-1- NO T R EC OM M EN DE D F OR F UL L- TEX T P UB LIC AT ION F ile Nam e: 08a0597n.06 F iled: October 3, 2008 No. 07-1869 UN ITED STA TES C OU RT OF AP P EA LS F OR THE SI XT H C IR CU IT

P ENO TRUCKIN G, IN C., P etitioner -Appellant,

v. COMMISSIONER OF INTERNAL RE VE NU E, Respondent-Appellee. ) ) ) ) ) ) ) ) ) ) ) ) O N A P P E A L F R O M T H E U N I T ED STATE S TAX COURT

Be for e : N ORRI S, BA TC HELD ER , a nd G IBBO NS, Ci r c uitJudg e s. JULIA SMITH GIBB ONS, Circuit Judge. Petitioner-appe llant Peno Trucking , I nc. (“Peno Tr ucking ”) a

ppeals both the Tax Court’s classification of its truc kers as employ ees and the Tax Court’s deter

mination that Peno Trucking was not entitled to relief from tax liabili ty

under § 530 of the Re ve nu e Ac t of

19 78 . F or

the fo llo wi ngre a so ns , w e re ve rs e the de c isi on of the Tax Cour

t. I. Peno Truckingwas incor porate d in the State of Ohio on Dec ember 23, 1993. I ts principal place of business was in Warr en, Ohio. Throug hout th e p er i o d i n question, Peno Truckingwas incorpora ted a s a S ubchapte r S Corporation under I nterna l Revenue Code §§ 1361 et seq . Fr om 1997 throug h 1999, Robert P eno, S r. and his wife, Joann Peno, toge ther owne d 100% of the stoc k-2-

of Peno Truc king; Rober

t and J oann Peno we re a lso the office rs of the corporation, wit h J oann Peno

a s th e Pr e sid e nt a

nd Rob e rt Pe no , Sr . a s th e Vi c e Pr e sid e nt. I n its Memorandum Finding s of Fa ct and Opinion, the Tax Court summarized the stipulated fa c ts r e g ard ingPe no Tr

uc kin g ’s bu sin e ss o pe ra

tio ns a s f oll ow s: Duringthe p er i o ds at issue, petitioner owne d approximately 15 trac tor-tra ilers (t ru c ks ), wh ic h it

le a se d to the Oh io T ra

ns po rt Cor p. (O hio Tr ans po rt ) p ur su ant t o written lea se ag ree ments (lease s). The le ases r equire d petitioner to transport f reig ht and per form re lated ser

vices for Ohio Transpor

t within a reasonable time in a safe , competent, law ful, and wor kmanlike manner , inform Ohio Transpor t daily as to the vehicles’ locations and the shipments beingtransp o rt ed, and pa y all costs of op e ratin g the le a se d tr

uc ks and re late d e qu ipm e nt. Under the lease s, petitioner was require d to provide drivers t o operate i ts trucks and be responsible for a ll work perf ormed by the driver s and to confir

m their work wa s p e r f o r m e d i n a c c o r d an c e w i t h t h e l e a s e s . C o n s e qu e n t l y , p e t i t i o n e r w a s r e quir e d to dir e c t, s up e rv ise , p ay , di sciplin e , a nd dis c ha rg e its dr ive rs . Pe tit ion e r w a s a lso responsible for deter

mining the da

y s and hours pe r day

the driver s worked, the routes trave led, and the or der of

picking up and deliver

y of shipments and ensur ing that the dr ive rs ha d th e a

pp ro pr iate c omm e rc ia l dr ive rs ’ l ic e ns e s. Th e le a se s a lso re qu ir e d p e tit ion e r t o su bmi t c omp le te d d ri ve rs ’ l og s to Oh io Transpor t and to “coope rate in the prepa ration, ca rry ing a nd p rese rvation of manifestos, bil l s o f l ad ing, w ay bills, freig ht bills , and other paper s and re cords respect ingthe la din g and the us e of

e qu ipm e nt, a ll i n a c c or da nc e wi th a

pp lic a ble laws and r egulations”. As c omp e ns a tio n, pe tit ion e r r e c e ive d 7 5 p e rc e nt o f t he tot a l amou

nt p a id t o O hio Transpor t by its customers for e ach loa d hauled by a lea sed truck. Th e se loa ds we re ha

ule d b y pe tit ion e r’ s tr

uc ks or by

ind ivi du a ls w ho ow ne d th e ir o w nt r u c k s ( o w n e r - o p e r a t o r s )

. A nu mb e r o f o w n e r - o p e r a t o r s h a

u l e d s t e e l f o r O hio Transpor t and wer e dispatched by petitioner. The owner- operators’ employ ment relationship wit h petitioner is not at issue in this case. The lea ses r equire d Ohio Transpor t to provide liability

insurance for pe titioner’s trucks while they

wer e “unde r dispatch” . Otherw i s e p et itioner provided the insurance . I f a dr iver intentionally damag ed a tr

uck or its ca

rg o, he or she was responsible for

the damag e, to the extent it was not insured.-3-

(footnotes omitted). Peno Trucking enter ed into a n ag ree ment with e ach of its drive rs during the dates in que stion which explicitly

provided that the dr ivers we re inde penden t co n t ra ct ors and not employ ees. The

a g re e me nt s tate d, in p art , a s f oll ow s: Peno TruckingI nc. and O perator agr ee and under stand that Oper ator is not an employ ee or ag ent of Peno TruckingI nc. Ope rator is a n independe nt contrac tor and Peno TruckingI nc. shall not direc t in any man ner the means or me thod by which Oper ator shall per form his occ upation. Oper ator unde rstands that Peno Truc king I nc. fr om t ime to t ime c on tr a c ts with othe r pe rs on s o r c or po ra tio ns , to tr ans po rt

g oo ds via Peno Trucking I n c. trucks and e quipment. Whi le not an employ ee of such other persons or c orpora

tions, Operator

shall, at all times applicable he reto, wor k at the dir e c tio n a

nd c on tr ol o f s uc h p e rs on s o r c or po ratio ns . Pe n o T r u c k i n g I n c . a g r e e s t o p ay O p e r a t o r a t t h e p e r c e n t a g e o f

_ _ _ p e r t o t a l g ro ss pa y pe r l oa d. Ad dit ion a lly , Pe no Tr uc kin g I nc . s ha ll b e re sp on sib le fo r a ll maintenanc e of Peno Trucking I nc. equipment, all fuel, oil , tolls, permits, and road fuel taxes incurre d by

Oper ator on such dispatched trips i n P eno Truc king I nc. e qu ipm e nt. Op e rator a g re e s and un de rs tand s that he is so le ly re sp on sib le fo r pa y men t o f all i n c o m e an d

w i t h h o l d i n g t a x e s , S o c i a l S e c u r i t y an d u n e mp l o y m e n tc o mp e n s a t i o n . In acc ordanc e w it

h the terms of this ag ree ment, Peno TruckingI nc. will supply Oper ator with an I RS Form 1099 at the end of eac h cale ndar y ear . Oper ator unde rstands and a g ree s that he ca nnot obligate , contract or incur a ny indebtedness on be half of Peno T ruckingI nc. The Tax Court further

ex p lained the de tails of the re lationship between Peno Tr ucking and the dr ive rs a s f

oll ow s: Pe tit ion e r’ s d

ri ve rs we re no t o bl igat ed to a c c e pt p e tit ion e r’ s r e qu e st t o tr ans po rt a loa d, to w or

k o n a ny pa rt ic ula r day , or w or

k a ny pa rt ic ula r s c he du le . I f a

dr ive r c ho se not to haul a load or w ork for a per iod of time, h e o r she wa s not disciplined or sanctioned. Petitioner a

nd the driver s were entitled to terminate their r elationship at any time. Petitioner provided all nece ssary equipment require d to se cure the ca rg o hauled on its trucks. How e v er, pe titioner’s driver s were fre e to supply any additional equipment-4-

at their own c ost. Drivers pa id for their ow n g loves, han d t o o l s , and mea ls. I f a dri v e r ’ s r e lati o n s h ip w it

h p e ti ti o n e r w a s s e v e r e d , th e dr iv e r w a s f r e e to ta ke any equipment or a cce ssories he or she had pr ovided. Petitioner paid for a ll fuel, oil, highwa y use taxes, and normal maintenance and repa irs require d to operate i ts trucks. Petitioner was solely responsible for deter mining the nature and timing of any repa irs and/or maintenanc e of its truc ks, and its m ec h anics pe rfor

med all the maintena

nce a nd repa irs. The drive rs wer e not require d to make any repa irs or per form any maintenanc e to the truc ks, but they wer e ob lig a te d to c omp ly

wi th the F e de ra l mo tor

c arr ie r s a fe ty

re g ulatio ns , in c lud ingtho se pr ov isi on s w hic h r e qu ir e d p re tr ip i ns pe c tio ns . Driver s were paid, on a we ekly basis, betwee n 23 perc ent and 27 pe rce nt of the 75 perc ent petitioner re ceive d for e ach hauled load. The more loads a drive r haule d eac h wee k, the more mone y

he or she ear

ned. Duringthe per iods at issue, peti t i o n er filed F orms 1099MI SC, Mi scellane ous I nc ome , f or e a c h o f i ts d

ri ve rs wh o w or

ke d und e r t

he a g re e me nt. I n 1997, 1998, and 1999, responde nt r ecla ssified as employ ees a total of 29, 24, and 21 dr ive rs , re sp e c tiv e ly . Of the dr ive rs wh o w e re re c la ssi fi e d, 13 ha d c on tr a c te d w ith petitioner for

more than 2 y ear s and 4 had contra cted with pe titioner for more than 3 y e ars . (f oo tno te s o mitte d) . T he Tax Cour t a lso de sc ri be d Pe no Tr

uc kin g ’s da

y to d ay op e ratio ns a s f

oll ow s: When Ohio Transport ha d fre ight whic h neede d to be transpor ted, ordinar ily

in the Mid we st a nd fr e qu e ntl y

to S tate s a djo ini ng Ohi o, it o r a mil l w or kin g wi th O hio Transpor t would contact pe titioner and instruct it as to the s p ec i fi ca tions of the particula r job. I f petitioner ha d a truc k available to haul the load, it would offe r the job to one of its drivers. I f a driver was unavailable or unwilling to acc ept the load, then the load wa s offe red to a nother drive r. I f a dr ive r a c c e pte d th e job , petitio ne r a dv ise d th e dr ive r, in a c c or da nc e wi th O hio Transpor t’s or the mill’s directives, of the time to pick up the load, the de livery location, and the e x pecte d d el ivery time. The driver s car

ried be eper s so that petitioner could re mai n i n co ntact while they wer e on the r oad. Petitioner did not direc t the r o u te s dr iv e r s w e r e to u s e in e it h e r p ic k in g u

p o r d e li v e r in g lo a d s . I f a dr ive r c ho se to d

ri ve on a tol l r oa d, the dr ive r w a s r e sp onsi bl e for pa yingthe tol ls. After a load wa s delivere d, the driver could immediately

return to pe titioner’s place of business with or without a re turn load. Duri ngits y e ars of

op e ratio n, tw o o f P e no Tr uc kin g ’s dr ive rs fi le d c la ims fo r w or ke rs ’-5-

compensation because they suffe red injuries dur ing the course of their truc king a ctivities. On May 18, 1995, Richard Chatfield filed his c laim f or worke rs’ compensation. The O h i o I ndustrial Commi ssion (“OI C”), in an or der dated Octobe r 25, 1995, disallowed C hatfield’s claim, finding that he “w as not an e mploy ee of [P eno Truc king] on the date of injury here in

. [C hatfield] was an ind e pe nd e nt c on tr a c tor

wh o ha d not s e c ur e d Wo rk e rs ’ C omp e ns a tio n f or him se lf .” Th e or de r d id not provide the ba sis f

or its de termination. Chatfield’s appea l of the order was dismiss ed without prejudice

. Simi larl y , o n J u ne 26, 1997, Ke nneth J amison filed a c laim for wor kers’ compensation be c a us e of an in jur y he su ff e re d d ur ingthe c ours e of

his tr uc kin g a c tiv iti e s. I n an or de r date d Augus t 25, 1997, th e B u r e a

uo f Wo r k e r s ’ Co mp e n s a ti o n( “ B WC ” ) d e n ie d Ja mi s o n ’ s c la im , f

in d in g th at “[t] here is no proof of an employ ee/e mploy er relationship betwe en the injured worke r and the listed employ er.” The B WC fu rt her e x plained that this decision was ba sed on the sig ned ag ree ment b e t w e e nJ a m i s o nan d

P e n o T r u c k i n g . P u r s u an tt o J a m i s o n ’ s a p p e a l o f t h e B W C o r d e r , t h e O IC

vac at ed the B WC order

and found that “[J amison] was an independe nt contrac tor who had not

secur ed Workers’ Compensation for himself.” T he OI C did not explain the g rounds of its decision and simply

stated that “A ll evidence in the file wa s considere d.” On September

12, 2003, the Co mm is s io n e r o f I nte rnal Reve nue (the “Commissi oner” ) issued Peno T ruckinga Notice of De termination of Worker Classification. I n that deter mination, the Commi ssioner stated that c erta in identified driver s were in fac t employ ees of Peno Truckingand not independe nt contrac tors. I n addition, the Commi ssioner conc luded that Peno Truc king w as not entitled to relief f

rom employ

m en t t ax es u n der § 530( a) of the Revenue Act of 1978. The Com m i s s i o n er t h en we nt on to calculate the additional taxes owed by Peno Trucking . Peno-6-

Tr uc kin g a pp e a le d th e Com mis sio ne r’ s d e te rm inatio n p ur su ant t o 26 U. S.C. § 7 43 6. I n th a t a pp e a l, Peno Truckingargued that the truc k drivers in que stion were i ndepende nt contrac tors and not empl o y ee s . I n addition, Peno Truckingclaimed that it had not tre ated the tr ucker s in question as

e mpl oy e e s, ha d f

ile d a ll f e de ra l ta x re tur

ns c on sis te nt wi th thi s tr e a tme nt, and ha d a re a so na ble ba sis fo r d oin g so – th e or de r o f t he OI C c on c lud ing that bothChatf ie ld a nd Jami so n w e re no t e mpl oy e e s, but inde pendent contra ctors. Thus, Peno Trucking claimed its tax liability should h av e b een te rm inate d und e r § 53 0 o f t he Re ve nu e Ac t of

19 78 ’s sa fe ha

rb or pr ov isi on s. The Ta x Court found in fa vor of the Commissioner, conc luding that the r eleva nt fac tors indicated the tr

ucker s in question wer e employ ees and not independent c ontrac tors. Fur thermore , the Tax Court found that Peno Trucking could not have rea sonably relied upon the deter mination of either t h e BW C or the OI C in treating the trucke rs as indepe ndent contra ctors bec ause ( 1) “[t] he

rec ord d[id] not indicate that the B WC , the OI C, or the cour t of comm o n pleas e valuated the employ ment relationships of petitioner’s for mer drive rs, Chatfield and Jamison, through a common law a na ly sis ” and

(2 ) “ no thi ngin t

he re c or d in dic a te s the ru lin g s c on c e rn ing Jami so n and Chatf ie ld

we re re lie d u

po n at the tim e pe tit ion e r’ s e mpl oy me nt d e c isi on s w e re ma de .” Pe no Tr uc kin g a pp e a ls the Tax Court’s decision. I I

. As a g ener al rule “ [w] e re v i ew t h e t ax court’s le g al conc lusions de novo and its factua l fi ndings unde r the ‘c lear ly err oneous’ standa

rd.” Zack v. Comm ’r , 2 9 1 F

. 3 d 4 0 7 , 4 1 2 ( 6 th

Cir. 20 02 ); Indmar Prods. Co. v. Comm’r , 444 F.3d 771, 777 ( 6th Cir. 2006) (“We re view the Tax Court’s fac tual finding s for ‘c lear err or’ a nd its application of law d e n ovo .” ); MT

S Int’l Inc . v. Comm’r , 169 F.3d 1018, 1021 ( 6th Cir. 1999) (“This cour t review s the tax court’s leg al conc lusions-7-

d e n o v o an d

i t s fi n d i n gs o f f

ac tu n d er t h e ‘ cl ea rl y

er ro n eo u s ’ s t an d ar d

. ”)

. I n tu rn , “[ f] ac tu al fi n d i n gs

are c le arl y

e rr on e ou s if

, b a se d u po n th e e nti re re c or d, the re vie wi ngc ourt is ‘ le ft wi th t he de fi nit e and firm conviction t hat a mistake has bee n committed.’” Zack, 2 9 1 F. 3 d at 4 1 2 (q u o t i n g Sa nfo rd v. Harv ard Indus., Inc. , 2 62 F .3 d 59 0, 59 5 ( 6th Cir . 2 00 1) ). Th is tra c ks the langua g e of 26 U. S.C. § 7482(a) which st ates “[t ]he United S tates C ourts of Appeals

. . . shall have e x clusive jurisdiction to reviewthe dec isions of the Tax C ourt . . . in the same manne r and to the same e x tent as dec isions of the district cour

ts in c ivil ac tions tried without a jury . . . .” Cf. Freytag v. Comm’ r , 501 U.S. 868, 891 (1991) ( noting that the sta ndard unde r 26 U.S.C. § 7482(a) “ contra sts with the standard applied to ag ency rulemaking ”). Although this cour

t ha s in the past applied the c lear ly err oneous standar d to the employ eeindepende nt contra ctor question, it has done so only when the dispute hinge d primarily on fac tual d et er m i nations. Lanigan Stor age &Van Co. v. United States , 3 8 9 F

. 2 d 3 3 7 , 3 4 1 ( 6 th

Ci r . 1 968). I ndeed, in Lanigan Stor age , th is c ourt c ite d p re c e de nt f

ro m th e Ni nth

Cir c uit , w hic h in dic a te d th a t,

w h e n c o u rt s b e l o w m a k e f i n d i n g s o n s u c h is su e s “ a s a fact ,” we revie w the conc lusion for clea r

err or. Id

. (e mp h as i s i no ri gi n al ) ( ci t i n g McG u i r e v. United States , 349 F.2d 644 ( 9th Cir. 1965)). And, only applying the clea

r-e rror standard to the factual determinations underly ing the employ eeindepende nt contrac tor distinction comports with both Lanigan Stor age ’s ana ly sis of the tax court’s role a s fac tfinder a

nd this court’s analy sis of the distinction in other contexts. See, e .g. , Trs. of t he Resilient Floor D ecorators Ins. Fund v. A & M Installations, Inc. , 395 F.3d 244, 249 ( 6th Cir. 2005) (stating in the ERI SA context t hat “[t] his court applies de novo revie w to the question of whe ther

an in div id ua l is an e mpl oy e e or an in de pe nd e nt c on tr a c tor ” ). We t he re fo re re vie w the fa c ts underlying the Tax Court’s determination that the trucke rs in question were em p l o y ee s for clear-8-

e rr or , w hil e re vie wi ngits le g a l c on c lus ion s de novo

. But see Spice r Accounting v. United States , 918 F .2 d 9 0, 92 (9 th C ir . 1 99 0) (“ Th e de te rm inatio n o f whe the r an emp loye r- e mpl oy e e re latio ns hip

e xists inv olv e s a mixe d que sti on of law an d fa c t. Ho we ve r, sin c e the de te rm inatio n is pr e do min antl y one of f act, it is subject to a cle arly err oneous standar d of re view.” ( internal c itation omit ted)).

III

. Em plo y e rs are re qu ir e d to pa

y on e ha lf of the F e de ra l Ins ur anc e Con tr ibutio ns Ac t, 26 U. S.C. §§ 3101 et seq. , (“F I CA”) taxes assesse d ag ainst their employ ees a nd withhold f

ro m “wag es” the amount of F I CA taxes owe d by the employ ees the mselves. See Boles Trucking v. U nited States , 77 F.3d 236, 238 ( 8th Cir. 1996) (citing 26 U.S.C. §§ 3101, 3102(a) , 3402(a) ). I n addition, employ ers must pay Fe dera l Unemploy

ment Tax Act, 26 U.S.C. §§ 3301 et seq. , (“F UTA” ) taxes on the

“ wa g e s” pa id to the ir e mpl oy e e s. 26 U. S.C. § 3 30 1; see also Boles Truck ing , 77 F.3d at 238. For the purposes of

both FI CA and F UTA taxes, “wa g es” is def ined as “ al l re m u n er ation for employ ment.” 26 U.S.C. § 3121 (FI CA); 26 § U.S.C. 3306 (F UTA). Howeve r, employ ers a re not requir e d to p ay an d w it h h o ld F I CAan d

F U T A taxe s in

c o n n e c ti o nw it

h p ay me n ts to in d e p endent

c on tr a c tor s. 26 C.F .R. 31 .3 12 1( d) -1 (F I CA ); 26 C.F .R. 31 .3 30 6( i) -1 (F UT A) ; see also, e.g. , Hosp. Res. Pe rs. v. United States , 6 8 F .3 d 4 21 , 4 24 (1 1th Cir . 1 99 5) ; Breaux & Daigle, Inc. v

. Un i t ed States , 9 00 F .2 d 4 9, 52 (5 th Ci r. 1990 ); se e ge ne ra lly Un ite d S tate v . S ilk, 331 U.S. 704, 712-14 (1947). As a g e n e r a l r

u le , “ th e Co mm is s io n e r ’ s d e te r mi n a ti o n o f tax li a

b il it y is e n ti tl ed to a pr e su mpt ion

of c or re c tne ss a nd

. . . the burd e n is on the ta xpay e r to pr ov e that th e de te rm inatio n is

err oneous.” Boles Trucking , 7 7 F. 3 d at 2 3 9 (c i t i n g Helve ring v. Taylor , 29 3 U. S. 50 7 (1 93 5) ). Th is principle a

pplies “to the Commi ssioner’s classification of a taxpay er’ s worker s as employ ees, i.e .,-9-

once suc h a dete rmination is made, it is the tax pay er’ s burden to prove , by a pre pondera

nce of the evidenc e, that its worker s are or we re inde pendent c ontrac tors.” Id . Thus, i n re viewing the Tax Court’s conclusions, this court must de termine whe ther the Tax Court clear ly err ed in conc luding that Pe no Tru cki ng had

no t de mon str a te d b y

a pr e po nd e ra

nc e of the e vid e nc e that th e tr

uc ke rs in question wer e not employ ees, but instead inde pendent c ontrac tors. See Van Camp & Bennion , 251 F.3d at 865. For the purposes of

FI CA, the term “employ ee” includes “a ny individual who, under the usual common law rule s applicable in determin ing the employ er- employ ee r elationship, has the status of an e mploy ee.” 26 U.S.C. § 3121(d) (2). The regulations promulgated pursuant to F I CA and FUT A provide some a dditional guidance as to the definition of an e mploy er- employ ee r elationship: Gene rally such relationship exists when the person for whom service s are perf ormed ha s th e ri g ht t o c on tr ol a

nd dir e c t th e ind ivi du a l w ho pe rf or ms the se rv ic e s, no t on ly as to the re sult to be acc omplished by the work but a lso a s to the details and mea ns by which that re sult is accomplished. That is, an e mploy ee is subjec t to the will and control of the e mploy er not o n ly as to what shall be done but how it shall be done. I n this connection, it is not necessar y that the employ er actua lly direc t or control the manner in which the ser

vices a re pe rfor med; it is sufficient if he has the rig ht to do so. T h e ri gh t to discharg e is also an important fa ctor indicating that the pe rson possessing that r ight is a

n employ er. Other fac tors char acte ristic of an employ er, but n o t n ecessarily

prese nt in every

case , are the furnishing of tools and the fur nishing of a pla ce to wor

k, to the individual who perfor ms t he ser

vices. In g ener al, if an ind ivi du a l is su

bje c t to the c on tr ol or dir e c tio n of ano the r me re ly a s to the re su lt t o be ac complished by

the work and not as to the mea ns and methods for a ccomplishing the re sult, he is a

n independe nt c ontrac tor. An individual perf orming service s as an independe nt c ontrac tor is not as to suc h service s an employ ee under t h e u sual c omm on law r ule s. I nd ivi du a ls s uc h a s p hy sic ians , la wy e rs , d e nti sts , v e te ri na

ri ans , co n s t ruction contra ctors, public stenog raphe rs, and a uctioneer s, eng ag ed in the purs uit of an in de pe nd e nt t

ra de , b us ine ss, or

pr of e ssi on , in wh ic h they off

e r t he ir se rv ic e s to the pu

bli c , a re ind e pe nd e nt c on tr a c tor s a nd no t e mpl oy e e s. 26 C.F.R. 31.3121(d)- 1 (F I CA); 26 C.F.R. 31.3306(i)-1 ( FUT A). “The deter

mination of an individual’s status a s an employ ee or an independe nt contrac tor has-10-

be e n th e s u

b j e c t o f nu m e r o u s d e c i s i o n s . I t i s s e t t l e d t h a t e a c h c a s e m u s t s t an d o n i t s o w n f a c ts, in lig ht o f a ll the e xistin g c ir c ums tanc e s, and that no on e fa c e t of

the re latio ns hip is g e ne ra lly deter minative.” Azad v. United States , 3 88 F .2 d 7 4, 76 (8 th C ir . 1 96 8) ; se e als o Silk , 3 3 1 U.S . at 71 6. De sp ite thi s f

a c t, “ a uth or iti e s se e m to be in g e ne ra l a g reem ent that an e mpl oy e r’ s r ig ht t o control the manne r in which the w ork is perf ormed is an important if not the m as t er t es t t o be considere d in deter

mining the exis tence of an e mploy er- employ ee r elationship.” Azad , 338 F.3d at 76. Nonethe l es s , co u rt s t y p i ca l l y co n s i d er t h e f o l l o wi n g fa ct o rs i nd et erm i n i n g wh ether an employere mpl oy e e re latio ns hip e xists : “ (1 ) T he de g re e of c on tr ol e xer c ise d by the pr inc ipa l ov e r t he de ta ils of the wor

k; (2 ) wh i ch p ar t y invests in the fac iliti es used in the wor k; (3) the oppor

tunity of the ind ivi du a l f

or pr of it o r l os s; ( 4) wh e the r o r n ot t he pr inc ipa l ha s th e ri g ht t o d isc ha rg e the ind ivi du a l; (5) whe ther the work is par t of the principa l’s regular business; (6) the perma nency of the relationship; and (7) the re lat ionship the parties believe they are cre ating .” W

eber v . Comm’r , 60 F .3 d 1 10 4, 11 10 (4 th C ir . 1 99 5) ; Pr ofessional & Exe cutive Leasing v . Comm’r , 89 T.C. 225, 232 (T .C. 19 87 ) ( lis tin g the same se ve n f a c tor s) ; Avis Rent A Car System, Inc . v. United States , 503 F.2d 42 3, 42 8 ( 2d

Cir . 1 97 4) (l ist ingthe same se ve n f a c tor s) ; Pack

v. United States , 434 F. Sup p . 2 32, 23 4 ( E. D. Te nn . 1 97 7) (l ist ingthe same se ve n f a c tor s) ; se e als o S

ilk, 331 U.S. at 716. Bu t se e Do ty v. Elias , 733 F.2d 720, 723 (10th Cir. 1984) (“I n applying this test, the courts g ener ally focus on f

ive fa ct o rs : (1 ) t h e d egr ee o f co n t ro l ex er t ed b y t h e al l ege d em p l o y er o v er t h e w o rk er ; (2 ) t h e w o rk er 's opportunity

for profit or l oss; (3) the worker ’s investment in the business; (4) the pe rmane nce of the workingrelationship; and (5) the deg ree of skill re quired to pe rfor m the work.” ); Rev. Rul. 87-41, 1987-1 Cum. Bull. 296, 298-299 (c ompiling a list of twenty non-exhaustive fac tors when deter mining whe ther a

n individual was an e mploy ee or independe nt contra ctor). I ndeed, the se we re-11-

the same se ven fa ctors conside red by the Tax Court below. Thus, in order to revie w t he Ta x Court’s opinion, we consider

eac h of these se ven fa ctors in turn as they apply to the instant case. (1) The degree of control exer cised by the principal over t he details of the work As noted above , an employ er- employ ee r elationshi p i s g ener ally assumed to exist wher e “such r elationship exi sts when the person for whom service s are perf ormed ha s the rig ht to control and dire ct the individual who per forms the ser vices, not onl y

as to the re sult to be acc omplished by the wo rk bu t a lso a s to the de ta ils and me ans by

which that r e su lt i s a c c omp lis he d. ” 26 C.F .R. 31.3121(d)- 1 (F I CA); 26 C.F.R. 31.3306(i)-1 (FUT A). I n other wor ds, “it is not necessar y that the employ er a ctually

direc t or control the manner in which the ser vices a re pe rfor med; it is sufficient if he has the rig ht to do so.” Id . “Thus, no ac tual control nee d be exerc ised, as long as the e mploy er has the rig ht to control.” Professional & Exe cutive Leasing v. Comm’r , 862 F.2d 751, 753 (9th Cir. 19 88 ) ( us inga

fi ve -f a c tor te st) ; se e als o McG uire v. United States , 349 F.2d 644, 646 (9th Cir. 1965) (“The absenc e of ne ed to control should not be conf us ed with the absenc e of r ight to contr ol. The rig ht to control contemplated by the Reg ulations rele vant here and the common law as a n incident of e mpl oy me nt r e qu ir e s o nly

su c h s up e rv isi on

a s th e natur e of

the wo rk re qu ir e s. ” ); Air

T er mi nal Cab, Inc. v. U

nited States , 478 F.2d 575, 580 (8th Cir. 1973) (stating that “it is the rig ht to control which is deter

minative”). Moreove r, “[w]here the nature of a person’ s work require s littl e supervision, there is no need for actua l c ontrol.” Id ; se e als o M c Gu ire , 349 F.2d at 646 (noting that the work in question require d littl e supervision, but none theless the individuals in question wer e employ ees as t h e appellant

ma int a ine d the ri g ht to co ntr ol the ir wo rk ). F ur the rm or e , “T he me re fa c t tha t the wo rk e rs se t th e ir own hours and determined w hen to take br eaks did not make them independe nt contrac tors.”-12-

Gene ral Inv. Corp. v. United States , 823 F.2d 337, 342 ( 9th Cir. 1987). I n detailing the fa cts that supported its conclusion t hat P eno Truc king e x erc ised control over the trucke rs consistent with an employ er- employ ee r elationship, the Tax Court st ated: Pursuant to the lease s with Ohio Transport, pe titioner was re sponsible for hiring drivers, ove rsee ing al l wo rk p erf ormed by the driver s, confirmingtheir work w as p er fo rm edi nac co rd an ce wi t h t h e l ea s es , an d d i re ct i n g, s u

p erv i s i n g, p ay i n g, dis c ipl ini ng , a

nd dis c ha rg ingthe dr ive rs . Petitioner determined the day s drivers c ould work and c ontrolled which loads the drivers w ould haul. Petitioner require d the driver s to have ap p ropriate commerc ial dr ive rs ’ l ic e ns e s, de liv e r t he fr e ig ht t o c e rt a in p la c e s at c e rt a in t ime s, ma int a in dr ivi nglogs and othe r d oc ume nts , a nd c arr y be e pe rs . Pe tit ion e r, no t th e dr ive rs , deter mined whether

truck re pairs we re pe rfor med on the roa d or by its own me c ha nic s and wa s r e sp on sib le fo r a ll tru c k ma int e na nc e c os ts i nc ur

re d in ma int a ini ngthe tr

uc ks

. (f oo tno te omi tte d. ) P eno Tru c kin g c on te nd s th a t so me of the se fa c tua l c on c lus ion s are c le arl y

err oneous. F ir st, Rob e rt

Pe no , Sr ., state d at tr ia l th a t th e tr uc ke rs we re no t r e qu ir e d to c arr y be e pe rs to sta y in t ou c h w ithhim

. Howev e r, tw o o f t he su bc on tr a c t st a te me nts – b oth sti pu late d e xhibi ts – include char g es for lost pa g ers or beepe rs. Given this e vidence , the Tax Court conclude d that Peno Tr uc kin g “ re qu ir e d it s d

ri ve rs to c arr

y be e pe rs , p re suma

bly so that it c ou ld ma int a in c on ta c t w hil e the d ri v er s were on the roa d.” And, be cause of this evidence in the rec ord, this conclusion is not clea rly err oneous. See Conti v. Comm’ r , 39 F.3d 658, 664 (6 t h Cir. 1994) (noting that “the Tax Court, like any

other c ourt, may

disreg ard unc ontradicte d testimony by a taxpay er wher e it finds that te s ti mo n y la c k in g in c r e d ib il it y , o r f in d s th e te s ti mo n y to b e im p r o b a b le , u n r e a sonable or questionable.” (interna l quotation marks and citation omitted)). Second, Peno Truc king f ocuses on the fa ct t hat it did not control the rates f or the fr eig ht-13-

hauled by the trucke rs; in turn, beca use t he truckers’ income was a perce ntag e of the income f rom the fr e ig ht ha

ule d, Pe no Tr

uc kin g argue s that it did no t c on tr ol the a mou nt o f i nc ome e arn e d b y

its trucke rs. Howe ver, this conc lusion overlooks the fact that the di ffe rent truckers r ece ived diffe rent pe rc e nta g e s o f i nc ome fr om the ha ule d fr e ig ht. I t wo uld

a pp e ar t hat th e tr uc ke rs ne g oti a te d th e rate with Peno Trucking ; in this way , Peno Truckingdoes appe ar to have controlled, t o some deg ree , the income of the trucke rs. Th ir d, Pe no Tr

uc kin g e mph a size s tha t the tr uc ke rs c ou ld ch oo se wh e the r o r n ot t o a c c e pt a particula r load to haul. Thus, Peno T ru cking argues that the truc kers c ontrolled their own wor k. Whil e this may

be true , it also appea

rs to be the c ase that once a trucke r did ag ree to haul a par ticular load, Peno Truc king c ontrolled many of the c onditions under which that hauling was done. I ndeed, in its l ease with Ohio transport, Peno Truc ki ng stated that it would be “solely responsible for dir e c tin g , su

pe rv isi ng , pa

y ing , dis c ha

rg ing , dis c ipl ini ng and oth e rw ise c on tr oll ingand su c h d ri ve rs , helper s or other pe rsons.” This re prese ntation by Peno Truckingto Ohio Transport g ives strong indication that Peno Truckingdid in fact c ontrol the trucke rs in question. We therefo re co n cl ude that the Tax Court did not clearly err in determining that Peno Truckingdid exercise sufficient control over the truc kers in question to indicate the exis tence of an employ er- employ ee r elationship. (2) Which p arty invests in the facilities used i n the w ork “The fac t that a wo rk er p rovides his or her own tools ge nera lly

indicates indepe ndent contra ctor status.” Ewens & Miller, Inc. v . Comm’r , 1 1 7 T

. C

. 2 6 3 , 2 7 1 (T

. C

. 2 0 0 1 ) ( ci t i n g Breaux & Daigle, Inc . v. United States , 900 F.2d 49, 52 ( 5th Cir. 1990)). Th e Tax Cour

t, i n c on sid e ri ngthi s f

a c tor , f ound the fo llo wi ngfa c ts:-14-

The drive rs incurr ed some c ost for to o l s and maintaining their lice nses. Howe ver, these c osts were insignifica nt when compar ed to petitioner’s substantial investment to acquire and maintain the f leet of a pproxi mately

15 trucks. The drivers did not pay any of the c osts of operating the tr ucks o r t ranspor

ting the f reig ht. The ag ree ment state d p e tit ion e r a lon e wa s re sp on sib le fo r a ll ma int e na nc e of its e qu ipm e nt, a ll f

ue l, oil, tolls, 21 permits, and road f uel taxes incurre d by

the driver s on dispatched trips wh ile in p e tit ion e r’ s tr

uc ks

. (footnotes omitted.) In response , Peno Trucking emphasizes that the t rucke rs could in fac t provide their own tool s and would be entitled to take those tools with them if they chose to no long er dr ive

a Pe no tr uc k. I n a dd iti on , the pa

rt ie s sti pu late d that the dr ive rs we re re sp on sib le for pay in g toll s inc ur re d e n r ou te to p ic kin g up a loa d f or ha uli ng . Th e Ta x Cour

t no te d th e se fa c ts, bu t no ne the le ss conclude d “[t] he re lat i v el y m i nor investment by the driver s and the substantial investment by petitioner support an employ er- employ ee relationship.” The Tax Court di d not err in this eva luation. As a re sult, thi s fac tor also supports the existence of a n employ er- employ ee r elationship. (3 ) The oppo r tu nit y o f the indiv idua l forpr ofitor los s I nev al u at i n g t h i s fa ct o r, t h e T ax C o u rt s t at edt h e f o l l o wi n g: The drive rs wer e not paid an hour ly wag e or salary . They wer e paid 23 to 27 per cent of the 7 5 p ercent petitioner r ece ived per load hauled, a

nd the amounts ea

rned de pe nd e d e nti re ly

up on the numbe r o f t

ri ps the y ma de

. Th e dr ive rs did

no t a ssume any ri sk of los s. As state d in the a g re e me nt, a dr ive r c ou ld n ot i nc ur

any ind e bte dn e ss on behalf of petitioner. This fa ctor indicates an e mploy er- employ ee r elationship. Ba sed on these fac ts, the Tax Court conclude d that “[t] his f actor indicates an em p l oy er- employ ee relationship.” I n doing so, the Tax Court clearly emphasized the fa ct t h at t h e truc kers we re not

e xp o s e d to r is k o f lo s s , w h il e mi n im iz in g th e im p o rt o f th e tr u c k e r s ’ a b il it y to p r o f it b y p u r s u ing

mor e ha uli nga ssi g nme nts . E mph a sizi ngthe ri sk of los s whi le min imi zingthe op po rt un ity fo r p ro fi t comports with analy sis of this factor in Reve nue Ruling 87- 41 (1987): Re ali za tio n o f P ro fit or Los s . A w or

ke r who c an r e a lize a

pr of it o r s uf fe r a los s a s a-15-

result of the w orker ’s servic es (in addition to the profit or loss ordinar ily rea liz ed by employ ees) is ge nera lly

an indepe ndent contra ctor, but the worker who c annot is an employ ee. F or example, if the worker is subject to a real risk of economic loss due to s ign ifi c an t in v estm e nts or a bo na fide lia bil ity for e x pe ns es, su c h a s sa lar

y payme nts to unr el a t ed em ployee s, that factor indi cates that the worker is an independe nt contractor . . . . Id . ( e mph a sis a dd e d) . Ind e e d, th e Ta x Cour t ha s si mil arl y

e mph a size d th e e xpos ur e to l os se s in

w e ig h in g th is f

a ctor. See, e .g. , Jones v . Comm’r , 9 4 T .C. M. (C CH ) 2 30 , 2 00 7 T a x Ct. M e mo L EX I S 25 1, a t *9 (2 00 7) ; Hathaway v. Comm’r , 7 2 T

. C

. M

. ( C C H ) 4 6 0 , P 5 3 (1 99 6) ; Feivor v

. Comm’r , 69 T.C.M. (CCH) 2078, 1995 Tax Ct . Memo L EXI S 108, at *38-39 (1995). A nd, such an

ana ly sis e ns ur e s th a t th e mer e fact that an e mpl oy e r l ink s sa lary to p e rf or manc e do e s n ot m ili tate

a g a ins t f ind ingthat his wo rk e rs are in f a c t e mpl oy e e s. We t

he re fo re c on c lud e tha

t th e Ta x Cour

t di d not clear ly

err in deter

mining that this fac tor also indicates the e x istence of an employ er- employ ee relationship. (4) Whether ornot the principal h as the right to discharge t he ind ividu al As noted above , the rig ht to di s ch ar ge indicates the e x istence of an employ er- employ ee relationship. See, e .g. , Air Terminal Cab, Inc. , 478 F.2d at 581. I n evaluating this fa ctor, the Tax Court ma de the fo llo wi ngfi nd ing s: The parties stipulated that petitioner reta ined the rig ht to discharg e its drivers a nd the drivers ha d a rig ht to terminate their r el ationship with petiti oner. H oweve r, at trial Mr . Pe no te sti fi e d th a t he pe rs on a lly wo uld no t term in a te a

dr ive r; ins te a d O hio Transpor t or the mills would ban the driver. Mr . Peno’s testimony as to this factor was self -ser ving a nd unreliable . This fac tor indicates a n employ ee- employ er relationship. As t h i s co u rt h as p re v i o u s l y ex p l ai n ed , “w e gi v e d ef

er en ce t o t h e T ax C o u rt ’s cr ed i b i l i t y fi n d i n gs beca use of the c ourt’s opportunity to observe the wit nesses a nd their deme anor w hen they testify .” Conti v. Comm’r , 39 F.3d at 664. Thus, “ [ o]nce the Tax Court finds that the t axpay er’ s testimony-16-

lac k s c r e d ib il it

y , if th e taxp ay e r h a s o f

f e r e d n o o th e r e v id e n c e in s u p p o rt o f h is p o s it io n , the Tax Court ha s no c ho ic e bu t to ru le fo r the Com mis sio ne r, sin c e the ta xpay e r ha s fa ile d to c arry his requisite burde n of proof .” Id . (interna l quotati o n and citation omitted). This is most not ably the

c a se he re wh e re the tr ans c ri pt o f R ob e rt Pe no ’s te sti mony

se e ms i nc on sis te nt o n it s f a c e . B e c a us e of the Tax Court’s cre dibilit y deter mination, this fac tor also s u p p o rt s a finding that an e mploy eremploy ee r elationship exi sted. (5 ) Whe th e r th e wor k is p ar t o f the pr inc ipa l’ s r e gul ar busi ne ss I n its brief, Peno Truc king c oncede s that t h i s fa ct or supports a f inding of an employ eremploy ee r elationship. (6 ) The pe r m ane nc y o f the r e lat ion ship Ac c or din g to t

he Ta x Cour

t, “ [t]he dr ive rs wo rked in the c ours e of pe tit ion e r’ s b us ine ss rathe r than having a

transitory

relationship wit h petitioner. This fa ct o r supports an employ er- em

p loy ee r elationship.” Howe ver, a s Peno Truckingcorr ectly notes, the trucke rs wer e not require d to work any

particula r hours or da

y s. These f

acts make it somewhat difficult to deter mine wh e the r t he re wa s, in f

a c t, a “ pe rm ane nt” re latio ns hip . T hat be ingsa id, su c h a de te rm inatio n is a fac tual deter

mination, which we r eview f or cle ar e rror . Moreove r, the a bsence of t h i s fa ctor ha s limit ed import in eff

ectingthe employ ee- independe nt contrac tor ana ly sis. See Avis Rent A C ar System, I nc. v. U nited States , 503 F.2d 423, 430 (2d C ir. 1974) (f inding the individuals in question to be employ ees de spite their bein g t ransient a nd noting that the individuals in Sil k we re a lso transient and still deeme d by the Supreme Court to be e mploy ees) . We theref ore c onclude that the T ax C ourt did not clear ly err in finding that this factor indicated the existence of a n employ eremploy ee r elationship.-17-

(7 ) The r e lat ion ship th e par ti e s be lie ve th e y a r e c r e at ing The re cord doe s provide evide nce that Peno Trucking an d i t s t rucke rs believe d they wer e

cre ating an indepe ndent contra ctor relationship. Mos t notably , the contra cts betwe en Peno Truc king

and its tr uc ke rs sp e c if

ic a lly state d that the tr

uc ke rs we re to b e c on sid e re d in de pe nd e nt c on tr a c tor s. Howeve r, as noted by

the Tax Court, “[i ]f the relations h i p o f em p l oy er a nd employ ee e x ists, the desig nation or desc ription of the re lationship by the parties as any thing other than t hat of employ er and employ ee is immateria l. Thus, if such re lations h i p ex i s ts, it i s of no conse quence that the employ ee is de signated as a partne r, coadve nturer, a g ent, independe nt contrac tor, or the like.” 26 C.F.R. 31.3121(d)- 1(a) (3). I n sum, the fac tors detailed a bove we igh he avily

in favor of finding an employ er- employ ee relationship, combined with the fact that it is Peno Trucking ’s burden to pr ove by a pre pondera

nce of t he evidence that the Commi ssioner er red in his assessment, see Bole s Trucking , 77 F.3d at 239, the belief s of the par

ties simply

cannot unde rmine the Tax Court’s conclusion. Ther efor e, base d on the fa ctual and c redibility

deter minations of the Tax Court, we conclude that the trucke rs in question

we re em p l o y ee s o f P en o T ru ck i n g. I V. Despite the f

oreg oing c onclusions, Peno Truckingcan still avoid liability under the safe harbor provisions of § 530 of the Reve nue Ac t of 1978. Se c tio n 5 30 of

the Re ve nu e Ac t of 1 97 8 ( “ § 5 30 ” ) p ro vid e s f or the te rm inatio n o f t a x lia

bil ity if “for purposes of e mploy

ment taxes, the taxpay er did not treat an indi vidual as an employ ee f or any period” ; “all Fe dera l tax returns ( including inf ormation retur

ns) re quired to be filed by the taxpay er with respec t t o s u ch i n dividual for such pe riod are filed on a ba sis consistent with the tax pay er’ sSection 530 of the Reve nue Ac t of 1978 wa s initi ally intended to provide inter im tax relief

. 1 Howeve r, althoug h never

codified, it was extended indefinitely by § 269 of the Tax Equity

and F iscal Re sp on sib ili ty

Ac t of 19 82 (“ TE F RA ” ), Pub

. L

. No

. 97 -2 48 , 96 Stat. 32 4, 55 2. I t is re pr od uc e d in the notes following 26 U.S.C. § 3401. Se e als o Springfield v. United States , 88 F.3d 750, 751 n.2 (9th Cir. 1996) (summarizing le g islative history). -18- tr e a tme nt o f s uc h in div idu a l a s no t be ing an e mpl oy e e ” ; and the e mpl oy e r h a d a

“ re a so na ble ba sis for not tre ating such individual as an e mpl o y ee . ” P u b

. L . No. 95-600, 92 Stat. 2763, 2885-86 (re produce d at 26 U.S.C. § 3401 note § 530 (a) (2))

. Amo ng the g rounds g iving r ise to a such a 1

re a so na ble ba sis , § 53 0( a )( 2) inc lud e s “ jud ic ia l pr e c e de nt, pu

bli sh e d ru lin g s, te c hn ic a l a dv ic e wi th respe ct to the taxpay er, or a letter ruling to the taxpay er . . . .” Id . at 2885. Whether Peno Tr ucking

can satisfy

the “r easona

ble basis” r equire ment of § 530 is a question of law that we revie w de novo

. See Spic er Acc ounting v. United States , 9 1 8 F. 2 d 9 0 , 9 4 (9 t h C i r. 1 9 9 0 ) ( ap p l yi n g de novo revie w to whether

the appe llant had a “ rea so nable ba sis” for not tre ating the individuals in question as

e mpl oy e e s) ; cf. United States v. Talley , 2 75 F .3 d 5 60 , 5 63 (6 th C ir . 2 00 1) (n oti ng , in the F ourt h Amendment conte x t, that “[t] he question of whether a belief is rea sonable is one we revie w de novo, since the r easona

bleness test is objective, not subjec tive”). Se c tio n 5 30 a lso pr ov ide s a sp e c if ic burd e n- sh if

tin g sc he me : “ I f ( i) a

ta xpay e r e sta

bli sh e s a pr ima fa c ie c a se that it wa s re a so na ble no t to tr e a t an in div idu a l a s an e mpl oy e e fo r p ur po se s o f t his section, and (ii) t he tax pay er has fully cooper ated with rea sonable requests from the Secr etar y of the Trea sury or his deleg ate, then the burden o f p ro o f with respe ct to such treatment shall be on the Se c re tary .” P ub

. L

. No. 1 04 -1 88 , 1 10 Stat. 1 75 5, 17 67 (r e pr od uc e d at 26 U. S.C. § 3 40 1 n ote § 530 (e )( 4) (A )) . I t is the pe tit ion e r’ s in iti a l bu rd e n to e sta

bli shhis prima facie c a s e b y a preponde ranc e of the evidenc e. See Dains v. United States, Internal Rev enue Se rvice , 82 A.F.T .R.2d (RI A) 5044, 1998 U.S. App. L EXI S 14924, at *21 (6th Cir. 1998) (apply ing a preponde ranc e of the-19-

e vid e nc e sta

nd ard to t he re a so na

ble ba sis sh ow ingun de r § 53 0) ; se e als o Sp ringfi e ld , 88 F.3d at 752- 53 (applying a

preponde rance o f t h e evidenc e standa rd despite Cong ress’s “ liberally construed” direc tive). I n the instant case , Peno Trucking argues that it ha s satisfied the re quirements of § 530’ s safe harbor provision. As evidenc e of this claim, Peno Truc king note s that the Tax Court concluded that “[Peno Trucking ] never tre ated the drivers as employ ees and consistently issued them For

ms 1099- MI SC.” This comports with the tax returns Peno Tr ucking provided the Commi ssioner for the year s in question, 1997-1999. Peno Trucking argues t hat t he decisions of t he OI C and the BWC issued in response to the w orker s’ compensation claims o f Ch a tf ie ld a n d Ja mison provided rea sonable ba ses fo r t re a tin g the tr

uc ke rs in q

ue sti on a s in de pe nd e nt c on tr a c tor s. We believe that Peno Tr ucking has cle arly

es tablished a prima facie case that it was

rea sonable not to treat the trucke rs in question as employ ees, thus shifting the burden of proof to the Com mis sio ne r fo r the purp os e s of our § 530 ana ly sis

. Pe no Tr uc kin g ’s ta x re tur

ns fo r t he y e ars in qu e sti on and re pr e se ntativ e c on tr a c ts f or the tr uc ke rs in q

ue sti on c on sti tut e su ff

ic ie nt e vid e nc e to make out a prima facie showing that it had alway s treate d the trucke rs in question as independe nt contra ctors and that it has alway s filed its tax returns in a manner consistent with this t reatment. Although the rea sonable ba sis requireme nt presents a som ewhat more complex issue, the leg islative his t o ry fo r § 530 counse ls finding that r eliance on the dec isions from the OI C and the BWC satisfy

this inqui ry . Section 530 was orig inally passed “to provide interim relief for taxpay ers who ar e in v o l v edi nem p l o y m en tt ax s t at u s co n t ro v er s i es wi t h t h e Int ern al R ev en u e S erv i ce , an d who potentially

fac e lar g e assessments, as a result of the Service ’s proposed r ecla ssifications of worke rs . . . .” H.R. Rep. No. 1748, 95th Cong ., 2d Sess. 5, re pr inte d in 19 78 -3 C.B. 6 29 , 6 32 [“H ou se-20-

Re po rt ” ]. T o th a t e nd , § 53 0 w a s in te nd e d to “ g ra nt[] r e lie f i f a ta xpay e r ha d an y re a so na ble ba sis for treating wor

kers a s other than e mploy ees.” Id

. at 632-33. Most notably , Congr ess intended “ that this reasona

ble basis re quirement be construed liber ally in favor of

taxpay ers.” Id

. at 633. As the Ninth Circuit has st ated, “[w] ithout question, Congr ess i ntended to protec t employ ers who e x erc ised g ood faith in deter

mining whe ther their w orker s were emp l o y ees or independe nt contrac tors.” Gene ral Inv. Corp. v. United States , 823 F .2 d 337 , 340 (9 th C ir . 1 98 7) ; see also Mc Clellan v. United States , 900 F. Supp. 101, 104-06 (E .D. Mich. 1995). Gi ve n th is p ur

po se , it is n ot s ur

pr isi ngthat ot

he r c ourt s h a ve c onstr

ue d th is “ re a so na

ble basis” standard as requiringrelianc e in-fa ct. See, e .g. , 303 W est 42nd St. Enters. v. IRS, 181 F.3d 272, 277 (2d C ir. 1999) (f ocusing its inqui ry

on whether

there the appe llant “in fac t relied on” the g ro un ds a lle g e d) ; Nu

-Lo o k D es ig n , I n c . v . Co m m ’r , 85 T. C. M. (C CH ) 9 27 , 2 00 3 T a x Ct. M e mo L EXI S 48, at *21 (200 3 ) (“The statute doe s not countenanc e ex post facto justification.”)

. I mpo rt antl y , th is r e qu ir e me nt f un c tio ns a s a doub le -e dg e d s wo rd . Wh ile on the on e ha

nd , c ourt s must li bera lly

construe pote ntial gr ounds for re asonable relianc e, courts must be ext reme ly vigilant in onl y a p p ly in g th e ta x r e li e f a f

f o r d e d b y § 5 3 0 w h e n “ th e taxp ay e r . . . r e li e d o n the alleg ed authority

. . . at t he time the employ ment decisions wer e beingmade.” Veterinary Surgical Co n s u lt a n ts , P

. C. v . Co m m’r , 8 5 T.C.M. (CCH) 901, 2003 Tax C t. Memo L EXI S 52, at *24-25 (2 00 3) ; se e als o 3 03 W

est 4 2n d S

t. E nte rs. , 181 F.3d at 277. I n applying the rea sonable basis requireme nt, the Tax Court concluded that re liance on the decisions of the B WC and the OI C could not be consider ed re asonable . I n rea ching this conclusion, the Tax Court cited Nu-Look Design , for the pr op os iti on that “[f]o r a ta xpay e r to ha ve a re a so na ble basis for not tre ating an individual as an e m p l o y ee unde r the judicial pre cede nt safe ha rbor, theThe Tax Court also stated that it ha d no evidenc e that the Ohio Court of Common Pleas used 2 fede ral c ommon law analy sis. The rec ord does not indicate that there ever was an adjudication of any claims in the Court of Common P leas, only that Chatfield filed an ap p eal of his independent contra ctor de signation and then withdrewthat appea l on J une 18, 1996. -21- judicial prec edent r elied upon must have e valuated the employ ment relationship throug h a F eder al common law ana ly sis.” And, ac cordingto the Tax Court, “[ t] he re cord doe s not indicate that t he BW C [ or] th e OI C . . . e va luate d th e e mpl oy me nt r e latio ns hip s o f p e tit ion e r’ s f or me r d ri ve rs , Chatfield and Jamison, through a common law an al y s is.” We disag ree with the Tax Court’s 2 conclusion. I n d oin g so , w e be g in b y no tin g tha

t, a lth ou g h n ot p art

of the re c or d b efor e us , th e Oh io B oa rd of Work er’s Com

pe ns a tio n a

pp e ars to e mpl oy

a tw e nty -f a c tor c omm on -l aw t e st v ir

tua lly identical to the twenty -fa ctor test outlined by I nterna l Revenue Ser v i ce fo r deter mining whe ther individuals a re e mploy ees or independe nt contrac tors. Com p a r e h tt p :/ /ww w . o h io b w c . c o m/ in f

o s tati o n /c o n te n t/ 1 /1

. 2 /1

. 2

. 8

. 1

. 2

. 2

. 1

. h tm ( s ta ti n g th a t t

h e O h io B WC uses t he twenty -fa ctor test outlined at O.R .C. § 4123.01(A)(1) (c) ), and O.R.C. § 4123.01(A)(1) (c) , with Rev. Rul. 87-41; 1987-1 C.B. 296 (outlining the I nterna l Re venue Service ’s t we n t y -fa ctor common law test). Indeed, at oral ar gument the Commiss ioner c ould not point t o another jurisdiction in the United States that u s es a test for differ entiating betwee n employ ees a nd independe nt contrac tors at odds with ty pical common-la

w tests. Thus, much of the Commissioner’s argument stands on shaky g round. But more importantly , Nu-Look Design is clear ly distinguishable f

rom our own c ase. In NuLook Design , the pe tit ion e rs re lie d up on the langua g e in p re vio us ly de c ide d c a se s, a

pp lyingthe log ic of those case s to their own. Nu-Look Design , 2003 Tax Ct . Memo L EXI S 48, at *21. I n our own-22-

c a s e , Pe n o T r

u c k in g r e c e iv e d o f

f ic ia l de te r mi n a ti o n s

–

th e d e te r mi n a ti o n s o f

th e O I C a n d th e B WC – as to the status of its trucker s. Peno Trucking did not eng ag e in the ty pe of spe cious application of prior c ase la

w that per

vaded the argum en t s of the petitioner in Nu-Look Design . I ndeed, Peno Trucking ’s re liance on the officia l de terminations of the OI C and the B WC would seem to satisfy the re asonable basis require ment. Th is i s e sp e c ia lly

the c a se in c ir c ums tanc e s li ke ours , w he re the ind ivi du a l s i n q u e sti on , w hil e ult imate ly

de te rm ine d to be e mpl oy e e s, re se mbl e ind e pe nd e nt co ntr a c tor s on ma ny c ounts . I t is in

su c h c a se s w he re c ourt s c an be c on fi de nt that § 5 30 fu nc tio ns to a dv anc e its le g isl a tiv e purp os e : “ to protec t employ ers who exercised g ood faith in deter mining whe ther their w orker s were employ ees or indepe ndent contra ctors.” Gene ral Inv. Corp. , 823 F.2d at 340 (9th Cir. 1987). Wit h the burde n shifted, the Commissi oner ha s not demonstrated that Peno Tr ucking does not qualify

for tax relief unde r § 530. See M cClellan , 900 F. Supp. at 107 (“ Once the taxpay er ha s

ma de thi s prima facie showing , the burde n then shifts to the I RS to verif y or re fute the ta x pay er’ s explanation.”). The Commissioner has not presented any evidenc e of Peno Tr

ucking ’s treatment of the tr u c k e r s in qu e s ti o n in a ma n n e r in c o n s is te n t w it

h th a t o f an in d e p e n d e n t c o n tr a c tor and the Commi ssioner has not pre sented a ny tax returns, filed by

Peno Trucking , that would be inconsistent with its t rucke rs’ independe nt c ontrac tor status. I n addition, the Commi ssioner has not alleg ed that Peno Truckinghas fa iled to cooper ate in any way with th e re as o n ab l e reque sts made in the

un de rl yinga

ud it. The Commissioner d o es argue , howeve r, that Peno Truc king c ould not have in fa ct re lied upon the dec isions of the OI C and the BWC beca use t hose determinations came afte r t he dec ision to treat the truc kers in question as indepe ndent contra ctors. This ar g ument o v er l o o k s t h e fa ctualTh e Com mis sio ne r, in his br ie f, se e ms to a rgue that th e OI C’ s d e c isi on in C hatf ie ld’ s c a se 3 could not have been relied upon beca use C hatfield could still have pursued an appea l of the OI C’s decision in the Court of Common P leas until J une 18, 1997. While this m ay in fac t have be en the case , the Commiss ioner fa ils to ex plain why the mere fac t that Chatfield could have appea led the decision of the OI C until J une 18, 1997 should preclude Peno Truckingfrom re ly ing on the decision of the OI C pr ior

to t hat po int

. -23- rec ord h ere. Althoug h the dec isions of the BWC and the OI C in response to J amison’s worke rs compensation c laim w ere rende red in late 1997, too late to have a ctually serve d as the ba sis for Peno Trucking ’s employ

ment decision, the OI C’s decision to treat Chatfield as an inde pendent c ontrac tor

was re ndere d on October 25, 1995. Thus, Peno Trucking could have in fac t relied upon the de cision of the OI C in making its employ ment decision for

the y ear s in question – 1997 though 1999 – to tre at its tr uc ke rs a s in de pe nd e nt c on tr a c tor s. I nd e e d, Rob e rt Pe no , Sr ., te sti fi e d at tri a l th a t th is w a s in 3 fac t what he had done. The Com missioner has not provided a ny evidenc e to the contr ary . There fore , pursuant to § 530, we c onclude that Pe n o T ru ck i n g is eligible f or re lief fr om the tax l iabilities imposed upon it by

the Commiss ioner. V. F or the fo re g oin g re a so ns , w e re ve rs e the de c isi on of the Tax Cour

t.