                       T.C. Memo. 2000-84



                     UNITED STATES TAX COURT



      MATTHEW W. NORWOOD & LINDA D. KRAMER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1332-99.                  Filed March 13, 2000.



     Matthew W. Norwood, pro se.

     Michael S. Hensley and Yvonne M. Peters, for respondent.



                       MEMORANDUM OPINION

     PAJAK, Special Trial Judge:    Respondent determined a

deficiency in petitioners' Federal income tax in the amount of

$7,606 for the taxable year 1995.   Unless otherwise indicated,

section references are to the Internal Revenue Code in effect for

the year in issue.
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      After a concession by petitioners, the only issue which

this Court must decide is whether petitioners are liable for

self-employment tax under section 1401 on a distribution received

from a partnership.

     Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in Coronado, California, at the

time they filed their petition.

     In 1995, petitioners both worked in sales.   Matthew Norwood

(petitioner) sold yachts.   Linda Kramer was employed by Lasorda

Staff Leasing, LLC and by Designed Administrative Resources Tech.

During 1995, petitioner was also a general partner of Gallant

Medical Supply (Gallant), a partnership.    Petitioner's percentage

of profit and loss sharing for Gallant was 50.95 percent.

Additionally, petitioner owned 50.95 percent of the capital of

Gallant.

     Petitioner started Gallant a number of years ago.    He had

worked at Gallant full time, but when the staff could operate the

business without him, petitioner stopped working there.    During

1995, petitioner spent approximately 41 hours on partnership

matters.    He conducted periodic walkthroughs of Gallant and was

consulted on major decisions of the firm.   In 1995, petitioner

received $71,194 as his distributive share of Gallant's income.

Petitioners correctly included the $71,194 distribution as

taxable income on Schedule E, Supplemental Income and Loss, of
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their 1995 Federal tax return.    Petitioners did not report or pay

any self-employment tax on this amount.

     In pertinent part, respondent determined that petitioner was

subject to self-employment tax of $7,928, which, after the

deduction for one-half of the self-employment tax under section

164(f), resulted in a net adjustment of $3,964.

     Section 1401 imposes a tax upon a taxpayer's self-employment

income.   Self-employment income includes the "net earnings from

self-employment" derived by an individual during the taxable

year.   Sec. 1402(b).   Section 1402(a) provides, subject to

exceptions, that "net earnings from self-employment" includes a

partner's distributive share of partnership trade or business

income.   One of the exceptions to the general rule provides that

a limited partner's share of partnership income is not subject to

self-employment tax.    Sec. 1402(a)(13).   Neither party contends

that any of the other exceptions would be relevant in this case.

     Petitioners argue that petitioner's interest in Gallant is

passive, and, therefore, any distributions from the partnership

should not be subject to self-employment tax.    Respondent

contends that the distribution from Gallant is subject to self-

employment tax regardless of whether petitioner's involvement is

passive or active, because petitioner is a general partner.

     We agree with respondent.    It is undisputed that

petitioner's interest in Gallant was a general partnership
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interest.    Accordingly, his distributive share of the

partnership's trade or business income is, subject to the

limitations of section 1402(b), subject to the taxes imposed by

section 1401 on self-employment income.       Cokes v. Commissioner,

91 T.C. 222, 229-230 (1988); Anderson v. Commissioner, T.C. Memo.

1992-130.    That petitioner spent a minimal amount of time engaged

in the operations of Gallant is irrelevant to this determination.

Cokes v. Commissioner, supra at 233; Anderson v. Commissioner,

supra.   The passive activity rules under section 469 have no

application in this case.    Petitioner's lack of participation in

or control over the operations of Gallant does not turn his

general partnership interest into a limited partnership interest.

A limited partnership must be created in the form prescribed by

State law.    Perry v. Commissioner, T.C. Memo. 1994-215; Johnson

v. Commissioner, T.C. Memo. 1990-461.

     Accordingly, we find for respondent on this issue.



                                        Decision will be entered

                                for respondent.
