Minimizing self-employment tax: strategies to reduce the tax burden.

While politicians may argue about a 1% increase in the income tax rate or an increase in the gasoline tax, tax practitioners know that one of the more important factors in individual tax planning is the self-employment (SE) tax. Under Sec. 1402(a), income from a trade or business operated as a sole proprietorship or as a partnership is subject to the SE tax; however, income from investments or the distributive share of a limited partner or S shareholder is not. SE tax planning begins with identifying those activities and entities that are subject to the SE tax; based on the taxpayer's facts and circumstances, advisers can then suggest appropriate strategies to reduce SE tax. This article focuses on activities and entities that generate SE income and offers planning strategies to reduce the SE tax burden.

SE Income

For 1995, Sec. 1401(a) and (b) provide that the SE tax rate is 15.3%, comprised of the 12.4% old age, survivors and disability insurance (OASDI) tax and the 2.9% hospital insurance (HI) tax. Sec. 1402(b) defines SE income as the net earnings from SE derived by an individual (other than a nonresident alien(1)) during a tax year. Under Sec. 1401(a) and (b), the maximum income subject to SE tax is the excess of SE income, if any, over (1) the contribution and benefit base (as determined under Section 230 of the Social Security Act; for 1995, $61,200 for OASDI purposes and unlimited for HI purposes) minus (2) the wages received by the individual during the tax year.

Example: In 1995, X earns $100,000 in SE income and $50,000 in wages. The maximum amount of X's SE income subject to the 12.4% OASDI portion of SE tax is $11,200 ($61,200 - $50,000); the maximum amount of X's SE income subject to the 2.9% HI portion of the SE tax is total SE income, $100,000.

If net earnings from SE are less than $400, no SE tax is imposed. However, a taxpayer may be below the minimum for SE tax, but still be subject to the income tax. Alternatively, a taxpayer may have to file a return to pay SE tax, even though the filing requirement is not met for the income tax.

Regs. Sec. 1.1402(a)-2(a) provides that the method of accounting used by the taxpayer to compute SE income must be the same as that used to compute taxable income. Likewise, the tax year for the SE tax must agree with the year used to compute the income tax.

For a partner, SE income is deemed distributed on the last day of the partnership's tax year, the same as for income tax purposes. If the partner and partnership have different tax years, the partner must include in income his distributive share of partnership income or loss for any partnership year ending with or within his tax year. However, under Sec. 1402(f) and Regs. Sec. 1, 1402(f)-1, if the partner dies during the year, the partner's SE tax year is deemed to close as of the end of the month of death. Income from the partnership is assumed to accrue ratably throughout the year. Thus, if a calendar-year, unmarried partner in a calendar-year partnership dies during the year, a ratable portion of the partner's distributive share of the partnership's income through the end of the month of death would be reported that year for SE tax purposes.(2)

None of the distributive share would be reported as income in the partner's final income tax return.

Net Earnings From SE

See. 1402(a) defines "net earnings from self-employment" as: 1. 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 2. An individual's distributive share (whether or not distributed) of income or loss from any trade or business carried on by a partnership of which he is a member, and excluding 3. The items specified in Sec. 1402(a)(1)-(15) (the more significant provisions of which are discussed below(3)).

* Inclusions and exclusions

Rental income: Sec. 1402(a)(1) excludes from the SE tax computation rental income from real estate and from personal property leased with the real estate, along with attributable deductions, unless received by the taxpayer in the course of his trade or business as a real estate dealer.

However, Regs. Sec. 1.1402(a)-4(c)(2) provides that income from certain types of rentals (e.g., hotels) does not constitute rentals from real estate because services are rendered to the occupant. Such rental payments are included in SE income.

In Hopper,(4) the Tax Court held that an attorney could not offset income from his legal practice with losses from a self-storage business. The taxpayer argued that sufficient services were provided by the business to cause the payments not to be treated as rentals. The court held that the services primarily maintained the space in condition for occupancy, and were not substantial enough that the rent included a material payment for services. Thus, if a taxpayer who owns real estate wants to be subject to the SE tax, any services must be sufficiently material so that part of the rent is actually a payment for such services.

Revenue Reconciliation Act of 1993 (RRA) Section 13143 amended Sec. 469(c) such that real estate income and losses of taxpayers in a "real property trade or business" are not passive under certain conditions.(5) For tax years beginning in 1994, such taxpayers can generate losses that are deductible for income tax purposes, but cannot offset SE income. If income is generated, it will be subject to income tax, but not subject to SE tax. For a taxpayer not involved in a real property trade or business, Sec. 469(c)(7) offers no relief, so that a rental loss will be passive and cannot be used to reduce regular or SE income.(6) However, if rental income is generated, it will be passive income not subject to the SE tax. See Exhibit I on page 165.

A different set of problems arises if personal property is rented. In Stevenson,(7) the Tax Court held that income from the rental of portable advertising signs did not qualify for the Sec. 1402(a)(1) exclusion from the SE tax for income from the rental of real property or personal property leased with real property. The court held that the exception to the SE tax was to be construed narrowly, and found nothing in the legislative history to support the taxpayer's contention that rental income from personal property should be exempt.(8)

As interpreted in Stevenson, Sec. 1402(a)(1) causes inconsistent results. Income or loss from the rental of personal property will be considered as generated from a trade or business and includible or deductible in computing SE income.(9) For income tax purposes, this result is not as simple to obtain, nor are the rules as consistent with respect to income or loss incurred in renting personal property. This complexity relates to the passive loss rules (discussed below).

If the rental of the personal property satisfies one of the exceptions to the definition of rental activity in Temp. Regs. Sec. 1.469-1T(e)(3)(ii), it is not a rental activity, but a trade or business activity. However, depending on the taxpayer's participation in the trade or business, the income or loss may be active or passive.

If the taxpayer materially participates and a profit is produced, the taxpayer has active income and SE income; if there is a loss, the taxpayer has an active loss and an SE loss. If the taxpayer does not materially participate and a profit is produced, the taxpayer has passive income and SE income; if there is a loss, it is passive and can be deducted, for income tax and SE tax purposes, only to the extent of passive income.

If the rental of personal property does not satisfy one of the exceptions to the definition of rental activity, the activity is a rental activity under Sec. 149 (e.g., the long-term rental of advertising signs in Stevenson). If a profit is produced, the taxpayer has passive income and SE income; if there is a loss, the taxpayer has a passive loss that is deductible, for both income tax and SE tax purposes, only to the extent of passive income.

In summary, for taxpayers who rent personal property in a nonrental activity in which they do not materially participate, the income is passive, and it is subject to SE tax. If the rental property is real estate, the income is not subject to SE tax. For taxpayers who rent personal property in a rental activity, the rental income is subject to SE tax, and is passive income for income tax purposes.(10)

To achieve consistent treatment and simplification, it would be preferable for income from personal property rentals to be treated the same as income from real property rentals; an amendment to the SE tax law could broaden the exclusion of rental income to include rentals of personal property if such income is passive income under the passive loss provisions. This change would not assist a taxpayer in a situation similar to that in Stevenson, assuming material participation, but would assist such a taxpayer who does not materially participate. Dividend/interest income: Dividends on stock and interest on bonds, debentures, notes, certificates or other evidence of indebtedness, issued with interest coupons or in registered form by any corporation (including one issued by a government or political subdivision) are excluded from SE income by Sec. 1402(a)(2). An exception applies to dividends and interest received in the course of a trade or business as a dealer in stock or securities. All other types of interest received in the normal course of any trade or business (e.g., interest on accounts receivable and interest on loans by a moneylender) are SE income. Under Regs. Sec. 1.1402(a)-5, however, interest received on a loan made solely for investment purposes or not made in the ordinary course of business is excluded from SE income.(11) Neither the regulations nor the Instructions to Schedule SE address the treatment of interest income on a money market account. Since money market funds invest in corporate notes, certificates and other evidences of corporate indebtedness, a strong argument can be made for exclusion from SE income of money market interest by nondealers. Gains and losses from the disposition of property: Under Sec. 1402(a)(3) and Regs. Sec. 1.1402(a)-6, SE income does not include any gain or loss: 1. From the sale or exchange of a capital asset. 2. From the cutting of timber or disposal of timber, coal or iron ore if Sec. 631 applies. 3. From the sale, exchange, involuntary conversion or "other disposition" of property that is not inventory.

Gains and losses from the sale or exchange of capital assets are excluded from SE income. However, gains and losses from dispositions that are not sales or exchanges (e.g., abandonments) are included in SE income if incurred in a trade or business. Further, Sec. 1231 gains and losses are excluded from SE income because the assets are not inventory, even though the character of the gain or loss may be ordinary. This rule also applies to depreciation recapture under Secs. 1245 and 1250. Finally, Regs. Sec. 1.1402(a)-6(a) indicates that "other disposition" includes the destruction or loss, in whole or in part, of property by fire, storm, shipwreck or other casualty, or by theft. Thus, taxpayers who experience a casualty loss of trade or business property other than inventory cannot take a deduction for SE tax purposes, even though they can for income tax purposes.(12) Distributive share of limited partner: Sec. 1402(a)(13) excludes from SE net earnings the distributive share of a limited partner, other than guaranteed payments representing remuneration for services rendered to the partnership. Under this provision, a limited partner could receive a guaranteed payment for capital invested that would be excluded from SE income. If the partner is both a general and a limited partner, the exclusion applies only to the distributive share of the limited partnership interest.

* Trade or business

Sec. 1402(c) provides that "trade or business" in the SE context has the same meaning as when used in Sec. 162 (relating to trade or business expenses), with six exceptions.(13) Thus, income from an illegal activity (e.g., loansharking) is subject to the SE tax, just as such income is subject to the income tax.(14)

The Supreme Court has held(15) that the determination of whether a taxpayer is engaged in a trade or business hinges on the facts and circumstances. The primary purpose of the activity must be to make a profit and the taxpayer must be involved in the activity with continuity and regularity. The profit derived from the activity is not relevant in determining whether the activity is a trade or business, nor is the time spent in the activity. An important consideration is whether the activity is conducted on a regular basis.(16) A taxpayer can be a full-time employee and have a part-time trade or business.(17) In addition, fee income received by directors and former employees retained as consultants is included in SE income.(18)

Income from a trade or business (as defined in Sec. 162) is included in SE income; thus, if a taxpayer conducts an activity as an investment rather than as a trade or business, income or loss should be excluded from SE income. However, consistency would require that the Sec. 163(d) investment interest limitation would apply and that related deductions would be subject to Sec. 67's 2% floor on itemized deductions.

Regs. Sec. 1.1402(a)-2(c) provides that if an individual is engaged in more than one trade or business, net SE earnings consist of the aggregate net earnings from all such trades or businesses. Therefore, for SE tax purposes, a loss from one trade or business will offset income earned in another trade or business.

Choice of Entity

* Sole proprietorship

Sec. 1402(a) provides that SE income includes income from a trade or business operated as a sole proprietorship. Thus, the income from a business operated as a sole proprietorship is subject to both regular income tax and SE tax, even if the proprietor does not participate in the activity (i.e., employees and agents perform all services).

* General partnership

Sec. 1402(a) provides that a general partner's distributive share of income or loss from a partnership is includible in SE income, as are guaranteed payments. Sec. 1402(a)(13) excludes a limited partner's distributive share (other than guaranteed payments made as remuneration for services).

Sec. 1402 does not specify a minimum level of involvement by the general partner in the partnership's trade or business for the distributive share to be included in SE income. Thus, a "silent" general partner would have SE income if the partnership were profitable, regardless of the level of involvement.(19) For a loss, the taxpayer would have to examine Sec. 469 before determining if the loss could offset other sources of SE income.

* LLC

Sec. 1402 does not address the application of the SE tax to members of limited liability companies (LLCs). However, for LLCs classified as partnerships for Federal tax purposes (including entities formed under foreign law), Prop. Regs. Sec. 1.1402(a)-18(a)(20) provides that, generally, an LLC member's net earnings from SE include his distributive share of income or loss from any trade or business engaged in by the LLC. An exception under Prop. Regs. Sec. 1.1402(a)-18(b) treats the LLC member as a limited partner if (1) the member is not a manager and (2) the entity could have been formed as a limited partnership rather than an LLC in the same jurisdiction and the member could have qualified as a limited partner in such partnership under applicable law. The distributive share of an LLC member treated as a limited partner would not be includible in SE income, except for guaranteed payments for services.

For purposes of the exception, Prop. Regs. Sec. 1.1402(a)-18(c)(3) defines a "manager" as a person who, alone or together with others, is vested with the continuing exclusive authority to make management decisions necessary to conduct the business for which the LLC was formed.

* S corporation

The distributive share of an S shareholder is not included in SE income, because it is omitted from the list of items subject to SE tax. This has led a number of taxpayers to embark on at least one questionable strategy to save SE taxes: the S shareholder-employee receives little or no salary from the corporation (thus escaping the 15.3% SE tax), but still receives a distribution from the corporation. The courts have concluded that such payments constitute wages subject to FICA and FUTA taxes.(21)

Section 7141 of the now-defunct Health Security Act of 1993(22) would have amended the Code to subject 80% of the distributive share of 2% S shareholders who materially participate in certain service-related businesses (e.g., health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial and brokerage services, and any other trade or business in which the principal asset is the reputation or skill of one or more of its employees) to SE tax.

SE Planning

Taxpayers and their advisers need to consider a number of variables when analyzing the SE tax implications of a business or investment opportunity. In many instances, the alternatives have little or no effect on the taxpayer's Federal income tax liability, but can affect the SE tax burden. One SE tax minimization strategy involves creating income not subject to the SE tax, which can be achieved by carefully choosing the type of activity or entity that generates the income.

* Activity planning

Activity planning involves dividing trade or business income into two or more components: trade or business (i.e., SE) income, and non-SE income. An example would be a loan of funds to the activity rather than an investment of funds in the activity - the interest expense reduces the SE income generated from the activity, and the interest income is not SE income.

Another example involves real estate - if real estate is rented to the activity, the activity has a rental expense deduction, which reduces its SE income, while the taxpayer has income from an activity that is exempt from the SE tax. However, if the property to be rented is personalty, the taxpayer is unlikely to achieve SE tax savings from renting the property to the activity.

Finally, it may be possible for the taxpayer to conduct the activity as an investment, rather than a trade or business. This would result in all of the income from the activity being exempt from SE tax.

* Entity planning

Entity planning involves choosing or investing in an entity in a way that does not generate SE income. If the taxpayer has no associates, the choices are a sole proprietorship or an S corporation. Income from a sole proprietorship is included in SE income, while the distributive share of an S shareholder is excluded.

If the taxpayer has associates, the choices are general partnership, limited partnership, LLC or S corporation. If the taxpayer is a general partner or a member of an LLC, the distributive share is included in SE income. One potential solution would be to have an S corporation act as the sole general partner of a limited partnership. The S shareholder's distributive share will be exempt from SE tax. If the taxpayer were a limited partner, the taxpayer's distributive share would not be subject to the SE tax. See Exhibit II, above, for a comparison of SE tax effects on different types of entities.

After reviewing these basic strategies, the next step is to combine activity and entity planning in the same business opportunity. Loaning of funds and/or rental of real estate may be combined with the use of limited partnerships and/or S corporations to reduce the SE tax burden. The planning options are virtually endless, limited only by professional judgment and the transaction costs involved in implementing the options compared to the SE tax savings.

Conclusion

The SE tax is a major issue confronting individual taxpayers, especially since the cap on the 2.9% HI portion of the SE tax has been removed. Planning consists of dealing with two separate, yet intertwined, issues.

First, income from trade or business activities is included in SE income@ at the same time, income from investment activities is excluded. Thus, individual taxpayers can choose to generate income that will be includible or excludible from SE income, depending on how the activity is conducted. Tax professionals need to be able to plan accordingly.

Second, if the activity is to be a trade or business, scrutiny of entity choices can lead to SE tax savings. The distributive share of a limited partner (other than a guaranteed payment for services) or an S shareholder is excluded from SE income. Income from a sole proprietorship or the distributive share of a general partner or LLC member is includible in SE income. Exhibit III, on page 169, compares Federal tax burdens (income tax and SE tax) of alternative entities under a common set of facts, and demonstrates that limited partner or S shareholder status can reduce a taxpayer's SE tax burden.

Exhibit I. Treatment of Rental and Nonrental Income/Loss
           for Purposes of Secs. 469 and 1401(*)

Income source                    Passive (Sec. 469)   SE (Sec. 1401)

Real estate

Real property trade or business(**):
Profit                                Active         Rental-excluded
Loss                                  Active         Rental-excluded

No real property trade or business:
Profit                                Passive        Rental-excluded
Loss                                  Passive        Rental-excluded

Personal property,
  nonrental activity

Materially participate:
Profit                                Active         SE income
Loss                                  Active         SE loss

Nonmaterially participate:
Profit                                Passive        SE income
Loss                                  Passive        Deductible only
                                                      to
                                                      the extent of
                                                      passive
                                                      income

Personal property, rental activity

Profit                                Passive        SE income
Loss                                  Passive        Deductible only
                                                      to the extent
                                                      of passive
                                                      income

(*) The priority of Sec. 469 over Sec. 1401 is addressed in Temp. Regs. Sec.
1.469-1T(d)(3). (**) Under RRA Section 13143, effective for tax years
beginning in 1994.

Exhibit II: SE Tax Treatment of Alternative Entities

Entity                        Status of distributive share

Proprietorship                Included in SE income if
                              proprietorship
                              engages in a trade or
                              business

General partnership           Included in SE income if partnership
                              engages in a trade or
                              business

Limited partnership:
* General partner             Included in SE income if partnership
                              engages in a trade or
                              business

* Limited partner             Excluded from SE income,
                              except for guaranteed payments
                              for services

Limited liability company     Included in SE income if LLC is
                              a partnership for Federal tax
                              purposes and engages in a trade
                              or business, unless the exception
                              applies(*)

S corporation                 Excluded from SE income

(*) See Prop. Regs. Sec. 1.1402(a)-18(b).

Exhibit III: How Choice of Entity Can Lead to SE Tax Savings

Facts: Taxpayer J has been approached by her brother, L, regarding an opportunity to acquire arcade amusement machines. Unless otherwise stated, in each scenario, J will not be active in running the business, J's net income from the activity is $30,000, J has no other source of SE income, and her marginal income tax rate is 31%. Assuming all other facts are the same regardless of entity choice, the SE tax implications are as follows:

* Sole proprietorship: J acquires the machines and hires L to operate the arcade. J's income or loss from the activity is SE income; L receives wage income.

* Individual investment: J lends L the funds to acquire the machines. As J is not in the trade or business of making loans, the $30,000 interest income she receives is excluded from SE income. L, operating as a sole proprietor, has SE income.

* General partnership #1: J and L form a partnership; J contributes funds and L runs the business. J receives a guaranteed payment for her invested capital and L receives a guaranteed payment for his services. J's distributive share, including the guaranteed payment, is SE income. L has SE income from his distributive share, which includes the guaranteed payment.

* General partnership #2: J and L form a partnership. J loans the partnership the bulk of the funds, rather than investing them. L runs the business and receives a guaranteed payment for his services. J receives a $12,000 distributive share that is SE income; however, the $18,000 interest income she receives is excluded from SE income. L has SE income from his distributive share, which includes the guaranteed payment.

* Limited partnership: J contributes funds in return for a limited partnership interest and a guaranteed payment for her invested capital. L acts as the general partner, runs the business and receives a guaranteed payment for his services. As a limited partner receiving a guaranteed payment for capital, not services, J's distributive share is excluded from SE income. L has SE income from his distributive share.

* LLC #1: J and L form an LLC that is a partnership for Federal tax purposes; J receives a $12,000 distributive share and an $18,000 guaranteed payment for invested capital, while L runs the business and receives a guaranteed payment for his services. If the exception in Prop. Regs. Sec. 1.1402(a)-18(b) is met, J is treated as a limited partner; both her distributive share and the guaranteed payment for capital invested are excluded from SE income; L's distributive share is SE income.

* LLC #2: J and L form an LLC that is a partnership for Federal tax purposes; J receives a $12,000 distributive share and an $18,000 guaranteed payment for invested capital, while L runs the business and receives a guaranteed payment for his services. If the exception in Prop. Regs. Sec. 1.1402(a)-18(b) is not met, J's distributive share is included in SE income, but the guaranteed payment for capital invested is excluded; L's distributive share is SE income.

* S corporation #1: J forms an S corporation to acquire the machines. The corporation hires L to run the business. J's distributive share is excluded from SE income. L receives wage income.

* S corporation #2: J and L form an S corporation, with J contributing the bulk of the funds. The corporation hires L and pays him reasonable compensation. J's distributive share from the S corporation is excluded from SE income. L's compensation is wage income; his distributive share is excluded from SE income.

[TABULAR DATA OMITTED]

For L, the impact varies with the tax rate of the payor of the employment taxes. Planning options for L are limited.

(2) See Regs. Sec. 1.1402(f)-1(f)-1(a)(4), Example (1). The income may be reported for income tax purposes if the deceased partner is married and either (1) the spouse directly succeeds to the partnership interest or (2) the estate distributes the partnership interest to the spouse before the end of the tax year. In either case, the full@ year's distributive share would be reported in the joint income tax return filed by the spouse and the deceased partner. For unmarried taxpayers, the disparity will always exist. (3) The following topics are beyond the scope of this article: farming income, foreign-source income and SE tax implications for statutory employees, ministers and religious employees. For a discussion of the SE tax And farmers, see Campbell, "Calculating and Reducing the Self-Employment Tax for Farmers," 71 TAXES 54 (Jan. 1993). (4) Roger G. Hopper, 94 TC 542 (1990). See William A. Norris, TC Memo 1991-648 (loss situation involving purchases, sales and rentals of houses). (5) Under Sec. 469(c)(7), a taxpayer engages in a real property trade or business if he (1) performs more than one-half of his personal services during the tax year in real property trades or businesses in which he materially participates and (2) performs more than 750 hours of services during the tax year in real property trades or businesses in which he materially participates. (6) See Temp. Regs. Sec. 1.469-1T(d)(3). (7) Carl Stevenson, TC Memo 1989-357. (8) See Tax Clinic, "When Is a Rental Not a Rental?," 24 The Tax Adviser 498 (Aug. 1993). (9) The analysis assumes that the taxpayer directly owns the property in question. If the property is owned in a different fashion (e. g., a limited partnership), a different result may occur. (10) In 1993, for the first time, Form 1040, Schedule E included a note at the top to "Report income and expenses from your business of renting personal property on Schedule C or C-EZ ...." Apparently, the Service believed that it needed to emphasize the different treatment accorded income from rental of realty and personalty. (11) Rev. Rul. 58-195, 1958-1 CB 329. (12) See the example at Regs. Sec. 1.1402(a)-6(b). (13) Generally, the following are not performed in a trade or business for SE tax purposes: * The functions of a public office (Sec. 1402(c)(1); Regs. Sec. 1.1402(c)-2(a)(1)). * Performance as an employee (Sec. 1402(c)(2) and (d); Regs. Sec. 1.1402(c)-3(a)). For this purpose, "employee" has the same meaning as is used for FICA purposes; see Sec. 3121(d). The cases and IRS rulings have yielded a list of 20 factors that the Service uses to determine whether an employer/employee relationship exists; see Rev. Rul. 87-41, 1987-1 CB 296. * Performance as an employee covered by the railroad retirement system (Sec. 1402(c)(3); Regs. Sec. 1. 1.1402(c)-4). * Performance as a minister or member of a religious order (Sec. 1402(c)(4); Regs. Sec. 1.1402(c)-5(a)(1)). * Christian Science practitioners (Sec. 1402(c)(5); Regs. Sec. * Members of religious groups opposed to insurance (Sec. 1402(c)(6); Regs. Sec. 1.1402(c)-7). (14) Frank Signorile, TC Memo 1986-565. (15) Robert P. Groetzinger, 480 US 23 (1987)(59 AFTR2d 87-532, 87-1 USTC [paragraph] 9191), citing Eugene Higgins, 312 US 212 (1941)(25 AFRR 1160, 41-1 USTC [paragraph] 9233), as the basis for the facts and circumstances test. (16) Rev. Rul. 91-19, 1991-1 CB 186 ("regular" can include a temporary period of unemployment). See also Rev. Rul. 58-5, 1958-1 CB 322 (taxpayer who served as fiduciary of the estates of friends and relatives was not in a trade or business, unless (1) there was a trade or business in the assets of the estate, (2) the fiduciary actively participated in the, trade pr business and (3) the fiduciary's fees were related to the operation of the trade or business). (17) Rev. Rul. 58-195, note 11. (18) Rev. Ruls. 72-86, 1972-1 CB 273 (corporate director fees constitute income from a trade or business); 80-87, 1980-1 CB 189 (honorary director fees attributable to prior services are subject to the SE tax); 82-210, 1982-2 CB 203 (retired employee subject to the SE tax on income from consulting services provided exclusively to his former employer). (19) In Ethyle Moorhead, TC Memo 1993-314, a 92-year-old woman in an oil and gas partnership was ruled to have SE income, as the partnership agreement required her to manage and operate her own interests. (20) EE-45-94 (12/28/94). See Rev. Proc. 95-10, IRB 1995-3 20, for the conditions under which the IRS will consider a ruling request that relates to the classification of a domestic or foreign LLC as a partnership for Federal tax purposes. (21) Joseph Radtke, S.C., 895 F2d 1196 (7th Cir. 1990)(65 AFTR2d 90-1155, 90-1 USTC [paragraph] 50,113); Spicer Accounting, Inc., 918 F2d 80 (th Cir. 1990)(66 AFTR2d 90-5806, 91-1 USTC [paragraph] 50,103). See also Rev. Rul. 74-44, 1974-1 CB 287. (22) HR 3600, 103d Cong., 1st Sess. (1993).