1 Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

T.C. Memo. 1997-517

UNITED STATES TAX COURT

RAYMOND VERNI SCHROEDER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15218-96. Filed November 17, 1997.

Raymond Verni Schroeder, pro se.

Edith E. Siler, for respondent.

MEMORANDUM OPINION

GOLDBERG, Special Trial Judge: This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent

determined a deficiency in petitioner's Federal income tax for
2

2 The resolution of this issue depends on the computation of

adjusted gross income and is controlled by our decision with

respect to the first three issues.

1993 in the amount of $5,083, and an accuracy-related penalty in

the amount of $244 pursuant to section 6662(a).

The issues are: (1) Whether petitioner is liable for tax on

additional wage income in the amount of $170 earned by Debra

Schroeder (petitioner's deceased wife); (2) whether certain

income earned by petitioner constitutes earnings from

self-employment within the meaning of section 1402, subject to

tax imposed by section 1401; (3) whether Social Security benefits

received by petitioner and Mrs. Schroeder are taxable; (4)

whether petitioner is entitled to a deduction for taxes in excess

of the amount allowed by respondent; (5) whether petitioner is

entitled to a deduction for an amount paid to the Neptune Society

of California; (6) whether petitioner is entitled to a deduction

for medical expenses in excess of the amount allowed by

respondent;2 and (7) whether petitioner is liable for an

accuracy-related penalty for the year in issue.

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein. Petitioner resided in Downers Grove,

Illinois, at the time his petition was filed. 

Petitioner is a mechanical engineer. Petitioner was laid

off from that position some time prior to 1993. In February
3

3 All amounts have been rounded.

1993, petitioner was contacted by Richard Sheriff, the president

of Astron DS Corporation (Astron). Astron manufactures wire

display racks. In April or May 1993, petitioner reached an

agreement with Richard Sheriff to perform services for Astron. 

No written contract was executed. Petitioner was engaged by

Astron to assist in relocating its existing plant operations to a

new location. Petitioner's primary responsibility was to advise

Richard Sheriff's son, David Sheriff, on this project.

Astron provided petitioner with a drawing board, a desk, a

telephone, and other supplies. Astron did not provide any

benefits to petitioner in the form of vacation or sick leave or

participation in a pension plan or health plan. Petitioner did

not fill out any forms with respect to the withholding of taxes

from his payments from Astron, and Astron did not withhold any

taxes from payments to petitioner. Petitioner submitted invoices

to Astron with respect to the work he performed. In October or

November 1993, Richard Sheriff terminated petitioner. Petitioner

received Form 1099-MISC from Astron, showing Astron paid

petitioner nonemployee compensation in the amount of $44,2443 in

1993. 

During 1993, petitioner and Mrs. Schroeder received Social

Security benefits in the respective amounts of $14,851 and
4

$6,523. Mrs. Schroeder also earned wage income in the amount of

$170 from the DuPage County board of elections. 

Petitioner's sister-in-law, Mrs. Schroeder's sister, died

and was cremated during 1993. His sister-in-law was a follower

of the Neptune Society of California, a religious order. In

accordance with the beliefs and customs of the Neptune Society,

her ashes were transported out to sea by boat and a religious

service was performed. Petitioner and Mrs. Schroeder paid the

Neptune Society $1,010 in connection with this service.

Petitioner and Mrs. Schroeder filed a joint Federal income

tax return for 1993. Mrs. Schroeder died in July 1994. On their

return, they reported no wage income and no taxable Social

Security benefits. On Schedule C of their joint return,

petitioner reported gross receipts in the amount of $44,244 and

deducted expenses totaling $14,581 from his principal business

which he identified as that of management consultant. The

expenses claimed on Schedule C are as follows:

Expense Amount

Advertising $248

Car and truck expense 1,882

Insurance 1,116

Legal and professional services 221

Office expense 2,943

Repairs and maintenance 7,147

Meals and entertainment 918

 Total $14,475

In addition, petitioner claimed home office expense in the amount

of $106 on Schedule C. On Schedule A, petitioner and Mrs.
5

4 The difference between this and the amount claimed appears

to be due to rounding. Respondent also decreased income by $1.

Schroeder claimed medical expenses, other taxes, and other

miscellaneous deductions in the respective amounts of $5,093,

$998, and $1,160.

In the notice of deficiency, respondent increased

petitioner's income by $170 to reflect unreported wages earned by

Mrs. Schroeder. Respondent determined that petitioner was

required to include in income Social Security benefits in the

amount of $5,461. Respondent determined that petitioner was

liable for self-employment taxes in the amount of $4,191. 

Respondent disallowed a portion of petitioner's claimed deduction

for medical expenses in the amount of $265 as a computational

result of the adjustments to petitioner's income. Respondent

also disallowed a portion of petitioner's claimed deduction for

taxes in the amount of $9994 as personal expenses. Respondent

disallowed a portion of petitioner's miscellaneous itemized

deductions in the amount of $1,125 as personal expenses. 

Respondent allowed a deduction for one-half of the selfemployment taxes determined, or $2,096. Respondent further

determined an accuracy-related penalty in the amount of $244 on a

portion of the deficiency in the amount of $1,222. 

Respondent's determinations are presumed correct, and

petitioner has the burden of proving them erroneous. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
6

Wage Income

Gross income includes compensation for services. Sec. 61. 

Petitioner admits that during 1993 Mrs. Schroeder received wages

in the amount of $170 from the DuPage County Board of Election

Commissioners. Petitioner does not contend that this amount is

excludable from gross income, and he has not established that

this amount was included in gross income reported on his joint

return for 1993. Respondent is sustained on this issue.

Self-Employment Tax

Petitioner contends that he provided services to Astron as

an employee, not as an independent contractor. Petitioner argues

that his compensation received from Astron is not subject to

self-employment tax. Respondent determined that petitioner is

liable for self-employment tax on his net earnings derived from

services performed for Astron because petitioner was acting as an

independent contractor.

A self-employment tax is imposed on net earnings of $400 or

more from self-employment income. Secs. 1401 and 1402(b). The

term "self-employment income" is defined as income derived by an

individual from carrying on a trade or business, less the

allowable deductions attributable to such trade or business. 

Sec. 1402. 

Whether an individual is an employee in a given situation is

a factual question to be determined by application of common-law
7

principles to the particular circumstances presented. Secs.

1402(d), 3121(d)(2); Nationwide Mut. Ins. Co. v. Darden, 503 U.S.

318 (1992). Factors that are relevant in determining whether an

individual is a common-law employee include: (1) The degree of

control exercised by the principal over the details of the work;

(2) the individual's investment in the work facilities; (3) the

individual's opportunity for profit or loss; (4) the permanency

of the relationship between the parties; (5) the principal's

right to discharge the individual; (6) whether the work is an

integral part of the principal's business; (7) the relationship

that the parties think that they are creating; and (8) whether

fringe benefits are provided. NLRB v. United Ins. Co. of Am.,

390 U.S. 254, 258 (1968); Weber v. Commissioner, 103 T.C. 378,

387 (1994), affd. 60 F.3d 1104 (4th Cir. 1995). Although no one

factor is controlling, the degree of the principal's control over

the details of the work is the most important factor. Weber v.

Commissioner, supra at 387. An employer generally has the right

to control not only the result to be accomplished, but also the

details and means by which it is accomplished. Sec. 31.3401(c)-

1(b), Employment Tax Regs.

Although the record is scant, several of the factors tend to

indicate that petitioner was an independent contractor. Astron

did not control or direct petitioner in his activities. In

addition, Astron did not provide petitioner with any fringe
8

benefits. It appears that Astron believed it was creating an

independent contractor relationship with petitioner; Astron did

not withhold any taxes, and it required petitioner to submit

invoices for payment on work completed. Astron hired petitioner

to complete a specific project, i.e., the relocation of its

existing operations, suggesting that his employment was not

permanent or indefinite. Furthermore, petitioner's work was not

an integral part of Astron's business, the fabrication of wire

display racks.

On the other hand, other factors do favor petitioner's

contention. Astron provided petitioner with the facilities to

conduct his work, and petitioner apparently was subject to

discharge. It does not appear that petitioner had an opportunity

for profit or loss.

Other factors are neutral. Petitioner testified that he

believed he was hired as an employee, but it is also clear that

petitioner recognized that his relationship with Astron and the

manner in which he was paid were not the same as that he

experienced with a previous employer. The expenses claimed on

petitioner's Schedule C suggest that petitioner had an investment

in his facilities. However, petitioner testified that the office

expenses claimed related to his work for other companies,

although he did no such work during the year in issue. 
9

5 This includes additional wage income of $170 and allowing a

deduction of $2,096 for one-half of the self-employment taxes

determined by respondent.

Furthermore, petitioner could not recall what the largest

expense, repairs and maintenance, represented.

Based upon our review of the relevant factors, we find that

petitioner was compensated as an independent contractor by Astron

during 1993. Therefore, petitioner's net earnings therefrom are

subject to self-employment tax. Respondent is sustained on this

issue. 

Social Security Benefits

Section 86(a) provides that gross income includes Social

Security benefits in the amount equal to the lesser of: (1) One

half of the Social Security benefits received during the year; or

(2) one-half of the excess of the sum of (a) modified adjusted

gross income and (b) plus one-half of the Social Security

benefits received over the base amount. The base amount for

taxpayers filing a joint return for 1993 is $32,000. Sec.

86(c)(1)(B). For 1993, petitioner's modified adjusted gross

income equals adjusted gross income. See sec. 86(b)(2).

Petitioner argues that the calculation pursuant to section

86 does not result in the inclusion of any Social Security

benefits in income for 1993. The sum of one-half of the Social

Security benefits received, $10,687, and modified adjusted gross

income for 1993, $32,251,5 equals $42,928. This amount exceeds
10

the base amount, $32,000, by $10,938. One-half of this excess is

equal to $5,469, which amount is less than one-half of the Social

Security benefits received, $10,687. Respondent adjusted

petitioner's income by $5,461 pursuant to section 86. Respondent

is sustained on this issue.

Deduction for Taxes

Deductions are a matter of legislative grace, and

petitioners must prove entitlement to any deductions claimed. 

New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). 

Section 262 prohibits the deduction of personal, living, or

family expenses. Prior to 1986, section 164(a)(4) allowed a

deduction for State and local sales taxes paid during the taxable

year. Section 164(a)(4) was repealed by section 134(a)(1) of the

Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2116.

Petitioner testified that the taxes, for which he claimed a

deduction in the amount of $998, were State sales taxes and taxes

imposed on utilities purchases. These taxes are not deductible

under section 164. Respondent is sustained on this issue.

Other Miscellaneous Deductions

Petitioner claimed a deduction in the amount of $1,010 paid

in connection with his sister-in-law's burial and service held at

sea. Petitioner seems to argue that because this was required in

accordance with his sister-in-law's beliefs, the amount

represents a religious expenditure or charitable contribution.
11

Petitioner had not established that the payment to the

Neptune Society was made for any purpose other than to bury his

sister-in-law in accordance with her religious beliefs. These

costs were personal expenses and are not deductible. Sec. 262. 

Respondent is sustained on this issue.

Petitioner's trial memorandum lists payments claimed as

other miscellaneous deductions. Petitioner presented no evidence

as to the purpose for these expenditures. Therefore, petitioner

has failed to establish that he is entitled to a deduction for

any other miscellaneous expenses. Respondent is sustained on

this issue.

Accuracy-Related Penalty

Section 6662(a) imposes an accuracy-related penalty equal to

20 percent of the portion of any underpayment of tax that is due

to negligence. Sec. 6662(a) and (b)(1). The term "negligence"

includes any failure to make a reasonable attempt to comply with

the provisions of the Internal Revenue Code. Sec. 6662(c).

No penalty will be imposed under section 6662(a) with

respect to any portion of an underpayment if it is shown that in

regard to such portion there was reasonable cause and that the

taxpayer acted in good faith. Sec. 6664(c)(1); sec. 1.6664-4(a),

Income Tax Regs. This determination is based on all of the facts

and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. 
12

Isolated computational errors are not inconsistent with

reasonable cause and good faith. Id.

Respondent determined an accuracy-related penalty on a

portion of the deficiency in the amount of $1,222. It is not

entirely clear to which adjustments this portion of the

underpayment is attributable. However, it appears that

respondent did not determine the penalty on the underpayment

attributable to self-employment taxes of $4,191 and the

associated reduction in income taxes resulting from the deduction

allowed with respect to the self-employment tax.

Based on the record, we find that the penalty does not apply

to the portion of the underpayment attributable to the adjustment

with respect to the taxable Social Security benefits.

To reflect the foregoing,

Decision will be entered

under Rule 155.