Worker Classification: The Thin Line between Employees and Independent Contractors

Uncle Bill, Emu Farmer Imagine the following scenario—if you will. Your Uncle Bill operates a successful emu farm in southeastern Maine, so successful in fact that he finds himself unable to do the work on his own. (Uncle Bill no longer has your cousin Leroy to lean on, due to his most recent “run in” with the law involving a charge of driving a riding lawnmower while intoxicated, a frolic and detour which left the mayor’s lawn without his prize-winning tulips and the sheriff’s blind dog “Trooper” with a lingering paranoia of anyone whistling Lynyrd Skynyrd.) Bill placed an advertisement in the Biddeford Courier, seeking a motivated, young “associate,” who is quick on his or her feet, not scared easily by friend or fowl, and who has a reasonably good sense of humor. (Bill included the last bit in response to the sudden departure of his last farmhand, a college…

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Bell Capital Management Inc. v. Commissioner (T.C. Memo. 2021-74)

Bell Capital Management, Inc. v. Commissioner (T.C. Memo. 2021-74) On June 14, 2021, the Tax Court issued a Memorandum Opinion in the case of Bell Capital Management, Inc.v. Commissioner (T.C. Memo. 2021-74). The primary issues presented in Bell Capital Management, Inc. were whether (1) petitioner is collaterally estopped from denying that it was responsible for paying the employment taxes; (2) whether the IRS properly determined that Ron H. Bell should be legally classified as petitioner's employee for all tax periods in issue; (3) whether petitioner is liable for the employment taxes; (4) whether petitioner is liable for fraud penalties; and (5) whether the periods of limitations for assessing and collecting the employment taxes and penalties have expired. Background – Bad Mr. Bell When the petition was filed, the petitioner's principal place of business was in Georgia. The Tax Court took judicial notice of the facts found in Foxworthy, Inc. v.…

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Whistleblower 10084-16W v. Commissioner (T.C. Memo. 2021-73)

On June 9, 2021, the Tax Court issued a Memorandum Opinion in the case of Whistleblower 10084-16W v. Commissioner (T.C. Memo. 2021-73). The primary issue presented in Whistleblower 10084-16W was whether the IRS abused its discretion in denying petitioner's claim for a whistleblower award. Background In June 2010, the petitioner provided whistleblower information about the target taxpayer (target) to an attorney with respondent's Office of Chief Counsel and delivered the information by hand to an IRS special agent. The whistleblower information related to the target's amortization of customer lists and deferral of tax on approximately $500 million of income earned on money market deposit accounts (MMDA).  Three days later, the petitioner submitted a Form 211 (Application for Award for Original Information) to the IRS’s Whistleblower Office (WBO), asserting the amortization and MMDA issues. Four days after that, the WBO sent a letter to the petitioner acknowledging receipt of the claim…

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Landrau v. Commissioner (T.C. Memo. 2021-72)

On June 8, 2021, the Tax Court issued a Memorandum Opinion in the case of Landrau v. Commissioner (T.C. Memo. 2021-72). The primary issue presented in Landrau was whether the IRS correctly computed their allowable foreign tax credit for 2012. Background During 2014 petitioner-husband received wages of $74,680 for services performed in Puerto Rico for the U.S. Air Force. Petitioner-wife received a pension distribution of $10,380 and U.S. Social Security benefits of $14,698. The petitioners timely filed a joint Federal income tax return reporting the first two items of income as taxable but treating the Social Security benefits as nontaxable. They included with their return Form 1116, Foreign Tax Credit, reporting that they had paid income tax of $11,322 to Puerto Rico, of which they were bona fide residents during 2014. See IRC § 901(b)(2). Litigation ensued, and although the IRS timely filed its brief, the pro sese petitioners did…

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Lufkin v. Commissioner (T.C. Memo. 2021-71)

On June 8, 2021, the Tax Court issued a Memorandum Opinion in the case of Lufkin v. Commissioner (T.C. Memo. 2021-71). The primary issue presented in Lufkin was whether the pro se petitioner was liable for certain Form 941 liabilities. Background The IRS assessed the Form 941 liabilities, which arose in connection with the petitioner's law practice, for the periods at issue in December 1998 and June 1999, respectively. After the petitioner underwent multiple chapter 7 bankruptcy proceedings between 2000 and 2011, the IRS issued petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (CDP notice) in October 2014, in an effort to collect the Form 941 liabilities. In response to the CDP notice the petitioner timely submitted Form 12153 (Request for a Collection Due Process or Equivalent Hearing). The petitioner asserted that he was not liable for the Form 941 liabilities because…

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Verghese v. Commissioner (T.C. Memo. 2021-70)

On June 7, 2021, the Tax Court issued a Memorandum Opinion in the case of Verghese v. Commissioner (T.C. Memo. 2021-70). The primary issues presented in Verghese were (1) whether, under IRC § 6404(a) the petitioners are entitled to abatement on the basis of principles of fairness, and (2) whether under IRC § 6404(e) the IRS engaged in ministerial or managerial acts that constituted unreasonable delay for which the petitioners’ abatement request should be granted. Held: Not so much. Background The petitioners filed joint returns for tax years 1997 and 1998, on which they claimed charitable contribution deductions from their investments in the certain partnerships. As of June 30, 2000, the IRS had commenced civil audits of the returns of all three of the petitioners’ partnerships.  The petitioners did not file a cash bond, nor does it appear that they were informed that they could do so to stop the…

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Holliday v. Commissioner (T.C. Memo. 2021-69)

On June 7, 2021, the Tax Court issued a Memorandum Opinion in the case of Holliday v. Commissioner (T.C. Memo. 2021-69). The primary issue presented in Holliday was whether settlement proceeds petitioner received in 2014 constitute taxable income. Background Two lawsuits are central to this case. The first is petitioner's divorce proceeding, in which she was represented by J. Beverly and his law firm (divorce attorney and malpractice defendants, respectively). The second is petitioner's malpractice lawsuit against her divorce attorney, in which she was represented by Lance Kassab (malpractice attorney). In March 2010, the petitioner's former spouse filed for divorce. As part of the divorce proceedings, the petitioner and her divorce attorney participated in mediation. It resulted in petitioner's executing a mediated settlement agreement. Petitioner objected to the mediated settlement agreement, but her objections were not sustained by the divorce court. In April 2012, the divorce court entered the Agreed…

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