N.D. Admin. Code 75-02-04.1-05 : Department of Human Services —02 - Economic Assistance —02-04.1 - Child Support Guidelines —02-04.1-05 - Determination of net income from self-employment

1. Net income from self-employment means total income, for internal revenue service purposes, of the obligor:
a. Reduced by that amount, if any, of:
(1) That total income that is not the obligor's income or that is otherwise included in gross income; and
(2) With respect to a partnership or a small business corporation for which an election under 26 U.S.C. section 1362(a) is in effect and over which the obligor is not able to exercise direct or indirect control to a significant extent, that income of the partnership or small business corporation which is not available, and has not yet been distributed, to the obligor; and
b. Increased by that amount, if any, for:
(1) Business expenses attributable to the obligor or a member of the obligor's household for employee's or proprietor's benefits, pensions, and profit-sharing plans;
(2) Payments made from the obligor's self-employment activity to a member of the obligor's household, other than the obligor, to the extent the payment exceeds the fair market value of the service furnished by the household member; and
(3) With respect to a corporation that pays its own tax over which the obligor is able to exercise direct or indirect control to a significant extent, the taxable income of the corporation, less the corporation's federal income tax, multiplied by seventy percent of the obligor's ownership interest in the corporation.
2. "Member of the obligor's household" includes any individual who shares the obligor's home a substantial part of the time, without regard to whether that individual maintains another home.
3. If the tax returns are not available or do not reasonably reflect the income from self-employment, profit and loss statements which more accurately reflect the current status must be used.
4. Self-employment activities may experience significant changes in production and income over time. To the extent that information is reasonably available, the average of the most recent five years of each self-employment activity, if undertaken on a substantially similar scale, must be used to determine self-employment income. When self-employment activity has not been operated on a substantially similar scale for five years, a shorter period may be used.
5. When averaging self-employment income pursuant to subsection 4, no amount may be included in income for one year that was previously included in income for any other year during the period being averaged.
6. When less than three years were averaged under subsection 4, a loss resulting from the averaging may be used to reduce other income that is not related to the self-employment activity that produced the loss only if the loss is not related to a hobby activity and monthly gross income, reduced by one-twelfth of the average annual self-employment loss, equals or exceeds the greatest of:
a. A monthly amount equal to one hundred sixty-seven times the hourly federal minimum wage;
b. An amount equal to six-tenths of this state's statewide average earnings for persons with similar work history and occupational qualifications; or
c. An amount equal to eighty percent of the obligor's greatest average gross monthly earnings, calculated without using self-employment losses, in any twelve consecutive months included in the current calendar year and the previous calendar year before commencement of the proceeding before the court.
7. When three or more years were averaged under subsection 4, a loss resulting from the averaging may be used to reduce other income that is not related to the self-employment activity that produced the loss only if the loss is not related to a hobby activity, losses were calculated for no more than forty percent of the years averaged, and monthly gross income, reduced by one-twelfth of the average annual self-employment loss, equals or exceeds the greatest of:
a. A monthly amount equal to one hundred sixty-seven times the hourly federal minimum wage;
b. An amount equal to six-tenths of this state's statewide average earnings for persons with similar work history and occupational qualifications; or
c. An amount equal to ninety percent of the obligor's greatest average gross monthly earnings, calculated without using self-employment losses, in any twelve consecutive months included in the current calendar year and the previous calendar year before commencement of the proceeding before the court.
8. For purposes of subsections 6 and 7, an activity is presumed to be a hobby activity if the result from averaging is a loss. The presumption may be rebutted if the obligor shows that the activity is not done primarily for enjoyment purposes, is a vocation and not an avocation and, in the context of the child support obligation, there is a reasonable expectation that the children will receive long-term benefits.
9. Net income from self-employment is an example of gross income and is subject to the deductions from gross income set forth in subsection 6 of section 75-02-04.1-01, to the extent not already deducted when calculating net income from self-employment.

N.D. Admin Code 75-02-04.1-05

Effective February 1, 1991; amended effective January 1, 1995; August 1, 1999; August 1, 2003; October 1, 2008; July 1, 2011.
Amended by Administrative Rules Supplement 367, January 2018, effective 1/1/2018.

General Authority: NDCC 50-06-16, 50-09-25

Law Implemented: NDCC 14-09-09.7, 50-09-02(16); 42 USC 667