Category: Individuals, Real Estate Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com I refer to your question as to the self employment taxability of income from the rental of self-service warehouses. I reviewed the regulations under Section 1402 and I note the example concerning a warehouse. I believe the context of the example is rental of living quarters and for that reason I think the example does not apply. In any event, there is a case directly on point, Hopper v. Comr., 94 TC 542, in which an attorney owned a general partnership interest in a self-service mini-warehouse that sounds exactly like the deal you described to me. The court found the loss from the partnership was not self-employment tax income under IRC Section 1402(a)(1) and regulation 1.1402(a)-4. The attorney argued that the warehouse example in the regulation you cited should apply. The court did not buy that argument. I have attached the text of the case. I suggest making sure its facts are congruent with your own. I refer now to our conversation regarding guaranteed payments from a partnership engaged in the activity in question. I am now clear why these amounts should be per se taxable as SE income. The reason is that guaranteed payments are for services rendered. It seems to me the underlying character of the trade or business, real estate rental, is not relevant to the determination of SE taxability of the guaranteed payment. See regulation Section 1.1402(a)-1(b) below. Gross income derived by an individual from a trade or business includes payments received by him from a partnership of which he is a member for services rendered to the partnership or for the use of capital by the partnership, to the extent the payments are determined without regard to the income of the partnership. However, such payments received from a partnership not engaged in a trade or business within the meaning of section 1402(c) and §1.1402(c)-1 do not constitute gross income derived by an individual from a trade or business. See section 707(c) and the regulations thereunder, relating to guaranteed payments to a member of a partnership for services or the use of capital. See also section 706(a) and the regulations thereunder, relating to the taxable year of the partner in which such guaranteed payments are to be included in computing taxable income. |
