Example. R, a rancher, has gross income of $3,000 from the operation of his ranch, computed as provided in paragraph (d) of this section. His actual net earnings from selfemployment from farming activities are less than $900. R, nevertheless, may elect to report $900 as net earnings from self-employment from such trade or business. If R had actual net earnings from self-employment from his farming activities in the amount of $900 or more, he would be required to report such amount in computing his selfemployment income.

(3) Members of farm partnerships. The optional method provided by this paragraph for computing net earnings from self-employment is not available to a member of a partnership with respect to his distributive share of the income or loss from any trade or business carried on by any partnership of which he is a member.

(d) Computation of gross income. For purposes of this section gross income has the following meanings:

(1) In the case of any such trade or business in which the income is computed under a cash receipts and disbursements method, the gross receipts from such trade or business reduced by the cost or other basis of property which was purchased and sold in carrying on such trade or business, adjusted (after such reduction) in accordance with the provisions of paragraphs (1) through (6) and paragraph (8) of section 211(a) of the Act and §§ 404.1052 through 404.1060, 404.1063, and 404.1064 of these regulations.

(2) In the case of any such trade or business in which the income is computed under an accrual method, the gross income from such trade or business, adjusted in accordance with the provisions of paragraphs (1) through (6) and paragraph (8) of section 211(a) of the Act and §§ 404.1052 through 404.1060, 404.1063, and 404.1064 of these regulations.

(e) Two or more agricultural activities. If an individual (including a member of a partnership) derives gross income (as defined in paragraph (d) of this section) from more than one agricultural trade or business, such gross income (including his distributive share of the gross income of any partnership derived from any such trade or business) shall be deemed to have been derived from one trade or business. Thus, such an individual shall aggregate his gross income derived from each agricultural trade or business carried on by him

(which includes, under paragraph (b) of § 404.1050, any guaranteed payment, within the meaning of section 707 (c) of the Internal Revenue Code of 1954, received by him from a farm partnership of which he is a member) and his distributive share of partnership gross income (after such gross income has been reduced by any guaranteed payment within the meaning of section 707(c) of such code) derived from each farm partnership of which he is a member. Such gross income is the amount to be considered for purposes of the optional method provided in this section for computing net earnings from self-employment. If the aggregate gross income of an individual includes income derived from an agricultural trade or business carried on by him and a distributive share of partnership income derived from an agricultural trade or business carried on by a partnership of which he is a member, such aggregate gross income shall be treated as income derived from a single trade or business carried on by him, and such individual shall apply the optional method applicable to individuals set forth in this section for purposes of computing his net earnings from self-employment.

(f) Exercise of option. An individual shall, for each taxable year with respect to which he is eligible to use the optional method described in this section, decide as to whether his net earnings from selfemployment are to be computed in accordance with such method. If the individual elects the optional method for a taxable year, he shall signify such election by computing net earnings from self-employment under the optional method as set forth in Schedule F (Internal Revenue Service Form 1040) of the income tax return filed by the individual for such taxable year. If the optional method is not elected at the time of the filing of the return for a taxable year with respect to which the individual is eligible to elect such optional method, such method may be elected on an amended return filed with the Internal Revenue Service (or on a Form 2190, Change in Method of Computing Net Farm Earnings From SelfEmployment, filed with the Administration after the filing of a claim for social security benefits). If the optional method is elected on a return for a taxable year, the individual may revoke such election by filing an amended return with the Internal Revenue Service (or by filing a

Form 2190, Change in Method of Computing Net Farm Earnings From SelfEmployment, with the Administration). If the individual is deceased or unable to make an election, the person designated in section 6012(b) of the Internal Revenue Code of 1954 (relating to returns made by fiduciaries) may, within the period prescribed in this section elect the optional method for any taxable year with respect to which the individual is eligible to use the optional method and revoke an election previously made by or for the individual.

[34 F.R. 67, Jan. 3, 1969]

§ 404.1068 Self-employment income.

(a) In general. Except for the exclusions in paragraphs (b) and (c) of this section and the exception in paragraph (d) of this section, the term "self-employment income" means the net earnings from self-employment derived by an individual during a taxable year.

(b) Maximum self-employment income. (1) The maximum self-employment income of an individual for any taxable year (whether a period of 12 months or less) is $6,600, except that the maximum self-employment income for any taxable year ending after 1958 and before 1966 is $4,800, the maximum selfemployment income for any taxable year ending after 1954 and before 1959 is $4,200, and the maximum self-employment income for any taxable year ending before 1955 is $3,600. If an individual is paid wages as defined in section 209 of the Act and § 404.1030, the maximum self-employment income is the excess of $6,600 ($4,800 for a taxable year ending after 1958 and before 1966, $4,200 for a taxable year ending after 1954 and before 1959, and $3,600 for a taxable year ending before 1955) over the amount of such wages. For example, if during a taxable year ending in 1966 no such wages are paid and the individual has $7,000 net earnings from self-employment, he has $6,600 of self-employment income for such taxable year. If, in addition to having $7,000 of net earnings from selfemployment, such individual is paid $1,000 of such wages, he has only $5,600 of self-employment income for the taxable year.

(2) For the purpose of the limitation described in subparagraph (1) of this paragraph, the term "wages" includes such remuneration paid to an employee for services covered by:

(i) An agreement entered into pursuant to section 218 of the Act, which section provides for extension of the Federal old-age, survivors, and disability insurance system to State and local government employees under voluntary agreements between the States and the Secretary of Health, Education, and Welfare; or

(ii) An agreement entered into pursuant to the provisions of section 3121(1) of the Internal Revenue Code of 1954, relating to coverage of citizens of the United States who are employees of foreign subsidiaries of domestic corporations, as would be wages under section 209 of the Act if such services constituted employment under section 210(a) of the Act. For an explanation of the term "wages," see §§ 404.1026 and 404.1027.

(c) Minimum net earnings from selfemployment. Self-employment income does not include the net earnings from self-employment of an individual when the amount of such earnings for the taxable year is less than $400. Thus, an individual having only $300 of net earnings from self-employment for the taxable year would not have any selfemployment income. However, an individual having net earnings from selfemployment of $400 or more for the taxable year may have less than $400 of self-employment income. This could occur in a case in which the amount of the individual's net earnings from self-employment is $400 or more for a taxable year ending after 1965 and the amount of such net earnings from selfemployment plus the amount of the wages received by the individual during that taxable year exceed $6,600 ($4,800 for taxable years ending after 1958 and before 1966; $4,200 for taxable years ending after 1954 and before 1959; or $3,600 for taxable years ending before 1955). For example, if an individual has net earnings from self-employment of $1,000 for 1966 and also receives wages of $6,300 during that taxable year, his self-employment income for that taxable year is $300.

(d) Nonresident aliens. A nonresident alien individual never has self-employment income. While a nonresident alien individual who derives income from a trade or business carried on within the United States, Puerto Rico, the Virgin İslands, Guam, or American Samos (whether by agents or employees, or by a partnership of which he is a member) may be subject to the applicable income

tax provisions on such income, any net earnings which he may have from selfemployment do not constitute self-employment income within the meaning of section 211(b) of the Act. For the purpose of such section, an individual who is not a citizen of the United States but who is a resident of the Commonwealth of Puerto Rico, the Virgin Islands, or, for taxable years beginning after 1960, of Guam or American Samoa is not considered to be a nonresident alien individual. (See §§ 404.1059 and 404.1063 relating to self-employment income in the Commonwealth of Puerto Rico and possessions of the United States, respectively.)

[34 F.R. 69, Jan. 3, 1969]

§ 404.1070 Trade or business.

(a) General. In order for an individual to have net earnings from selfemployment, he must carry on a trade or business within the meaning of section 211(c) of the Act, either as an individual or as a member of a partnership. Except as provided in this section, the term "trade or business" shall have the same meaning as when used in section 162 of the Internal Revenue Code of 1954. An individual engaged in one of the excluded activities specified in this section may also carry on other activities which constitute a trade or business. Whether or not such activities constitute a separate trade or business depends upon all the facts and circumstances in the particular

case.

(b) Crew leaders. An individual who is a crew leader, as defined in section 210(n) of the Act (designated section 210(o) prior to Sept. 13, 1960), and § 404.1005a, is considered to be carrying on a trade or business with respect to services performed by him after 1956 in furnishing individuals to perform agricultural labor for another person or services performed by him after 1956 as a member of the crew.

(c) Employees who may be considered self-employed (1) General. For the purpose of computing self-employment income with respect to employees who are deemed to be self-employed, the term "employee" and the term "wages" shall have the same meaning as when used in sections 210 and 209 of the Act, respectively. For explanations of these terms, see §§ 404.1004 and 404.1026. Generally, the performance of services by an individual as an employee, as defined in section 210(j) of the Act (designated section

210(k) prior to Sept. 13, 1960), does not constitute a trade or business within the meaning of section 211(c) of the Act. However, in the four cases set forth in subparagraphs (2), (3), and (4) of this paragraph and paragraph (e) of this section, the performance of service by an individual is considered to constitute a trade or business within the meaning of section 211(c) of the Act and § 404.1070. (As to when an individual is an employee, see sections 210 (j) and (n) of the Act (designated sections 210 (k) and (0) prior to Sept. 13, 1960), and §§ 404.1004 and 404.1005a.)

(2) Newspaper vendors. The performance of service by an individual who has attained the age of 18 constitutes a trade or business within the meaning of section 211(c) of the Act if performed in, and at the time of, the sale of newspapers or magazines to ultimate consumers, under an arrangement under which the newspapers or magazines are to be sold by him at a fixed price, his compensation being based on the retention of the excess of such price over the amount at which the newspapers or magazines are charged to him, whether or not he is guaranteed a minimum amount of compensation for such service, or is entitled to be credited with the unsold newspapers or magazines turned back.

(3) Sharecroppers. For taxable years ending after 1954, the performance of service by an individual under an arrangement with the owner or tenant of land is deemed to constitute a trade or business if pursuant to such arrangement:

(i) Such individual undertakes to produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land; and

(ii) The agricultural or horticultural commodities produced by such individual, or the proceeds therefrom, are to be divided between such individual and such owner or tenant; and

(iii) The amount of such individual's share depends on the amount of the agricultural or horticultural commodities produced.

(4) Employees of foreign government, instrumentality wholly owned by foreign government, or international organization. The performance of service in a taxable year ending on or after December 31, 1960, in the United States, as defined in section 210(i) of the Act and § 404.2 (c) (6) (excluding service per

of Congress, a State representative, a county commissioner, a judge, a county or city attorney, a marshal, a sheriff, a register of deeds, or a notary public performs the functions of a public office.

(h) Individuals under railroad retirement system. The performance of service by an individual as an employee or employee representative as defined in section 3231 (b) and (c); respectively of the Internal Revenue Code of 1954, that is, an individual covered under the railroad retirement system, does not constitute a trade or business. [34 F.R. 70, Jan. 3, 1969]

§ 404.1080

Election of self-employment coverage; waiver certificate. (a) In general. Any individual who is: (1) A duly ordained, commissioned, or licensed minister of a church or a member of a religious order (other than a member of a religious order who has taken a vow of poverty as a member of such order) or

(2) A Christian Science practitioner may elect to have the Federal old-age, survivors, and disability insurance system established by title II of the Act extended to service performed by him in the exercise of his ministry or in the exercise of duties required by such order as defined in § 404.1015, or in the exercise of his profession as a Christian Science practitioner, as the case may be. Such an election shall be made by filing a certificate on U.S. Treasury Department Internal Revenue Service-Form 2031 (Waiver Certificate to Elect Social Security Coverage for Use by Ministers, Certain Members of Religious Orders, and Christian Science Practitioners) in the manner provided in paragraph (b) of this section and within the time specified in § 404.1081. If an individual to whom this section applies makes an election by filing such form, such individual shall, for each taxable year for which the election is effective (see § 404. 1082), be considered as carrying on a trade or business with respect to the performance of service to which this section applies.

(b) Waiver certificate. The certificate on Form 2031 shall be filed in triplicate with the District Director of Internal Revenue for the internal revenue district in which is located the legal residence or principal place of business of the individual who executes the certificate. If such individual has no legal residence or principal place of business in

any internal revenue district, the certificate shall be filed with the Director of International Operations, Internal Revenue Service, Washington, D.C. 20225, or at such other address as is designated in the instructions relating to the certificate. If an individual to whom paragraph (a) of this section applies submits to a District Director of Internal Revenue a dated and signed statement indicating that he desires to have the Federal old-age, survivors, and disability insurance system established by title II of the Social Security Act extended to his services, such statement will be treated as a waiver certificate, if filed within the time specified in § 404.1081, provided that without unnecessary delay such statement is supplemented by a properly executed Form 2031. The filing of an application for a social security account number or the filing of an income tax return showing an amount representing self-employment income or self-employment tax shall not be construed to constitute an election under this section.

[34 F.R. 71, Jan. 3, 1969]

§ 404.1081

Time limitation for filing waiver certificate.

(a) General rule. A waiver certificate on Form 2031 must be filed on or before the due date of the individual's income tax return, including any extension thereof (see sections 6072 and 6081 of the Internal Revenue Code of 1954), for his second taxable year ending after 1954 for which he has net earnings from self-employment (computed as prescribed in paragraph (d) of this section) of $400 or more, any part of which is derived from service to which § 404.1080 applies.

(b) Special rules. Where a waiver certificate is not filed within the time limit specified in paragraph (a) of this section, an otherwise valid waiver certificate filed thereafter will nevertheless be effective if it is filed within the following periods:

(1) August 31, 1957, and the due date (including any extension thereof) of the income tax return for the individual's second taxable year after 1956, or

(2) September 14, 1960, and the due date (including any extension thereof) of the individual's second taxable year ending after 1959, or

(3) October 14, 1964, and the due date (including any extension thereof) for the