118 T.C. 354">*355 SWIFT, Judge: For 1994, respondent determined a deficiency in petitioner's Federal income tax and an accuracy-related penalty as follows:

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

After concessions, the remaining issue for decision is whether petitioner, a commodities dealer, is subject to self-employment tax on earnings from trading U.S. Treasury bond commodities futures contracts.

The facts of this case were submitted fully stipulated under Rule 122, and are so found.

At the time the petition was filed, petitioner resided in Winnetka, Illinois.

In years prior to 1994, petitioner was a2002 U.S. Tax Ct. LEXIS 51">*52 member of the Chicago Board of Trade (CBOT), and petitioner actively traded U.S. Treasury bond futures contracts for his own account on the trading floor of the CBOT.

In 1994, the Commodity Futures Trading Commission (CFTC) initiated an investigation of petitioner regarding alleged improper trading conduct, the specifics of which are not in the record. Petitioner remained a member of the CBOT. Because of the ongoing CFTC investigation, however, in 1994 while the investigation was pending, petitioner chose to conduct his trades through a floor broker rather than conduct his trades directly on the trading floor of the CBOT.

In 1994, petitioner realized a total of $ 1,541,926 in net gains relating to his trading in commodities futures contracts through the broker, and petitioner paid more than $ 89,000 in commissions to the floor broker.

On November 21, 1994, as a result of the settlement with the CFTC of the above investigation, petitioner was allowed to 118 T.C. 354">*356 trade directly on the floor of the CBOT under the supervision of another trader.

On his timely filed 1994 Federal income tax return, petitioner treated the total $ 1,541,926 in net gains (that petitioner realized in 1994 relating2002 U.S. Tax Ct. LEXIS 51">*53 to his trading activity in commodities futures contracts through the broker) as capital gains and reported them on Schedule D, Capital Gains and Losses, of his income tax return. On his Schedule C, Profit or Loss from Business, of his income tax return, petitioner claimed $ 160,446 as ordinary and necessary business expenses relating to his commodity trading activity, and petitioner indicated that he was in the trade or business of a commodities dealer. The record does not indicate that the $ 89,000 in commission expenses paid to the floor broker was not included in the ordinary and necessary expenses claimed on petitioner's 1994 Federal income tax return.

In a notice of deficiency mailed to petitioner, respondent determined that the earnings relating to petitioner's trading in futures contracts were subject to self-employment tax.

Section 1401 imposes a tax on self-employment income from a taxpayer's trade or business. Generally, capital gains are excluded from self-employment income. See sec. 1402(a)(3)(A).

In 1984, however, Congress enacted section 1402(i) which provided that gains realized by commodities dealers in the ordinary course of trading in futures contracts2002 U.S. Tax Ct. LEXIS 51">*54 are subject to self-employment tax. Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 102(c), 98 Stat. 622.

Section 1402(i)(1) specifically states that

in determining the net earnings from self-employment of any options dealer or commodities dealer, there shall not be excluded any gain or loss (in the normal course of the taxpayer's activity of dealing in or trading section 1256 contracts) from section 1256 contracts or property related to such contracts. [Emphasis added.]