Tuesday, August 14, 2007

Tax Attorney: Employee/subcontractor classification - the issues in the case discussed below are both legal and factual issues

All of the facts and circumstances indicated that the taxpayer's workers were employees and not independent contractors. The taxpayer was also not entitled relief under section 530 of the Revenue Act of 1978 (P.L. 95-600) because it treated all of the workers at issue as employees in the prior tax year. Finally, because the taxpayer continued to argue frivolous and groundless claims it was subject to a penalty under Code Sec. 6673.

Colorado Mufflers Unlimited, Inc. v. Commissioner, Dkt. No. 4083-04 , TC Memo. 2007-222, August 13, 2007.



[Code Secs. 3401 and 6673]


Misclassification of employee as independent contractor: Section 530 relief: Civil Penalties: Frivolous arguments. --

MEMORANDUM FINDINGS OF FACT AND OPINION



MARVEL, Judge: In a Notice of Determination of Worker Classification (notice of determination) under section 7436 respondent determined that nine workers were employees of petitioner during 2000 and 2001 and that petitioner was liable for Federal Insurance Contributions Act (FICA) taxes, income tax withholding, and Federal Unemployment Tax Act (FUTA) taxes, the section 6662 accuracy-related penalty, and the addition to tax under section 6651(a)(1) in the following amounts:





In his pretrial memorandum, respondent conceded that he has mistakenly applied both the section 6651(a)(1) addition to tax and the section 6662 accuracy-related penalty

Issues: whether the workers were employees of petitioner and (2) whether petitioner is entitled to relief under the Revenue Act of 1978, Pub. L. 95-600, sec. 530, 92 Stat. 2885, as amended (act section 530).





FINDINGS OF FACT


The deemed admissions establish the following:



! The nine workers listed in the notice of determination worked at petitioner's business location during the years in issue.



! Petitioner hired, supervised, and paid the workers for their services.



! Petitioner dictated when, where, and how the workers performed their services, and petitioner set their work hours.



! Petitioner controlled the amount of time each worker spent performing services.



! Each worker was employed full time by petitioner and was restricted from working for another employer.



! The workers provided services on petitioner's premises and used petitioner's tools, materials, and equipment.



! The success or continuation of petitioner's business depended upon the performance of the nine workers' services. ! The workers were regularly paid by the hour, week, or month; they were not paid by job or on commission, nor did they realize a profit or loss as a result of their services.



! Both petitioner and the workers had the right to terminate the relationship.



! Petitioner and the workers believed themselves to be entering into an employment relationship. They represented to others that an employment relationship existed.



We issued a notice setting case for trial to petitioner. The notice advised petitioner that a trial would be held during the Denver, Colorado, trial session of this Court beginning on April 17, 2006. Included with the notice was our standing pretrial order, which set forth in considerable detail the requirements imposed on each party for adequate trial preparation. Petitioner did not comply with the standing pretrial order in that petitioner did not cooperate with respondent in pretrial preparation, and petitioner did not exchange trial exhibits with respondent. Moreover, petitioner did not produce information and documents in response to respondent's discovery requests. However, petitioner did file a pretrial memorandum that was filled with arguments that can fairly be characterized as frivolous and groundless.





OPINION




I. Relief From Deemed Admissions


Generally, a fact that is deemed admitted under Rule 90 is conclusively established. Rule 90(f); see also Sarchapone v. Commissioner, T.C. Memo. 1983-446. Rule 90(f) provides, however, that the Court, on motion, may permit an admission to be withdrawn or modified if (1) the withdrawal or modification would subserve the presentation of the merits of the case, and (2) if the party obtaining the admission (respondent in this case) fails to satisfy the Court that the withdrawal or modification will prejudice him in prosecuting his case or defense on the merits. Petitioner did not move for relief from the deemed admissions at any time before or during trial. Petitioner requested relief from the deemed admissions for the first time in its posttrial brief.



Petitioner's agent, Dolores Rudd, who testified for petitioner at trial, attempted to explain petitioner's failure to file a timely response. The explanation was conclusory and unconvincing and did not establish the elements for relief required by Rule 90. Because we find that respondent reasonably relied upon the deemed admissions and that withdrawal of the deemed admissions would not foster presentation of the merits and would unfairly prejudice respondent, we shall deny petitioner's belated request for relief from the deemed admissions. See Dahlstrom v. Commissioner, 85 T.C. 812, 819 (1985); Morrison v. Commissioner, 81 T.C. 644, 649-650 (1983).




II. Classification of Petitioner's Workers


A. Burden of Proof



Ordinarily, the Commissioner's determination is presumed to be correct, and the taxpayer bears the burden of proving that the determination is erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). This principle applies to the Commissioner's determination that a taxpayer's workers are employees. Boles Trucking, Inc. v. United States, 77 F.3d 236, 239-240 (8th Cir. 1996); Allen v. Commissioner, T.C. Memo. 2005-118.



In certain circumstances, special statutory rules may apply to shift the burden of proof to the Commissioner. See, e.g., sec. 7491; act sec. 530(e)(4).11 However, petitioner does not contend that these provisions affect an allocation of the burden of proof in this case, and we conclude that they do not apply.



Petitioner does argue, however, that respondent's determinations are arbitrary and capricious and that, therefore, the burden of proof must shift to respondent.12 See United States v. Janis, 428 U.S. 433, 441-442 & n.8 (1976) (burden of proof shifts to Commissioner where determination lacks rational foundation). However, petitioner has failed to demonstrate that respondent acted arbitrarily in this case. Petitioner's behavior during the audit and the pretrial preparation of this case was characterized by a consistent lack of cooperation and by considerable obfuscation designed to prevent respondent from ascertaining the facts regarding petitioner's business, business payroll, and workers. It appears that petitioner used fictitious names and/or other companies to hide the nature and extent of its business activity from respondent during the years at issue. Respondent's determinations were necessarily based on the best information available, including information obtained from a visit to petitioner's business location, a review of petitioner's Forms W-2, 940, and 941 for prior taxable periods, an analysis of bank records of petitioner and others, and information obtained from at least one of petitioner's suppliers. We conclude, therefore, that respondent's determinations were not arbitrary or capricious, and the burden of proof remains with petitioner.



B. Employment Status



The employment tax sections of the Internal Revenue Code are in subtitle C. Under subtitle C, an employer is obligated to pay certain taxes imposed on employers and must also withhold from employees' wages certain taxes imposed on employees. Sections 3111 and 3301 impose the employer-level taxes under FICA and FUTA, respectively. Section 3101 imposes a FICA tax on employees, which section 3102 requires the employer to collect. Section 3402 requires an employer to withhold from employees' wages the employees' shares of Federal income tax and to deposit the amounts withheld with the Internal Revenue Service. An employer is liable for the amounts required to be withheld if the employer does not withhold as required. Sec. 3403.



For employment tax purposes, the term "employee" includes "any individual who, under the usual common law rules applicable in determining the employer-employee relationship,13 has the status of an employee". Sec. 3121(d)(2); accord sec. 3306(i). In applying the common law rules, uncertainty should be resolved in favor of employment. Breaux & Daigle, Inc. v. United States, 900 F.2d 49, 52 (5th Cir. 1990).



In evaluating whether an employment relationship exists between a business and one of its workers, the courts consider the following factors to decide whether a worker is a common law employee or an independent contractor: (1) The degree of control exercised by the principal; (2) which party invests in the work facilities used by the individual; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; and (7) the relationship the parties believed they were creating. Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263, 270 (2001); Weber v. Commissioner, 103 T.C. 378, 387 (1994), affd. per curiam 60 F.3d 1104 (4th Cir. 1995). All of the facts and circumstances of each case are considered, and no single factor is dispositive. Ewens & Miller, Inc. v. Commissioner, supra at 270; Weber v. Commissioner, supra at 387. We consider the factors below.



1. Degree of Control



While no single factor is dispositive, the degree of control exercised by the principal over the details of the individual's work is one of the most important factors in determining whether a common law employment relationship exists. See, e.g., Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 448 (2003); Leavell v. Commissioner, 104 T.C. 140, 149 (1995). The degree of control necessary to find employee status varies with the types of services provided by the worker. Weber v. Commissioner, supra at 388. However, the control factor does not require a supervisor to stand over and direct every move made by the worker; it is sufficient if the supervisor has the right to do so. Id.; see sec. 31.3401(c)-1(b), Employment Tax Regs.



Deemed admissions confirm that petitioner exercised control over each of the nine workers. Petitioner directed when, where, and how each worker was to perform services. Petitioner controlled the manner in which the workers performed. Petitioner set each worker's work hours and controlled the amount of time each person worked.



This factor favors an employment relationship.



2. Investment in Facilities



The fact that a worker provides his or her own tools generally indicates independent contractor status. Breaux & Daigle, Inc. v. United States, supra at 53. Respondent determined that the workers provided services using petitioner's equipment. The deemed admissions establish that petitioner supplied the facility, equipment, and parts the workers used to perform their services.



This factor favors an employment relationship.



3. Opportunity for Profit or Loss



Respondent determined that petitioner paid the workers in cash every week. Although Ms. Rudd summarily disputed respondent's determination, she provided no credible evidence of petitioner's finances and expenditures for 2000 or 2001. In contrast, the deemed admissions establish that petitioner paid the individuals by the hour, week, or month for their services, that petitioner did not pay the workers by the job or on commission, and that the workers did not participate in the profit or loss resulting from their services.



This factor favors an employment relationship.



4. Right To Discharge



The deemed admissions establish that petitioner had the right to hire and fire each of the workers. Petitioner did not introduce any credible evidence to the contrary.



This factor favors an employment relationship.



5. Petitioner's Regular Business



Ms. Rudd testified that the services performed at petitioner's location during 2000 and 2001 were the same kind of services that petitioner offered in 1999. Petitioner's regular business in 1999 was the operation of a muffler shop. Petitioner hired workers to provide services as part of its regular business activity.14



This factor favors an employment relationship.



6. Permanency of the Relationship



The deemed admissions establish that the workers were employed full time during 2000 and 2001. In addition, the record establishes that at least some of the workers had performed services for petitioner and at petitioner's location in prior years.



This factor favors an employment relationship.



7. Relationship the Parties Believed They Were Creating



The deemed admissions establish that petitioner and the workers believed they had created an employment relationship and that petitioner and the workers consistently presented their relationship as an employment relationship.



This factor favors an employment relationship.



8. Conclusion



After reviewing the record and weighing the factors, we conclude that petitioner has failed to prove that respondent's determination treating the workers as petitioner's employees was in error.




III. Act Section 530 Relief


Act section 530 grants relief from the obligation to pay employment taxes to employers who incorrectly treat wage payments to employees as payments to independent contractors if certain requirements are met. Act section 530(a)(1) provides in relevant part:



(1) In general. --If --



(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period * * *, and



(B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee, then, for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee.



Act section 530(a)(3) limits the relief available under act section 530(a)(1) by providing that act section 530 relief is not available if the "taxpayer (or a predecessor)" treated any individual holding a "substantially similar position as an employee". An employer must satisfy all of the requirements of act section 530 to qualify for relief under that section. See Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263 (2001).



Petitioner treated all of the workers as employees in 1999, and petitioner filed Forms W-2, 940, and 941 for 1999 consistent with its treatment of the workers as employees. Consequently, petitioner fails to satisfy all of the act section 530 requirements. Petitioner is not entitled to relief under act section 530.15




IV. Section 6673 Penalty


Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty, not to exceed $25,000, if it appears that the taxpayer has instituted or maintained a proceeding primarily for delay or that the taxpayer's position is frivolous or groundless. Although respondent has not asked the Court to impose a penalty under section 6673(a)(1), the Court may sua sponte impose such a penalty against a taxpayer. See Pierson v. Commissioner, 115 T.C. 576, 580-581 (2000).



In its opening brief, petitioner argued that Forms 940, 941, and W-2 and Form W-4, Employee's Withholding Allowance Certificate, are invalid because they lack an Office of Management and Budget (OMB) number. Petitioner also listed multiple ways respondent's forms allegedly violated the Paperwork Reduction Act (PRA). Petitioner repeatedly failed to cooperate with respondent because respondent allegedly failed to prove a delegation of authority, and petitioner repeated the delegation of authority argument in its reply brief. Petitioner also argued that even if the workers in question were its employees, they received nontaxable income and not wages. Finally, petitioner questioned the validity of the notice of determination because it "did not contain any statutes telling the Petitioner what statutes created the duty that it must pay someone else's taxes."



The courts have consistently held all of these arguments to be frivolous and without merit. See James v. United States, 970 F.2d 750, 753 n.6 (10th Cir. 1992) (rejecting taxpayer's arguments regarding invalid OMB numbers and violations of PRA); Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988) (rejecting taxpayer's arguments that wages are not income), affg. T.C. Memo. 1987-225; Wheeler v. Commissioner, T.C. Memo. 2006-109 (rejecting taxpayer's arguments regarding validity of notice of deficiency); Nunn v. Commissioner, T.C. Memo. 2002-250 (rejecting challenge to Internal Revenue Service jurisdiction over taxpayers and documents). We warned petitioner's agent on at least two occasions that if petitioner continued to raise frivolous arguments, we would impose a penalty under section 6673. After each warning, petitioner continued to assert its frivolous arguments. Accordingly, we award a penalty of $3,000 to the United States.



To reflect the foregoing,



The decision will be entered under Rule 155.


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

2 Petitioner does not directly address respondent's revised adjustments regarding the sec. 6662 accuracy-related penalty or the additions to tax under sec. 6651(a) in its briefs. Therefore, we will deem petitioner to have conceded these adjustments if we conclude that respondent's determination regarding the classification of the workers is sustained. See Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C. 661, 683 (1989).

3 During the trial, Ms. Rudd claimed that petitioner had been dissolved but offered no credible evidence to support her claim. In contrast, respondent's revenue agent Beth Nichols testified that petitioner advertised its business in the Yellow Pages during the periods at issue and during the audit and that petitioner was listed, and continues to be listed, in the phone book.

4 Petitioner filed Forms 941 for the periods ended Mar. 31 and June 30, 2000, on which it reported no wages and no tax liability.

5 Petitioner subsequently filed a refund claim for its 1999 employment taxes, which respondent ultimately denied.

6 In 2002, the United States instituted legal proceedings against petitioner for the return of the erroneous refund.

7 Respondent summoned bank records for accounts not in petitioner's name but in the names of entities traceable to petitioner and into which petitioner's receipts were deposited. Respondent traced activity in those accounts to petitioner's business location and attributed the activity to petitioner for tax purposes.

8 Petitioner does not dispute that business activity similar to petitioner's regular business activity in 1999 occurred at petitioner's business location in 2000 and 2001. Ms. Rudd testified that at least some of the same workers who performed services for Colorado Mufflers in 1999 performed similar services at petitioner's business location in 2000 and 2001.

9 Revenue Agent Nichols testified that in her experience, a pattern of periodically cashing large checks written to cash suggested a practice of paying workers in cash.

10 Petitioner mailed a document to this Court entitled "Petitioner's Reply to Respondent's First Requests for Admission", which we received on Apr. 6, 2006. The document had a certificate of service indicating that it had been sent to respondent's counsel more than a month after the deadline established under Rule 90(c). Consequently, the document was not filed.

11 Subsec. (e) was added to act sec. 530 by the Small Business Job Protection Act of 1996, Pub. L. 104-188, sec. 1122(a), 110 Stat. 1766.

12 Sec. 7491, which authorizes a shift in the burden of proof if certain requirements are met, applies only to taxes imposed by subtit. A or B and does not apply to employment taxes imposed by subtit. C.

13 Secs. 31.3121(d)-1(c)(2) and 31.3306(i)-1(b), Employment Tax Regs., define an employer-employee relationship as follows:

Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place of work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. * * *

See also sec. 31.3401(c)-1(b), Employment Tax Regs. (using virtually identical language).

14 Ms. Rudd admitted that at least some of the workers provided services during 2000 and 2001.

15 Petitioner argues that respondent failed to provide notice of act sec. 530 to it as required by act sec. 530(e)(1). Because in any event petitioner did not satisfy the act sec. 530 requirements before the examination, it was not prejudiced by any lack of notice. See Nu-Look Design, Inc. v. Commissioner, 356 F.3d 290, 295 (3d Cir. 2004), affg. T.C. Memo. 2003-52. Moreover, petitioner was informed of act sec. 530 in the notice of determination of worker classification. See id. (relief under due process clause not warranted where notice of determination of worker classification advised taxpayer of safe harbor provisions of act sec. 530 and procedure for challenging determination



Alvin S. Brown, Esq.
Tax attorney
703.425.1400
http://www.irstaxattorney.com/

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In another case on this topic, the control test was applied to find that the person was an "independent contractor."

Uriah Vincent Jones v. Commissioner.

Dkt. No. 18719-05 , TC Memo. 2007-249, August 27, 2007.



[Code Sec. 3401]
Withholding: FICA: Independent contractor. --
An individual hired to do tiling work in a condominium renovation was an independent contractor, not an employee, and was, therefore, liable for the self-employment tax. The taxpayer was hired to perform tile work on the condominium for a fixed price. The party paying for the renovation supplied only the tile itself, while the taxpayer supplied his own tools and the materials necessary for the work (glue, grout, etc.) and, if the cost of materials exceeded the payment the taxpayer received, he would lose money. After the party renovating the condominium and the taxpayer had a dispute about his work hours, a set work schedule was established. The party performing the renovation indicated that he would not hire the taxpayer for any additional projects, and did not withhold FICA taxes from his payments to the taxpayer and the taxpayer never filled out a Form W-4. The taxpayer's degree of control over his own work, the fact that he provided his own tools and materials, his risk of loss on the project, the fact that he could not be discharged from the job, the lack of permanency in the relationship and the lack of intent to form an employer-employee relationship were consistent with independent contractor status. Only the fact that the taxpayer's work was integral to the renovation of the condominium indicated an employer-employee relationship.





Uriah Vincent Jones, pro se; Ladd C. Brown, Jr., for respondent.





MEMORANDUM FINDINGS OF FACT AND OPINION



VASQUEZ, Judge: Respondent determined a deficiency of $2,274 in petitioner's Federal income tax for 2003. After concessions by petitioner, the issue for decision is whether petitioner is liable for self-employment tax. This turns on whether petitioner was an employee or independent contractor of DBMA Corporation (DBMA) during 2003.





FINDINGS OF FACT



Some facts are stipulated and are so found. The stipulated facts and the exhibits submitted therewith are incorporated herein by this reference. At the time he filed the petition, petitioner resided in Palm Beach Gardens, Florida.



From August through December 2003, petitioner, a marble and tile installer, worked on a condominium renovation for DBMA. Barry Shapiro (Mr. Shapiro), president of DBMA, hired petitioner to work on the condominium renovation.



Petitioner submitted a series of proposals to Mr. Shapiro describing the work petitioner was to perform on the condominium renovation. Mr. Shapiro contracted petitioner to perform the tile work on the condominium renovation. In August 2003, petitioner began work by honing the floors and showers of the condominium and taking other preparatory steps in order to complete his work. From August through December 2003, petitioner worked a total of approximately 16 days on the condominium renovation.



DBMA paid petitioner a fixed sum for his work on the condominium renovation. If petitioner needed any additional assistants, petitioner was responsible for hiring, paying, and supervising them.



While working on the condominium renovation, petitioner provided his own work tools. In addition to work tools, petitioner also supplied grout, cork, cork glue, and soundproofing materials. Mr. Shapiro supplied the tile. DBMA did not reimburse petitioner for the supplies he purchased because these amounts were incorporated into petitioner's proposal.



Initially, petitioner set his own hours of work on the condominium renovation. A dispute arose between petitioner and Mr. Shapiro regarding the hours petitioner worked. After this dispute, petitioner agreed to maintain a fixed work schedule of 10:30 a.m. to 4:30 p.m. when working on the condominium renovation.



DBMA paid petitioner $8,360 for his work on the condominium renovation. At no point did petitioner ever sign or submit a Form W-4, Employee's Withholding Allowance Certificate (Form W-4). After petitioner completed work on the condominium renovation, Mr. Shapiro did not engage the services of petitioner on other jobs. In 2003, petitioner worked for three other companies that treated him as an employee, and all three companies issued him Forms W-2, Wage and Tax Statement (Forms W-2), as opposed to Forms 1099-MISC, Miscellaneous Income (Forms 1099-MISC).



Petitioner timely filed a Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, for 2003. Petitioner conceded that he did not report the income he received from DBMA on his 2003 tax return. After filing his 2003 income tax return, petitioner received a Form 1099-MISC, from DBMA. Petitioner did not amend his 2003 tax return after receiving the Form 1099-MISC.



Respondent timely mailed a notice of deficiency to petitioner with respect to taxable year 2003, and petitioner timely petitioned the Court.





OPINION



The burden of proof is on petitioner to show that respondent's determination set forth in the notice of deficiency is incorrect. Rule 142(a)(1);1 Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner has neither claimed nor shown that he satisfied the requirements of section 7491(a) to shift the burden of proof to respondent with regard to any factual issue. Accordingly, petitioner bears the burden of proof. Rule 142(a).



The Federal Insurance Contributions Act (FICA), secs. 3101-3125, 68A Stat. 415 (1954), taxes a portion of the wages paid to an employee (FICA tax). The portion of the wages taxed is defined in section 3121(a). Under FICA, the employer and the employee each pay a like amount of tax. See secs. 3101, 3111. The employer withholds the employee's half of the FICA tax and remits it, along with the employer's half, to the Department of the Treasury. See sec. 3102. The FICA tax has two components, the old age, survivors, and disability insurance portion (OASDI) and the hospital insurance portion. For the year in issue, the OASDI rate was 6.2 percent for both the employer and employee, a total of 12.4 percent. The hospital insurance portion was 1.45 percent for both the employer and the employee, a total of 2.9 percent. The combined rate of the FICA tax was 15.3 percent for 2003. DBMA did not withhold any FICA tax because it treated petitioner as an independent contractor.



Independent contractors are not subject to the FICA tax; however, they are subject to a tax under chapter 2 of the Code, the Self-Employment Contributions Act of 1954 (SECA), secs. 1401-1403. See secs. 1401 and 1402. The SECA tax is a different tax from the FICA tax, though the SECA tax contains the same two components as the FICA tax. The SECA rate is equal to the sum of the employer and employee tax rates under FICA.



For the purposes of FICA, an employee is defined as: (1) any officer of a corporation; (2) any common law employee; (3) any individual in a specified occupation group who is not a common law employee; and (4) any individual who performs services that are included under an agreement entered into pursuant to the Social Security Act, 42 U.S.C. sec. 218 (2000). Sec. 3121(d).



A common law employee-employer relationship exists when:



the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. * * * [Sec. 31.3121(d)-1(c)(2), Employment Tax Regs.]



Petitioner contends that he was a common law employee of DBMA. We consider the following factors to decide whether a worker is a common law employee or an independent contractor: (1) The degree of control exercised by the principal; (2) which party invests in work facilities used by the individual; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; and (7) the relationship the parties believed they were creating. Weber v. Commissioner, 103 T.C. 378, 387 (1994), affd. per curiam 60 F.3d 1104 (4th Cir. 1995). All the facts and circumstances of each case are considered, and no single factor is dispositive. Id.



1. Degree of Control



The degree of control necessary to find employee status varies with the nature of the services provided by the worker. Id. at 388. To retain the requisite control over the details of an individual's work, the principal need not stand over the individual and direct every move made by the individual; it is sufficient if he has the right to do so. Id. ; see sec. 31.3401(c)-1(b), Employment Tax Regs.



Similarly, the employer need not set the employee's hours or supervise every detail of the work environment to control the employee. Gen. Inv. Corp. v. United States , 823 F.2d 337, 342 (9th Cir. 1987). The fact that workers set their own hours does not necessarily make them independent contractors. Id.



As the project manager, Mr. Shapiro did have some control over petitioner. For instance, after a dispute regarding the hours petitioner kept, Mr. Shapiro and petitioner agreed that petitioner would maintain a fixed work schedule. Despite this, petitioner was free to complete by the means and methods of his choice, the work he was contracted to do. Petitioner advised Mr. Shapiro that the floor in the laundry room needed to be resloped. Additionally, petitioner completed work offsite at his home workshop after advising Mr. Shapiro as to the best means and method to complete the project.



Based on the record before us, petitioner's degree of control over his own work on the condominium renovation is consistent with independent contractor status.



2. Investment in Facilities



The fact that a worker provides his or her own tools generally indicates independent contractor status. Breaux & Daigle, Inc. v. United States , 900 F.2d 49, 53 (5th Cir. 1990).



Petitioner provided his own tools. Furthermore, other than the tile, petitioner supplied most of the supplies he used such as grout, soundproofing materials, cork, and cork glue. Additionally, petitioner was not reimbursed for the materials that he provided. These amounts were included in the proposals that petitioner provided.



Based on the record before us, this factor is consistent with independent contractor status.



3. Opportunity for Profit or Loss



As noted supra, petitioner sent proposals to Mr. Shapiro regarding the work to be done on the condominium renovation. DBMA paid petitioner a fixed sum regardless of the time spent on the job. If petitioner underestimated the cost of the supplies needed or the time it took to complete the job, petitioner bore the risk of losing money, not Mr. Shapiro. Furthermore, if assistants were needed, it was petitioner's sole responsibility to hire and pay them. Additionally, petitioner bore the risk of loss on any loss or damage to his work tools.



Based on the record before us, petitioner's opportunity for profit or loss on his work on the condominium renovation is consistent with independent contractor status.



4. Right To Discharge



Petitioner was never fired by Mr. Shapiro, but Mr. Shapiro chose not to engage petitioner on any future projects. It appears that as long as petitioner's work was quality work that met the job specifications, petitioner could not have been dismissed from his duties on the condominium renovation. Petitioner phoned Mr. Shapiro approximately 3 weeks after petitioner completed work on the condominium renovation. At that time, only after petitioner had finished his duties on the condominium renovation, Mr. Shapiro notified petitioner that he did not wish to work with petitioner on any other projects.



Based on the record before us, the fact that petitioner could not be discharged as long as his work met the specifications is consistent with independent contractor status.



5. Integral Part of Business



As the project manager on the condominium renovation, Mr. Shapiro's responsibilities included making sure that the work was completed. The condominium renovation required tile work. Accordingly petitioner's job was an integral part of DBMA's work.



Based on the record before us, the integral nature of petitioner's work could suggest employee status. This, however, is but one factor that must be weighed among the others.



6. Permanency of the Relationship



A transitory work relationship may point toward independent contractor status. Herman v. Express Sixty-Minutes Delivery Serv ., Inc., 161 F.3d 299, 305 (5th Cir. 1998). If, however, the worker works in the course of the employer's trade or business, the fact that he does not work regularly is not necessarily significant. Avis Rent A Car Sys., Inc. v. United States, 503 F.2d 423, 430 (2d Cir. 1974) (transients may be employees); Kelly v. Commissioner, T.C. Memo. 1999-140 (working for a number of employers during a tax year does not necessitate treatment as an independent contractor). In considering the permanency of the relationship, we must also consider the principal's right to discharge the worker and the worker's right to quit at any time.



DBMA contracted petitioner to work on the condominium renovation and paid petitioner for the job he performed, regardless of the amount of time petitioner spent on the work. Petitioner worked for approximately 16 days, from August through December 2003, on the condominium renovation and received 14 checks from DBMA for his work. Although petitioner stated that DBMA promised him more work, whether or not the relationship continued was within the discretion of Mr. Shapiro. Once DBMA completed the condominium renovation, the relationship between petitioner and DBMA ceased.



Before petitioner began the condominium renovation, he was an employee of Koeckritz Enterprises, Inc. (Koeckritz). Prior to working for Koeckritz, in 2003 petitioner also worked for Celtic Marble & Tile, Inc., and Selective HR Solutions V, Inc. During 2003, petitioner received a total of three Forms W-2 from the three employers. This, however, does not require us to conclude that petitioner worked for DBMA as an employee.



Based on the record before us, petitioner's lack of a permanent relationship with DBMA is consistent with independent contractor status.



7. Relationship the Parties Thought They Created



Petitioner has worked on tile and marble installation for dozens of companies and stated that he always has been treated as an employee by those other companies. Mr. Shapiro stated that DBMA never had any employees and always has treated the individuals who worked for DBMA as independent contractors and issued them Forms 1099-MISC. Although the parties thought they were creating different relationships, we note that petitioner did not submit a Form W-4 to DBMA as he submitted to his three employers. The record does not indicate that petitioner requested or inquired about a Form W-4 from DBMA.



Based on the record before us, the facts are consistent with independent contractor status.



8. Conclusion



In the matter before us, although one factor might indicate an employer-employee relationship, the vast majority suggest that petitioner was an independent contractor of DBMA. Having weighed the evidence and considered the totality of the circumstances, we conclude that petitioner was an independent contractor of DBMA. As a result, he is responsible for self-employment tax for 2003.



In reaching our holding herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit.



To reflect the foregoing,



Decision will be entered for respondent.


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

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