excepted from employment if--

          (i) The individual receives a * * * a share of the
     proceeds from the sale of the [boat’s] catch [of fish],

          (ii) The amount of the individual’s share depends
     solely on the amount of the boat’s * * * catch of fish,

          (iii) The individual does not receive and is not
     entitled to receive, any cash remuneration, other than
     remuneration that is described in sub-division (1) of this
     subparagraph

                       *    *    *    *    *       *   *

          (2) The requirement of subdivision (ii) is not
     satisfied if there exists an agreement with the boat’s * * *
     owner or operator by which the individual’s remuneration is
     determined partially or fully by a factor not dependent on
     the size of the catch. For example, if a boat is operated
     under a remuneration arrangement, e.g., a collective
     agreement which specifies that crew members, in addition to
     receiving a share of the catch, are entitled to an hourly
     wage for repairing nets, regardless of whether this wage is
     actually paid, then all the crew members covered by the
     arrangement are entitled to receive cash remuneration other
     than a share of the catch and their services are not
     excepted from employment by section 3121(b)(20).
     [Emphasis added.]
                              - 21 -

to the mate, cook, and engineer * * * in recognition of services

they perform at sea, in addition to their normal duties”,

according to a sliding scale or schedule that depended on a

percentage of the proceeds from the catch.

     The Court of Claims held that crew members who receive pers

are employees because per payments are flat fees that do not

depend on the amount of a particular catch as required by section

3121(b)(20) as originally enacted.     The Court of Claims upheld

Rev. Rul. 77-102, supra, regarding the interpretation of the

“pers” issue and section 31.3121(b)(20)-1(a), Employment Tax

Regs., as reasonable interpretations of section 3121(b)(20).     The

Court of Claims did not discuss nor was it called upon to

consider the Commissioner’s interpretation in Rev. Rul. 77-102,

supra, of “proceeds” as including proceeds after subtraction of

operating expenses.

     g.   1996 Amendment of Section 3121(b)(20)

     In 1996, Congress overruled Flamingo Fish Corp. v. United

States, supra, by adding subparagraph (A) to section 3121(b)(20),

as part of the Small Business Job Protection Act of 1996 (SBJPA),

Pub. L. 104-188, sec. 1116, 110 Stat. 1762.     Section 3121(b)(20)

(A) applies to remuneration paid after December 31, 1994; it also

applies to remuneration paid after December 31, 1984, and before

January 1, 1995, unless the payor treated the remuneration when

paid as subject to FICA taxes.   Under section 3121(b)(20)(A),
                               - 22 -

crew members are not employees if they receive cash payments that

do not exceed $100 per trip, are contingent on a minimum catch,

and are paid solely for additional duties (e.g., as mate,

engineer, or cook) for which additional cash remuneration is

traditional in the industry.    In so providing, section

3121(b)(20)(A) also invalidated the part of Rev. Rul. 77-102,

1977-1 C.B. 299, that ruled that the receipt of a per would

disqualify a crew member from self-employment status.

2.   Interpretation of the Requirement That Crew Members Receive a
     Share of the “Proceeds” From the Sale of the Catch That
     “Depends on the Amount” of the Catch

      The language of the statute and that of the corresponding

regulation defining the requirements for self-employment status

are not identical.    Section 3121(b)(20) classifies a fishing boat

worker as self-employed if the amount of the worker’s share of

proceeds “depends on the amount of the boat’s * * * catch of

fish”.   (Emphasis added.)   Section 31.3121(b)(20)-1(a)(1),

Employment Tax Regs., classifies a fishing boat worker as self-

employed if the amount of the worker’s share of proceeds “depends

solely on the amount of the boat’s * * * catch of fish”.

(Emphasis added.)    Under section 31.3121(b)(20)-1(a)(2),

Employment Tax Regs., the provision that the amount of the share

“[depend] solely” on the amount of the catch is not satisfied if

the fishing boat worker’s remuneration is determined “partially

or fully” by a factor not dependent on the size of the catch.
                                - 23 -

      a.   General Meaning of the Terms in Section 3121(b)(20) and
           Section 31.3121(b)(20)-1(a), Employment Tax Regs.

      The general dictionary definition of “depend” encompasses:

      1: to be contingent: a: to require something as a necessary
      condition--used with on or upon (we depend on food to keep
      us alive) (his life depends on his undergoing an operation)
      (the merit of his piece depended on the brilliant things
      which arose under his pen as he went along--Matthew Arnold)
      b: to become conditioned or based (as by subjection or
      relatedness--used with on or upon) (sciences depend on one
      another) (prices depend upon supply and demand) * * *.
      [Webster’s Third New International Dictionary 604 (1974).]

      The general dictionary definition of “solely” encompasses:

“1:   without an associate (as a companion or assistant): singly,

alone * * *; 2: to the exclusion of alternate or competing things

(as persons, purposes, duties) (done solely for money) (a

privilege granted solely to him) (rely solely on oneself).”      Id.

at 2168.

      The general dictionary definition of “proceeds” encompasses

“what is produced by or derived from something (as a sale,

investment, levy, business) by way of total revenue: the total

amount brought in: yield, returns; * * * the net profits made on

something”.    Id. at 1807.   Black’s Law Dictionary defines

“proceeds” as “The value of land, goods, or investments when

converted into money; the amount of money received from a sale.

* * * Something received upon selling, exchanging, collecting, or

otherwise disposing of collateral.”      Black’s Law Dictionary 1242

(8th ed. 2004).

      Black’s Law Dictionary also provides the following subentry
                              - 24 -

definition of “net proceeds” as a type of proceeds:   “The amount

received in a transaction minus the costs of the transaction

(such as expenses and commissions).--Also termed net balance.”

Id.; see also id., Guide to the Dictionary, at xxiii, regarding

subentries (“If a term has more than one sense, then the

corresponding subentries are placed under the appropriate sense

of that term.”).   Black’s Law Dictionary defines “profit” as “The

excess of revenues over expenditures in a business transaction;

gain”, which is generally synonymous with the definition of “net

proceeds”.   Id. at 1246.

     In Phelps v. Harris, 101 U.S. 370, 380 (1879), explaining

that lands received from the disposition of real estate fall

under the definition of “proceeds”, the Supreme Court stated:

“Proceeds are not necessarily money.   This is * * * a word of

great generality.”   See Peabody Coal Co. v. Navajo Nation, 75

F.3d 457, 468 (9th Cir. 1996) (holding that Congress intended the

term “proceeds” under the Navajo-Hopi Land Settlement Act of 1974

to mean “all economic benefit derived from the minerals”).    The

parties have not brought to our attention nor have we found

through our own research any information that the term “proceeds”

is to be interpreted restrictively under the usages of the

fishing industry or of maritime law.   Indeed, the fishing

industry usage that treats the terms “lays” and “profits” as

equivalent indicates that the primary meaning of the term
                              - 25 -

“proceeds” is proceeds after subtraction of operating expenses.

See, e.g., Atl. Mut. Ins. Co. v. Commissioner, 523 U.S. 382

(1998); Hedden v. Richard, 149 U.S. 346, 348-349 (1893); Central

Reserve Life Corp. v. Commissioner, 113 T.C. 231, 237 (1999) (it

is appropriate to construe the meaning of section 816 of

subchapter L of the Code, involving insurance companies, in light

of its usage in the insurance industry, to the extent it has an

established meaning in that industry).

     The term “proceeds”, as a “word of great generality”, see

Phelps v. Harris, supra at 380, refers to a general class that

encompasses a collection of all forms of proceeds, including

gross proceeds, net proceeds, and any other property received

from an exchange of property, etc.     As a matter of formal logic,

proceeds from the sale of the catch of fish determined after

subtraction of operating expenses is completely included in the

greater class, proceeds from the sale of the catch; that is, net

proceeds is a form of or subclass of proceeds.    See Langer, An

Introduction to Symbolic Logic 115-118 (3d ed. 1967).

     b.   Legislative History and Congressional Intent Underlying
          Section 3121(b)(20) and the Development of Section
          31.3121(b)(20)-1(a), Employment Tax Regs.

     Petitioners argue section 3121(b)(20) precludes self-

employment status for fishing boat workers who receive proceeds

after subtraction of operating expenses because those operating

expenses do not depend “solely” on the amount of the catch, as
                                - 26 -

explicitly provided by section 31.3121(b)(20)-1(a), Employment

Tax Regs., and implicitly provided by section 3121(b)(20) itself.

Respondent interprets the term “depends solely” in the regulation

to mean that section 3121(b)(20) excludes from “employment”

services performed for any additional payment that does not

depend on the amount of the catch.       Respondent interprets the

term “proceeds” to include proceeds after subtraction of

operating expenses.    We agree with respondent.

     Statutory construction begins with the language of the

relevant statute.     Consumer Prod. Safety Commn. v. GTE Sylvania,

Inc., 447 U.S. 102, 108 (1980); Fincher v. Commissioner, 105 T.C.

126, 133-134 (1995).    We may use legislative history to clarify

an ambiguous statute.     Patterson v. Shumate, 504 U.S. 753, 761

(1992); Canada Life Assurance Co. v. Converium Ruckversicherung

(Deutschland) AG, 335 F.3d 52, 57 (2d Cir. 2003); Fincher v.

Commissioner, supra; City of New York v. Commissioner, 103 T.C.

481, 489 (1994), affd. 70 F.3d 142 (D.C. Cir. 1995).       When a

statute is ambiguous, the Court must find the interpretation that

can most fairly be said to be embedded in the statute, in the

sense of being most harmonious with its scheme and with the

general purposes that Congress manifested.       NLRB v. Lion Oil Co.,

352 U.S. 282, 297 (1957).    Reports by the Senate Committee on

Finance are an authoritative source for legislative intent.

Thornburg v. Gingles, 478 U.S. 30, 44 (1986); Garcia v. United
                                - 27 -

States, 469 U.S. 70, 76 (1984).

     Because the Secretary promulgated section 31.3121(b)(20)-1,

Employment Tax Regs., under his general authority to “prescribe

all needful rules and regulations”, see sec. 7805(a), the Court

owes “the interpretation less deference than a regulation issued

under a specific grant of authority to define a statutory term or

prescribe a method of executing a statutory provision”, see Rowan

Cos. v. United States, 452 U.S. 247, 253 (1981).      We defer to the

Secretary’s regulatory interpretation of the Code so long as it

is reasonable.     Cottage Sav. Association v. Commissioner, 499

U.S. 554, 560-561 (1991); Natl. Muffler Dealers Association, Inc.

v. United States, 440 U.S. 472, 476-477 (1979).      In determining

whether a particular regulation carries out the congressional

mandate in a proper manner, we look to see whether the regulation

harmonizes with the plain language of the statute, its origin,

and its purpose.     Natl. Muffler Dealers Association, Inc. v.

United States, supra at 477.     A regulation may have particular

force if it is a substantially contemporaneous construction of

the statute by those presumed to have been aware of congressional

intent.   Id.    If the regulation dates from a later period, the

manner in which it evolved merits inquiry.     Id.   Other relevant

considerations are the length of time the regulation has been in

effect, the reliance placed on it, the consistency of the

Commissioner’s interpretation, and the degree of scrutiny
                               - 28 -

Congress has devoted to the regulation during subsequent

reenactments of the statute.   Id.

     The language of the statute and the regulation is far from

clear.   The dictionary definition of “depend” encompasses “to

require something as a necessary condition” with the example

“prices depend on supply and demand”.     Webster’s Third New

International Dictionary 604 (1974).     In this example, “prices”

depend on two factors, “supply” and “demand”, and so cannot

depend “solely” on either of them.      Section 3121(b)(20) does not

use the word “solely”, which implies that the amount of the catch

is a necessary, but not exclusive, factor upon which the proceeds

must depend.   The use of “solely” in section 31.3121(b)(20)-1,

Employment Tax Regs., suggests that proceeds must depend only on

the amount of the catch “to the exclusion of alternate or

competing” factors such as operating expenses.     The definition of

“proceeds” encompasses proceeds after subtraction of operating

expenses.   See Webster’s Third New International Dictionary 1807

(1974); Black’s Law Dictionary 1242 (8th ed. 2004).

     Logically speaking, uncritically applying the dictionary

definitions of these terms to the statute and the regulation

would lead to contradictory results.     Because the statute is

ambiguous, we may use legislative history, see Patterson v.

Shumate, supra at 761; Fincher v. Commissioner, supra at 133-134,

to find the interpretation that can most fairly be said to be
                             - 29 -

embedded in the statute, in the sense of being most harmonious

with its scheme and with the general purposes that Congress

manifested, see NLRB v. Lion Oil Co., supra at 297.13

     Taken as a whole, the history of the fishing industry, the

legislative history underlying section 3121(b)(20), the preamble

to and the example in the regulation, and a logical and practical

interpretation of the statute suggest that Congress, in enacting

section 3121(b)(20), intended that proceeds after subtraction of

operating expenses depend on the amount of the catch.   We do not

interpret the “depends solely” provision of section

31.3121(b)(20)-1, Employment Tax Regs., as precluding subtraction

of operating expenses from proceeds.

     For several centuries, fishing boat crew members working

under the “lay” system have, for the most part, received a share

of profits from the sale of the catch, or excess of revenues over

expenses, which is synonymous with “net proceeds”, rather than a


     13
      Where the statutory language appears clear, we would
require unequivocal evidence of legislative purpose before
construing the statute so as to override the plain meaning of the
words used therein, see United States v. Am. Trucking
Associations, 310 U.S. 534, 543-544 (1940); Huntsberry v.
Commissioner, 83 T.C. 742, 747-748 (1984), particularly where we
have a complex set of statutory provisions marked by a high
degree of specificity, see Huntsberry v. Commissioner, supra at
748; cf. Occidental Petroleum Corp. v. United States, 231 Ct. Cl.
334, 685 F.2d 1346, 1348 (1982). The statutory language of sec.
3121(b)(20) and the regulation is not clear. Sec. 3121(b)(20) is
not a statute with a complex set of provisions marked by a high
degree of specificity. Even if the statute were clear, the
legislative history does not necessarily provide unequivocal
evidence of legislative purpose.
                              - 30 -

share of the gross proceeds or a share of the fish themselves.

See, e.g., Thomas v. Osborn, 60 U.S. 22, 29-30 (1856) (“a

lay--that is, a participation in profits”); Putnam v. Lower, 236

F.2d 561, 573 n.2 (9th Cir. 1956) (“the word ‘lay’ means a share

of the profits of a venture given in lieu of wages”); Old Point

Fish Co. v. Haywood, 109 F.2d 703 (4th Cir. 1940).14

     The report by the Senate Committee on Finance indicates

Congress recognized longstanding industry practices of paying

fishing boat workers on the lay system with a share of the

proceeds from the catch after subtraction of operating expenses.

See S. Rept. 94-938 (Pt. I), supra at 384-385, 1976-3 C.B. (Vol.

3) at 422-423.   Section 3121(b)(20) was enacted to provide

administrative convenience and certainty to fishing boat owners

by eliminating the need to keep records to calculate tax

obligations of fishing boat workers who received payments on the

lay system, without interfering with or changing the longstanding

lay system of compensation.   See id. at 385-386, 1976-3 C.B.

(Vol. 3) at 423-424.

     Compensation under the lay system necessarily means that the

proceeds of the catch depend on factors other than the amount of

the catch, including, but not limited to, the subtraction of



     14
      Black’s Law Dictionary 905 (8th ed. 2004) defines “lay” in
the context of maritime law as: “A share of the profits of a
fishing or whaling trip, akin to wages, allotted to the officers
and seamen.”
                                - 31 -

operating expenses.    We do not believe that Congress, in enacting

section 3121(b)(20) to help fishing boat owners avoid financial

hardship and employment tax record-keeping requirements, intended

to limit the beneficial effects of section 3121(b)(20) by

conferring self-employment status only on fishing boat crew

members who receive a share of proceeds with no subtraction of

operating expenses.    To hold otherwise would classify as

employees a majority of crew members, who, under the lay system,

usually receive a share of proceeds after subtraction of

operating expenses.

     Because we are a court with national jurisdiction over

litigation involving the interpretation of the Federal tax

statutes, see Lardas v. Commissioner, 99 T.C. 490 (1992),

adopting petitioners’ interpretation of section 3121(b)(20) would

throw the small boat fishing industry into turmoil and create

financial hardship for the owners.

     Assuming as we do that most, if not all, small fishing boat

owners have not filed Forms 940 and 941 to report and pay FUTA

and FICA taxes for fishing boat workers who received proceeds

from sales of catches after subtraction of operating expenses,

the periods of limitation for assessments of those taxes would

not have expired.     Secs. 6501(a), 6503(a)(1), 6213.   Our adoption

of petitioners’ interpretation of section 3121(b)(20) could be

applied retroactively to assess employment taxes for previous tax
                              - 32 -

years in cases where boat owners treated as self-employed their

workers who received a share of proceeds after subtraction of

operating expenses as determined under the lay system.   See S.

Rept. 94-938, (Pt. I), supra at 385-386, 1976-3 C.B. (Vol. 3) at

423-424; Staff of Joint Comm. on Taxation, General Explanation of

the Tax Reform Act of 1976, supra at 380-381, 1976-3 C.B. (Vol.

2) at 392-393.15   Any retroactive assessments would rewrite the

compensation bargains entered into by fishing boat owners and

operators with the workers in reliance on the applicability of

section 3121(b)(20).   Such assessments would create substantial

financial hardship to the small fishing boat owners and a

windfall to the workers, thereby frustrating the intent of

Congress in enacting section 3121(b)(20).   Even if respondent

would appeal an adverse decision of this Court and suspend

efforts to collect employment taxes from the small fishing boat

owners, they would have contingent liabilities on their balance

sheets that could interfere with their ability to obtain loans or

sell their businesses.


     15
      Under sec. 530 of the Revenue Act of 1978, Pub. L. 95-600,
92 Stat. 2885, fishing boat owners who erroneously classified
employees as self-employed might be relieved of employment tax
liability, and fishing boat workers, including petitioner, would
be deemed not to be employees of the owners for employment tax
purposes, if certain conditions were satisfied. See Joseph M.
Grey Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 130
(2002), affd. 93 Fed. Appx. 473 (3d Cir. 2004). There is no
record evidence whether the requirements of sec. 530 of the
Revenue Act of 1978 would be applicable in the case at hand to
relieve the boat owners of employment tax liabilities.
                                - 33 -

     In enacting section 3121(b)(20), Congress stated that the

relationship of the small fishing boat owners with “pickup” crews

who share in the proceeds from the catch is more similar to a

joint venture than to an employment arrangement.      Generally, a

partnership is synonymous with a joint venture.      See secs.

761(a), 7701(a)(2).   A partnership generally requires a community

of interest in profits and losses.       See Commissioner v. Tower,

327 U.S. 280, 287-288 (1946).    Historically, crew members who

work on the lay system have shared in the “profits” of the

voyage.   The partnership/joint venture analogy suggests Congress

intended the term “share of the proceeds of the catch” to include

proceeds after subtraction of operating expenses.16

     Even though petitioners have a seemingly plausible argument

that the “depends solely” provision of section 31.3121(b)(20)-

1(a)(2), Employment Tax Regs., is not satisfied if the share is

reduced by operating expenses, we interpret the “depends solely”

provision to mean that section 3121(b)(20) excludes from

“employment” services performed for any additional payment,



     16
      An unsuccessful fishing trip is known in the fishing trade
as a “broker”. See The Dirigo First, 60 F. Supp. 675, 675-676
(D. Mass. 1945) (“If no fish is caught or for some other reason
there are no proceeds from a fish auction, the voyage is called
‘a broker’. * * * the members of the crew go unpaid, unless the
owner or master chooses to make a gratuitous distribution”);
O’Hara Vessels, Inc. v. Hassett, 60 F. Supp. 672 (D. Mass. 1942).
The broker situation suggests the lay system is similar to a
joint venture because the fishing boat workers risk the loss of
labor, time, and possibly other personal expenses.
                                 - 34 -

whether or not made from the proceeds of the catch, that is fixed

in amount or calculated on an hourly or minimum basis or other

manner unrelated to the amount of the catch.

     Section 31.3121(b)(20)-1(a)(2), Employment Tax Regs.,

provides the following example of remuneration determined

“partially or fully” by a factor not dependent on the size of the

catch:

         For example, if a boat is operated under a
         remuneration arrangement, e.g., a collective
         agreement which specifies that crew members, in
         addition to receiving a share of the catch, are
         entitled to an hourly wage for repairing nets,
         regardless of whether this wage is actually paid,
         then all crew members covered by the arrangement are
         entitled to receive cash remuneration other than a
         share of the catch and their services are not
         excepted from employment by section 3121(b)(20).
         [Emphasis added.]

     The preamble to the regulation states:

         In order for a crewman to be considered self-employed
         * * * The crew member must receive in payment for his
         services a fixed share * * * of the proceeds from the
         sale of the catch and he must be entitled to no other
         cash or property independent of the size of the
         catch; * * * The amount of the crew member’s share
         must depend solely on the amount of the boat’s catch,
         and therefore the amount of the share cannot be fixed
         at any minimum (in dollars or weight) * * *.

                   *    *    *     *      *   *   *

         The regulation explicitly states that a crewman’s
         share is not dependent solely on the amount of the
         boat’s catch if the crewman is entitled under any
         individual or collective agreement to any fee, hourly
         wage, minimum for services, or any other amount
         unrelated to the size of the catch. * * * [45 Fed.
         Reg. 57122 (Aug. 27, 1980).]
                               - 35 -

     We observe that an interpretation that the word “solely”

excludes subtraction of operating expenses would not harmonize

with the origin, intent, and purpose of the statute to help the

small boat fishing industry.   See Natl. Muffler Dealers

Association, Inc. v. United States, 440 U.S. at 477.    We do not

interpret the regulation more strictly than section 3121(b)(20)

itself.   Section 3121(b)(20) does not mention “solely”.   The

regulation was not promulgated substantially contemporaneously

with section 3121(b)(20); it was promulgated in 1980, 4 years

after the statute.   The regulation has not been amended to

reflect the enactment of section 3121(b)(20)(A) in 1996, which

overruled Flamingo Fish Corp. v. United States, 32 Fed. Cl. 377

(1994), and allowed payments of $100 pers.

     The purpose underlying the regulation and the use of the

word “solely” in the preamble is to preclude self-employment

status for crew members who receive additional remuneration for

services in the form of “any fee, hourly wage, minimum for

services,” or “other cash or property independent of the size of

the catch”.   (Emphasis added.)   We also observe, consistently

with our comment in the last sentence of section 2.a. of this

Opinion, citing Langer’s An Introduction to Symbolic Logic, that

proceeds after subtraction of operating expenses is a subclass of

proceeds and that operating expenses that reduce the proceeds

differ from the disqualifying additional payments referred to in
                                - 36 -

the regulation.    Because the preamble, the regulation, and the

example specify the effects of “solely” on additional

remuneration paid to crew members, the effect of “solely” on

other factors, including subtraction of operating expenses, is

properly excluded.

     The stipulation of facts, including the schedules computing

the proceeds earned by petitioner and the other crew members from

each of the voyages of the Elizabeth R., indicates that the crew

members’ share was charged for operating expenses at three

different levels.    For every voyage, the proceeds subject to

allocation between the crew members and the fishing boat owner

and captain were reduced by two or three of fuel, ice, and

lubricating oil.     For every voyage, the crew members’ 50-percent

share was reduced by one or more of payments to lumpers and for

food, and on one occasion for “miscellaneous”.    For four voyages,

petitioner’s individual crew member’s share was charged for

“clothing”, and for one voyage, he was charged for unspecified

“supplies”.

     In our view, each of these types of charges, at whatever

level incurred and subtracted, does not change the character of

the share of proceeds that petitioner received as depending

“solely” on the amount of the boat’s catch of fish within the

meaning of section 3121(b)(20) and section 31.3121(b)(20)-

1(a)(2), Employment Tax Regs.    Notwithstanding that none of these
                              - 37 -

expenses depend on the amount of the catch, the share of proceeds

of the catch that remains after subtraction of these expenses

consists solely of proceeds of the catch.    The subtraction of

operating expenses does not constitute additional or fixed

compensation.   The crew members’ share in the profits from each

catch does not depend partially or fully on any factor other than

the amount of the catch within the meaning of the statute and the

regulation.

     The Senate Committee on Finance stated that the catch is

sold upon return to shore and each crewman is “immediately” paid

a percentage of the proceeds from the catch.    Petitioners argue

that Congress, in using the word “immediately”, intended that the

fishing boat workers receive their share of the proceeds

immediately after the sale of the catch without delay for

subtraction of operating expenses.     We disagree with petitioners’

argument.   The word “immediately” does not preclude a quick

computation to subtract the amount of previously incurred

operating expenses.

     c.   Rev. Rul. 77-102 and Section 31.3121(b)(20)-1,
          Employment Tax Regs.

     In Rev. Rul. 77-102, 1977-1 C.B. 299, the Commissioner ruled

that crew members were self-employed even though they received a

share of the proceeds after subtraction of operating expenses.

Petitioners argue we should give little weight to Rev. Rul. 77-

102, supra, because the Secretary superseded or revoked it by
                              - 38 -

failing to mention subtraction of operating expenses in

promulgating section 31.3121(b)(20)-1, Employment Tax Regs.,

thereby making Rev. Rul. 77-102, supra, inconsistent with the

regulation.

      Even though revenue rulings do not have the force of law

and are merely statements of the Commissioner’s litigating and

administrative position, Dixon v. United States, 381 U.S. 68, 73

(1965), such rulings constitute a body of experience and informed

judgment to which courts may properly resort for guidance in the

interpretation of revenue statutes and regulations, Skidmore v.

Swift & Co., 323 U.S. 134, 140 (1944); Esden v. Bank of Boston,

229 F.3d 154, 169 n.19 (2d Cir. 2000); Gordon v. Commissioner, 88

T.C. 630, 636 n.3 (1987).

     As it pertains to the subtraction of operating expenses,

Rev. Rul. 77-102, supra, has been relied upon and followed by the

industry for more than 27 years without any substantial change.

During the last 27 years, neither Congress nor the Secretary took

advantage of the opportunity to invalidate Rev. Rul. 77-102,

supra.   There has been no announcement that the revenue ruling

has fallen into desuetude or has been revoked, modified, or

invalidated by section 3121(b)(20), section 31.3121(b)(20)-1,

Employment Tax Regs., or a new revenue ruling.   See Auto. Club of

Mich. v. Commissioner, 353 U.S. 180, 184 (1957); cf. Rauenhorst

v. Commissioner, 119 T.C. 157, 170 (2002).   Indeed, the
                              - 39 -

Commissioner continued to rely on Rev. Rul. 77-102, supra, in

issuing Tech. Adv. Mem. 2002-11-005 (Mar. 15, 2002) relating to

facts substantially identical to those of this case.   See, e.g.,

Rauenhorst v. Commissioner, supra at 170.   The fact that the

regulation was promulgated after the revenue ruling suggests the

Commissioner intended that section 31.3121(b)(20)-1(a)(2),

Employment Tax Regs., be consistent with Rev. Rul. 77-102, supra.

See Natl. Muffler Dealers Association v. United States, 440 U.S.

at 477; Peninsula Steel Prod. & Equip. Co. v. Commissioner, 78

T.C. 1029 (1982).

     As it pertains to the subtraction of operating expenses, we

find Rev. Rul. 77-102, supra, is a reasonable interpretation of

the terms “depends” and “proceeds” in the statute and the

regulation.   We find no significance in the failure of section

31.3121(b)(20)-1, Employment Tax Regs., to mention the

subtraction of operating expenses.

     d.   Section 3121(b)(20)(A) and the Canon “Expressio Unius
          Est Exclusio Alterius”

     Under section 3121(b)(20)(A), crew members are not employees

if they receive cash payments that do not exceed $100 per trip,

are contingent on a minimum catch, and are paid solely for

additional duties (e.g., as mate, engineer, or cook) for which

additional cash remuneration is traditional in the industry.

     Under the canon of construction “expressio unius est

exclusio alterius”, if a statute specifies certain exceptions to
                              - 40 -

a general rule, an intention to exclude any further exceptions

may be inferred.   See Catterall v. Commissioner, 68 T.C. 413, 421

(1977), affd. sub nom. Vorbleski v. Commissioner, 589 F.2d 123

(3d Cir. 1978); see also Black’s Law Dictionary 581 (6th Ed.

1990) (“if [sic] statute specifies one exception to a general

rule or assumes to specify the effects of a certain provision,

other exceptions or effects are excluded”).   Petitioners argue

that allowing for subtraction of operating expenses would

constitute an exception to section 3121(b)(20) that Congress

specifically precluded by enacting the $100 cash payment

exception of section 3121(b)(20)(A).

     The canon “expressio unius est exclusio alterius” does not

apply to every statutory listing or grouping; the canon applies

only when the statute identifies “a series of two or more terms

or things that should be understood to go hand in hand,” thus

raising the inference that a similar unlisted term was

deliberately excluded.   Chevron U.S.A., Inc. v. Echazabal, 536

U.S. 73, 81 (2002); United States v. City of New York, 359 F.3d

83, 98 (2d Cir. 2004).   The canon can never override clear and

contrary evidences of congressional intent.   Neuberger v.

Commissioner, 311 U.S. 83, 88 (1940).

     In enacting section 3121(b)(20)(A), Congress was focused on

“additional cash remuneration” that is “traditional in the

industry” and is “contingent on a minimum catch” but does not
                             - 41 -

necessarily depend on the amount of the catch.   See sec.

3121(b)(20(A) (emphasis added); SBJPA sec. 1116, 110 Stat. 1452,

1762, 1996-3 C.B. 1, 931; S. Rept. 104-281, at 10 (1996).

Congress added section 3121(b)(20)(A) to conform to the reality

of longstanding fishing industry practices that allowed pers to

be paid to the mate, the cook, and the engineer.   See S. Rept.

104-281, supra at 10 (stating that the $100 exception would

recognize longstanding industry practice).

     The issue of statutory interpretation presented is not

whether to create another exception analogous to section

3121(b)(20)(A), but to interpret the original text of section

3121(b)(20) to determine whether subtraction of operating

expenses from the proceeds of the catch prevents an individual’s

share of the proceeds from depending on the amount of the catch.

     The operating expenses are fixed expenses subtracted from

the proceeds of the catch, whereas the $100 payment exception

applies to additional remuneration.   The $100 cash payment

exception and the subtraction of operating expenses are so

unrelated and dissimilar that there is no inference or

implication that Congress intended, by injecting the $100 payment

exception for pers under section 3121(b)(20)(A), to exclude the

reduction of proceeds by operating expenses that was embedded in

the statute as originally enacted.    See Chevron U.S.A., Inc., v.
                               - 42 -

Echazabal, supra at 81; United States v. City of New York, supra

at 98.

3.   Application of Section 3121(b)(20) in Light of Our
     Interpretation of the Statute and the Regulation

      We hold petitioner was self-employed under section

3121(b)(20) when he worked as a captain or crew member of the

fishing boats in 1997.

      Petitioner was self-employed in his capacity as a crew

member because as a crew member he received a share of 50 percent

of the proceeds from the catch.   Petitioner was self-employed in

his capacity as captain because he received a crew member’s share

and a percentage of the 50-percent of proceeds allocated to the

boat owner and captain.

      Even though petitioner was self-employed in 1997,

petitioners failed to report or pay self-employment tax for

petitioner’s fishing activities as required by section 1401.

      In the statutory notice, respondent correctly reclassified

$2,031 (40 percent of $5,077) of petitioners’ claimed health

insurance premiums as business expenses reportable on Schedule C,

see sec. 162(l), and all $4,438 of petitioners’ unreimbursed

employee business expenses as business expenses reportable on

Schedule C, see sec. 162(a).

      We hold petitioners are liable under section 1401 for the

self-employment tax liability in the amount determined by
                              - 43 -

respondent in the statutory notice, which properly takes into

account respondent’s adjustments.

4. Petitioners’ Other Arguments

     a. Section 6050A

      Section 6050A(a) provides, in pertinent part, that the

operator of a boat on which one or more individuals perform

services described in section 3121(b)(20) is required to submit

to the Secretary information regarding the identity of each

fishing boat worker if the worker receives a share of the

proceeds of the catch of fish, the amount so received, and any

cash remuneration described in section 3121(b)(20)(A).

     Petitioners argue that the Forms 1099-MISC do not require

boat owners to report the percentage of each fishing boat

worker’s share of the proceeds, thereby preventing the boat

owners from satisfying the requirements of section 6050A.

Petitioners misread section 6050A.     Although section 6050A(a)(2)

does require fishing boat owners to report the percentage of the

catch of fish if the worker receives a share of the actual fish,

all that section 6050A(a)(4) requires, if the fishing boat worker

receives a share of the proceeds from the catch, is that the

fishing boat owner report the amount of cash proceeds received by

the worker, not the percentage of the proceeds after sale of the

catch.   There is no provision under section 6050A that precludes
                                - 44 -

the fishing boat owner from subtracting operating expenses before

distributing the shares of proceeds.

     b.   Our Prior Opinion in Anderson v. Commissioner

     Petitioners were the petitioners in Anderson v.

Commissioner, T.C. Memo. 2003-112, a case that concerned the

collection of petitioners’ outstanding self-employment tax

liability for 1995 and income tax liabilities for 1996 through

1997 under section 6330.   The Court found the Appeals officer at

the section 6330 hearing did not abuse his discretion in refusing

to consider petitioners’ attempt to contest the underlying merits

of their 1995 self-employment tax liability.    The Court rejected

their argument that they were not liable for 1996 and 1997 income

tax because the fishing boat owners failed to withhold the tax.

The Court noted that section 3121(b)(20) does not obviate their

obligation to pay income tax.

     In their answering brief, petitioners argue that Anderson

“repudiates the requirements of section 6330” and “disavows the

statutory scheme for the collection of employee taxes” because

the Court did not find abuse of discretion in the Commissioner’s

refusal to consider the merits of their 1995 self-employment tax

liability.

     Petitioners’ argument is confusing and unpersuasive.

Suffice it to say:   the proper forum for review of our decision

in Anderson was the Court of Appeals;    petitioners’ 1995 tax year
                              - 45 -

is not properly before the Court in this case; petitioners’

argument is not relevant to determine petitioner’s self-

employment status at issue in this case because petitioners did

not file this case under section 6330 and respondent has not yet

sought to collect petitioners’ 1997 self-employment tax

liability.   We observe in conclusion, however, that nothing we

say or do in the case at hand has any negative impact on the

ultimate collectibility of the deficiency resulting from our

determination.

     To reflect the foregoing,


                                      Decision will be entered

                                 for respondent.
