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Student’s First name Last name
Case Citation: Ryther v. Commissioner, TC Memo 2016-56.
Facts: Thomas Ryther faced legal action from the IRS for failing to pay tax due on the sale of
property in his possession after the dissolution of Knight Steel Company in April 1997. Several
years after the dissolution, Ryther began selling scrap metal that had accumulated in the holding
area during the ordinary transaction of business between Knight Steel and its regular customers.
Ryther did not file tax returns for the income amounting to excesses of $300,000 that he
generated from the sale of the scrap steel over the course seven years. The IRS commissioner
notified Ryther of his violation of the stipulation that imposes a tax on self employment income
thereby leading up to the court proceedings.
Issue: Should the defendant have filed the necessary tax returns for the income generated from
the sale of the scrap steel according to the stipulations of the Self-employment tax section?
Holding: The defendant was not liable to pay taxes on the income generated from disposing off
assets at an intermittent interval under the Self-employment section.
Rationale:
(1) Section 1401 imposes tax on self-employment income generated by any individuals. Section
1402 defines self-employment income as“the gross income derived by an individual from
any trade or business carried on by such individual.”
(2) Section 1402(a)(3)(C) exempts taxpayers who sell their property from categorization under
the parameters of self employment income barring the stipulations in Section
1402(a)(3)(C)(i) and Section 1402(a)(3)(C)(ii).
(3) The court utilized a multifactor list to categorize the earnings generated from the sale of
personal property. The results from the use of the multifactor list confirmed that the net
earnings generated by Ryther did not amount to self-employment income under Section
1402(a)(3)(C). Thus, Ryther was exempted from paying the self-employment tax.
