1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code in effect for 2005,

the taxable year in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

T.C. Summary Opinion 2009-45

UNITED STATES TAX COURT

DERROLYN STEELE AND TERRY STEELE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 29279-07S. Filed March 30, 2009.

Derrolyn Steele and Terry Steele, pro sese.

Angela B. Friedman, for respondent.

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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1 Pursuant to section

7463(b), the decision to be entered is not reviewable by any 
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2 Qualified foster care payments are excludable from gross

income pursuant to sec. 131(a). See also sec. 7491; Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933); Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947).

other court, and this opinion shall not be treated as precedent

for any other case.

Respondent determined a deficiency in petitioners’ Federal

income tax for the taxable year 2005 of $4,769. After

concessions, the central issue for decision is whether the

$16,974 received by petitioners from the State of Illinois to

care for their granddaughter is subject to self-employment tax

under section 1401. For the reasons discussed below, we hold

that it is not.

Background

At the time the petition was filed, petitioners resided in

the State of Illinois.

During the taxable year at issue, petitioners cared for

their young granddaughter. Petitioners received $16,974 from the

State of Illinois for providing that care. Petitioners do not

contend, and there is nothing in the record to suggest, that the

payments were qualified foster care payments.2

Because the record indicates only that petitioners were

caring for their granddaughter under a State-sponsored childcare

program, we take judicial notice of the fact that, in addition to

its Foster Care Program, the State of Illinois offers a Child
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3 We decide the disputed issue without regard to the burden

of proof. 

Care Assistance Program (CCAP) to low-income, working families to

provide them access to affordable childcare so they might

continue working or participating in eligible education programs. 

See http://www.dhs.state.il.us/page.aspx?item=30355; see also

Fed. R. Evid. 201. According to the mechanics of the program,

the State of Illinois makes payments directly to a childcare

provider chosen by the parents or legal guardian of the child. 

The childcare provider receives a Form 1099-MISC, Miscellaneous

Income, from the State of Illinois at the end of the year

reflecting the CCAP payments.

Both petitioners received Forms 1099 from the State of

Illinois for payments made during the year at issue, and the

income reflected therein is includable in petitioners’ gross

income. See sec. 61. As petitioners have conceded that they

received $16,974 in income from the State of Illinois in 2005 for

the care of their granddaughter, the only issue that remains is

whether that income is also subject to self-employment tax

pursuant to section 1401.

Discussion3

Section 1401 imposes a tax on the self-employment income of

individuals. Section 1402(a) provides that the income subject to

the self-employment tax is derived from a taxpayer’s
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4 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). 

participation in a “trade or business” carried on by the

taxpayer. Section 1402(c) explains that the term “trade or

business” in the self-employment context has the same meaning as

when used to apply the expense provisions of section 162. See

Bot v. Commissioner, 118 T.C. 138, 146 (2002), affd. 353 F.3d 595

(8th Cir. 2003); see also sec. 1.1402(c)-1, Income Tax Regs. 

“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.4

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987); Bot v.

Commissioner, supra at 146. Whether a taxpayer is engaged in a

trade or business is a question of fact. Higgins v.

Commissioner, 312 U.S. 212, 217 (1941).

There is no question that petitioners regularly provided

care for their granddaughter and that they were compensated for

doing so. But they were not carrying on a “trade or business”. 

As Groetzinger explains, “not every income-producing and profitmaking endeavor constitutes a trade or business.” 480 U.S. at

35. The “primary purpose for engaging in the activity must be

for income or profit.” Id. 
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5 Petitioners reported $78,557 in wages on line 7 of their

2005 Form 1040, U.S. Individual Income Tax Return.

Petitioners were providing care for their granddaughter

because their daughter was unable to do so; there has been no

allegation that they were running a daycare center and their

granddaughter was one of the children being cared for. The money

they received from caring for their granddaughter was not their

main source of income,5 nor did petitioners seek to deduct

expenses against the money they received from the State of

Illinois. Although the record is sparse, it is clear that

petitioners’ primary purpose in caring for their granddaughter

was not profit such that they were engaged in a “trade or

business”. Accordingly, petitioners are subject to income tax on

the amounts received from the State of Illinois, yet those

amounts are not subject to self-employment tax under section

1401.

Accordingly and to reflect the foregoing,

Decision will be entered

under Rule 155.