TAX COURT OPINION

Case: Kevin A. Clark, Jr.
Docket Number: 4131-15
Judge: Gustafson
Opinion Type: bench
Filed: 05/12/2016
Pages: 5

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 KEVIN A. CLARK, JR., Petitioner, v. ) ) ) ) Docket No. 4131-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceeding at Washington, D.C., on May 3, 2016, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before the undersigned judge at Washington, D.C., containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. May 12, 2016 SERVED May 12 2016 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Bench Opinion by Judge David Gustafson May 3, 2016 Kevin A. Clark, Jr. v. Commissioner Docket No. 4131-15 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (26 U.S.C.), and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a notice of deficiency dated November 17, 2014 (Ex. 1-J) , the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioner Kevin A. Clark, Jr., for the year 2012. The issue for us to decide is whether income- that Mr. 17 Clark received and reported is subject to self- 18 19 20 21 22 23 24 25 employment tax. For the reasons explained below, we hold that it is. Trial of this case was conducted on May 2, 2016, in Washington, D.C. Mr. Clark represented himself; and respondent, the Commissioner of the IRS, was represented by Rachel L. Rollins. FINDINGS OF FACT In 2012 Mr. Clark worked six to eight hours a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 day, seven days a week, as a full-time video blogger. (Stip. 5) He maintained an Internet site on which he posted videos. (Stip. 4-5.) He entered into an agreement with Google, pursuant to which he allowed advertisements to appear on his blog site. In return, he was paid a total of $20,206.57 for the running of the ads by Google AdSense. The parties have stipulated that Mr. Clark "was paid for his videos through advertising revenue". (Stip. 6.) Google issued to Mr. Clark a Form 1099-MISC for 2012, on which it reported $20,206.57 as "non- employee compensation". Mr. Clark filed a tax return for 2012 (Ex. 2-J) on which he reported the Google payments as "other income" on line 21. He did not report them as self-employment income on Schedule C. The IRS examined Mr. Clarke's 2012 tax return, recharacterized the income as self-employment income, and issued a notice of deficiency (Ex. 1-J) on November 17, 2014, determining a liability for self- employment tax. Mr. Clark timely filed a petition in this Court on February 12, 2015. At the time that he filed his petition, Mr. Clark resided in Maryland. (Stip. 1.) I. Burden of proof OPINION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS 5 determined. See Rule 142(a). II. Self-employment income "Social security" taxes are paid partly by employees as withholding from their wages, see secs. 1301-1302, and partly by their employers, see sec. 3111. Those provisions do not reach self-employed individuals. Instead, section 1401 imposes a tax on self-employment income, which under section 1402 includes "the gross income derived by an individual from any trade or business carried on by such individual". To explain the term "trade or business", the U.S. Supreme Court has stated, "to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and * * * the taxpayer's primary purpose for engaging in the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 activity must be for income or profit." Commissioner 21 22 23 24 25 v. Groetzinger, 480 U.S. 23, 35 (1987). That is, a trade or business (as distinct from some other activity) involves (a) a profit motive and (b) a continuous and regular activity. III. Discussion 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 Mr. Clark's blogging activity was a "trade or business". He did it to make a profit (through the AdSense advertising arrangement), and his full-time pursuit of that activity by working six to eight hours a day, seven days a week, must be characterized as continuous and regular. Since the income was derived by him from that trade or business (see Stip. 6), it was self-employment income on which he owes self-employment tax. Mr. Clark contends in his petition that the income he received was "a type of royalty or commision [sic] from Google." Even if the payments are considered royalty payments, Mr. Clark would 14 still be liable for self-employment tax. Under section 1402, royalty payments received from a trade or business are subject to self-employment tax. See Jones v. Commissioner, T.C. Memo. 1998-354. We will therefore sustain the IRS's notice of deficiency. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:00 a.m., the above- entitled matter was concluded.) 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com