The Tax Court has once again concluded that net earnings from self-employment is not reduced by a net operating loss carried forward or carried back to the tax year at issue.

Joseph DeCrescenzo and the IRS both agreed that he earned $131,660 of self-employment income in 2006 (Joseph DeCrescenzo v. Commissioner, TC Memo 2012-51, Feb. 27, 2012). They also agreed that Joseph had a $51,065 net operating loss carryforward.

Joseph argued that the net operating loss should reduce his net earnings for self-employment and the corresponding self-employment tax. The IRS contended that Joseph owed $15,207 of self-employment tax since self-employment earnings may not be offset with a net operating loss carryforward.

The Tax Court agreed with the IRS. The Tax Court has repeatedly held that, while a net operating loss deduction can reduce taxable income and the resulting income tax liability, the deduction is not available to reduce the self-employment tax liability.

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