McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 69

{Research} Terry Hutchison worked as a self-employed lawyer until two years ago when he retired.He used the cash method of accounting in his business for tax purposes.Five years ago, Terry represented his client ABC corporation in an antitrust lawsuit against XYZ corporation.During that year, Terry paid self-employment taxes on all of his income.ABC won the lawsuit but Terry and ABC could not agree on the amount of his earnings.Finally, this year, the issue got resolved and ABC paid Terry $90,000 for the services he provided five years ago.Terry plans to include the payment in his gross income but because he spends most of his time playing golf and absolutely no time working on legal matters, he does not intend to pay self-employment taxes on the income.Is Terry subject to self employment taxes on this income?