T.C. Memo. 1998-144

UNITED STATES TAX COURT

DAVID CORDERO BASADA, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18467-96. Filed April 20, 1998.

David Cordero Basada, pro se.

Allan D. Hill, for respondent.

MEMORANDUM OPINION

PAJAK, Special Trial Judge: This case was heard pursuant to

section 7443A(b)(3) of the Code and Rules 180, 181, and 182. All

section references are to the Internal Revenue Code in effect for

the years in issue. All Rule references are to the Tax Court

Rules of Practice and Procedure. Respondent determined
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deficiencies in petitioner's 1993 and 1994 Federal income taxes

in the amounts of $1,090 and $1,339, respectively.

After a concession by respondent, the issues are: (1)

Whether petitioner is liable for self-employment taxes; and (2)

whether petitioner is entitled to a dependency exemption

deduction.

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

The stipulation of facts and attached exhibits are incorporated

herein by this reference. Petitioner resided in Oakland,

California, at the time the petition was filed. 

On his 1993 and 1994 Federal income tax returns, petitioner

reported income from "Wages, salaries, tips, etc." in the amounts

of $4,500 and $8,200, respectively. No Forms W-2 were attached

to his return for either year in issue. Petitioner listed his

occupation as "unemployed part-time salesman" on both returns.

Respondent determined that the $4,500 and $8,200 income

petitioner reported on his 1993 and 1994 returns, respectively,

constituted earnings from self-employment, and therefore

petitioner was liable for self-employment taxes. Further,

respondent allowed petitioner a deduction for one-half of the

self-employment taxes, and made computational adjustments to

petitioner's earned income credits. In his amended petition,

petitioner sought to claim a dependency exemption deduction for

his "eldest son", for both years in issue.
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Without detailing the source of income or the amount of time

he spent on each activity, petitioner explained that during the

years in issue he earned income from street hustling, pimping,

panhandling, and gambling. We group these activities as "streethustling".

Section 1401 imposes a tax on 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). Net earnings from self-employment means gross

income derived by an individual from any trade or business

carried on by such individual, less allowable deductions

attributable to such trade or business, plus certain items not

relevant here. Sec. 1402(a). The term trade or business for

purposes of the self-employment tax generally has the same

meaning it has for purposes of section 162. Sec. 1402(c). 

To be engaged in a trade or business within the meaning of

section 1402(a), an individual must be involved in an activity

with continuity and regularity, and the primary purpose for

engaging in the activity must be for income or profit. 

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). A sporadic

activity, a hobby, or an amusement diversion does not qualify. 

Commissioner v. Groetzinger, supra at 35. Whether an individual

is carrying on a trade or business requires an examination of the

facts involved in each case. Higgins v. Commissioner, 312 U.S.
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212, 217 (1941). These provisions are to be broadly construed to

favor treatment of income as earnings from self-employment. 

Hornaday v. Commissioner, 81 T.C. 830, 834 (1983). Respondent's

determination that petitioner is liable for self-employment taxes

under section 1401 is presumed correct, and petitioner bears the

burden to prove otherwise. Rule 142(a); Siebert v. Commissioner,

T.C. Memo. 1997-6.

Petitioner argues that because he claimed he was unemployed

during the years in issue, he is not subject to self-employment

taxes under section 1401. We disagree.

After a review of the record, we find that petitioner was

engaged in the trade or business of street-hustling during the

years in issue. Petitioner was engaged in street-hustling with

continuity and regularity, and with the primary objective of

earning an income or profit. Further, petitioner's activities

were regular, frequent, and substantial. They were not sporadic,

nor do we believe that they were a hobby or an amusement

diversion of petitioner. 

On this record, we are satisfied that the $4,500 and $8,200

petitioner reported on his 1993 and 1994 returns were derived

from petitioner's trade or business of street-hustling. Indeed,

petitioner admitted that, aside from the interest income reported

on his return for both years, his only source of income was from

street-hustling.
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We observe that there is no evidence in the record that

petitioner was employed by anyone but himself. Petitioner had no

Forms W-2 for either year in issue. We find that petitioner's

net earnings from self-employment exceeded $400 during each year

in issue. Accordingly, we hold that petitioner is subject to

self-employment taxes on his earnings during 1993 and 1994.

We sustain respondent's determination that petitioner's

liability for self-employment tax for 1994 is $1,159. Respondent

has conceded that petitioner's liability for self-employment tax

for 1993 should be reduced to $676. Petitioner will be entitled

to deduct one-half of his self-employment taxes under section

164(f).

In his amended petition, petitioner states that he is

entitled to a dependency exemption deduction for his eldest son

for both years in issue. Section 151(c) allows a taxpayer to

deduct an exemption amount for each dependent as defined in

section 152. As relevant in the instant case, a dependent is

generally defined as a son of the taxpayer over half of whose

support was received from the taxpayer in the calendar year in

which the taxpayer's taxable year begins. Sec. 152(a)(1). 

Because petitioner failed to prove that he provided more than

half of the support of his eldest son in 1993 or in 1994, we rule

for respondent on this issue.

To reflect the foregoing, 
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Decision will be entered

under Rule 155.