Issue: Does Terry have to pay self-employment taxes on the $90,000 of income?
Authorities: Reg. §1.1402(a)-1(c)
Walker, Floyd L. v. U.S., (2000, CA10) 85 AFTR 2d 2000-742, 202 F3d 1290.
Conclusion: Terry must pay self-employment taxes on the $90,000 earned while he was self- employed.
Analysis: Reg. §1.1402(a)-1(c) provides that gross income derived by an individual from a trade or business includes gross income received or accrued in the taxable year from a trade or business even though such income may be attributable in whole or in part to services rendered or other acts performed in a prior taxable year as to which the individual was not subject to the tax on self-employment income. In Walker, Floyd L. v. U.S., (2000, CA10) 85 AFTR 2d 2000-742, 202 F3d 1290 the court ruled that the regulation stated above applied, so cash-basis taxpayers were liable for taxes on contingency fee settlement in year received, even though...