T.C. Memo. 2007-331

UNITED STATES TAX COURT

RONALD E. BYERS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11606-05. Filed November 5, 2007.

Ronald E. Byers, pro se.

Kristin M. Timmons, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

SWIFT, Judge: Respondent determined deficiencies in

petitioner’s Federal income and self-employment taxes and

additions to tax as follows:
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 Additions to Tax 

Year Deficiency Sec. 6651(a)(1) Sec. 6654

 1999 $ 7,921 $1,980 $ 12

 2000 25,179 6,294 1,344

2001 13,601 3,400 543

2002 11,571 2,892 386

Unless otherwise indicated, all section references are to

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

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

Procedure.

The primary issues for decision are the amount of

petitioner’s 1999, 2000, 2001, and 2002 income, whether

petitioner is liable for self-employment taxes on the income, and

whether petitioner is liable for the additions to tax determined

by respondent.

FINDINGS OF FACT

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

At the time the petition was filed, petitioner resided in

Wayzata, Minnesota.

In 1999, petitioner applied for and received a commercial

driver’s license. Shortly thereafter, petitioner answered an

advertisement placed by Edina Couriers, Inc. (ECI), for truck

drivers.
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1 References herein to ECI truck drivers is for convenience

only and is not intended to suggest an employment relationship

between Edina Couriers, Inc. (ECI), and the truck drivers.

ECI operated a delivery service based in Minneapolis,

Minnesota, offering deliveries by bicycle, car, and truck.

On June 9, 1999, petitioner entered into a written 

“Contractor Operating Agreement” (operating agreement) with ECI

under which petitioner agreed to be a truck driver for ECI,

picking up and delivering goods to and from ECI customers. For

his services, petitioner was to be paid by ECI 70 percent of the

gross amounts ECI billed its customers relating to deliveries

made by petitioner. 

As ECI received orders from customers, ECI used a dispatch

center to coordinate and to assign to the truck drivers the

pickups and deliveries. Truck drivers who wished to work on a

particular day reported to ECI’s dispatch center their

availability--usually for approximately 10 hours at a time. 

Throughout the day, truck drivers kept in contact with the ECI

dispatch center using cell phones and pagers. 

Usually, truck drivers determined for themselves which

routes to take and in what order to make pickups and deliveries

for ECI.

As indicated, because ECI truck drivers1 were not paid a set

wage but rather a percentage of the gross dollar amounts ECI
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billed its customers, each day ECI truck drivers earned more the

more deliveries they made.

ECI truck drivers did not bill ECI’s customers, did not

receive payments from customers, and did not involve themselves

in collection problems when customers failed to pay ECI for

deliveries.

Under the operating agreements, truck drivers could

terminate their contract with ECI with 30 days’ notice. In

practice, ECI allowed truck drivers to quit immediately without

giving advance notice.

Truck drivers with ECI did not accrue paid sick or vacation

leave or health or pension benefits.

Under the ECI operating agreements, truck drivers were not

precluded from making deliveries for companies other than ECI,

and typically truck drivers at their discretion could choose to

work or not work on any particular day without affecting their

status with ECI. 

ECI did not provide trucks for the truck drivers to make

deliveries. Most of the ECI truck drivers owned their own trucks

outright or leased trucks through a company not related to ECI. 

However, some truck drivers, including petitioner, leased trucks

from Conrad Companies, Inc. (CCI), a company related to ECI. 

Also, truck drivers could lease from CCI cell phones and pagers

and could purchase from ECI work clothes.
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Whether the trucks were owned or leased by the drivers, ECI

did not pay the truck drivers for fuel, insurance, or maintenance

costs of the trucks. If truck drivers leased trucks from CCI to

make deliveries, CCI provided tools and other equipment (such as

pallet jacks) for the purpose of making ECI deliveries, and CCI

also paid the fuel, insurance, and maintenance costs for the

leased trucks. In return, the truck drivers who leased trucks

from CCI owed CCI monthly lease payments on the trucks equal to

approximately 55 percent of the amounts ECI owed the truck

drivers for deliveries.

Under a typical lease agreement with CCI, a particular CCI

truck might be used by different truck drivers within a 24-hour

period. 

Generally, trucks leased from CCI were required to be parked

overnight on ECI property, and trucks owned by the truck drivers

and trucks leased by the truck drivers from a company other than

CCI were not to be parked overnight on ECI property.

ECI treated the truck drivers, including petitioner, as

independent contractors. The June 9, 1999, operating agreement

that petitioner entered into with ECI referred to petitioner as

an independent contractor. For example, clause nine of the

operating agreement provided as follows:

9. Independent Contractor Relationship.

[Petitioner] agrees and understands that the

relationship created by this Agreement between himself

and ECI is solely one wherein [petitioner] * * * is an
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2 One of petitioner’s credit cards indicates a payment to

“We the People”, a tax protester organization discussed in United

States v. Simkanin, 420 F.3d 397, 400-401 (5th Cir. 2005), and in

United States v. Schulz, 100 AFTR 2d 2007-5538, 2007-2 USTC par.

50,619 (N.D.N.Y. 2007).

independent contractor and that [petitioner] * * * or

any drivers furnished pursuant to the terms hereof will

not be employees of ECI. [Petitioner] * * * agrees to

be responsible for any wages due said drivers, the

withholding or any taxes, social security payments or

other similar salary deductions. * * *

During the years in issue, twice a month petitioner received

settlement reports from ECI reflecting petitioner’s gross

earnings. The settlement reports also reflected deductions for

the truck lease payments petitioner owed to CCI that were

deducted from petitioner’s ECI earnings and remitted by ECI to

CCI. 

During some of the years in issue, petitioner also oversaw

CCI vehicles parked overnight on ECI’s property, and petitioner,

at ECI’s request, provided training to new truck drivers. For

these services, petitioner received additional earnings from CCI

and from ECI, respectively.

During the years in issue, petitioner maintained in his own

name two credit card accounts and one personal bank line of

credit, and petitioner maintained in his own name and in the name

of his wife Deanna L. Byers a joint personal checking account.2

Neither ECI nor CCI ever withheld from petitioner’s earnings

Federal or State income or employment taxes, and no deduction for
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Federal or State income tax withholding was ever shown on the

settlement reports that petitioner received from ECI. 

For each year in issue, ECI submitted to respondent and to

petitioner Forms 1099-MISC, Miscellaneous Income, reflecting for

each year petitioner’s cumulative gross earnings that ECI had

reflected on the settlement reports for each year and not

reflecting earnings petitioner received for training truck

drivers. 

None of the earnings petitioner received from ECI were

reported to respondent on a Form W-2, Wage and Tax Statement. 

CCI did not submit to respondent or to petitioner Forms 1099

relating to petitioner’s compensation for oversight of CCI

vehicles. 

For the years in issue, petitioner’s annual gross earnings

from driving trucks as reflected on the Forms 1099 ECI submitted,

the amounts deducted by ECI and remitted to CCI for truck lease

payments, and the difference between the two are as follows:

Year Gross Earnings Truck Lease Payments Difference

1999 $49,814 $25,900 $22,914

2000 97,984 52,911 45,073

2001 85,163 46,029 39,134

2002 84,667 45,961 38,706
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During the years in issue, petitioner never requested from

ECI a Form W-2, and petitioner never objected to ECI’s use of

Forms 1099 to report to respondent petitioner’s gross earnings.

For 1999 through 2002, petitioner did not make estimated

Federal income tax payments to respondent, and petitioner did not

file Federal income tax returns. 

On audit, respondent treated petitioner as an independent

contractor of ECI, determined petitioner’s income and deductions 

relating to petitioner’s truck driving activity, and determined

petitioner’s taxable income and petitioner’s income and selfemployment taxes.

In respondent’s determination of petitioner’s income,

respondent utilized the Forms 1099 ECI had submitted, and

respondent allowed business expense deductions for petitioner’s

truck lease payments to CCI. Respondent also analyzed

petitioner’s bank accounts and concluded that significant

additional unexplained funds had been deposited into petitioner’s

bank account, which unexplained funds respondent treated as

additional taxable income relating to petitioner’s work for ECI

and CCI. Petitioner’s taxable income as determined by respondent

is set forth below:
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Year

Respondent’s Determination of

 Petitioner’s Taxable Income 

1999 $31,129

2000 73,650

2001 46,804

2002 42,171

Respondent treated petitioner as married filing separately,

allowed petitioner a standard deduction, and respondent

determined the tax deficiencies (which includes self-employment

taxes) and the additions to tax at issue herein. 

OPINION

Section 61(a) defines gross income as “all income from

whatever source derived,” including earnings for services and

gross income derived from business. Sec. 61(a)(1) and (2).

Generally, taxpayers who receive income in a year equal to

or in excess of the exemption amount (i.e., $2,000 as adjusted

for inflation for 1999, 2000, 2001, and 2002) are required to

file Federal income tax returns. Secs. 151(d) and 6012(a)(1)(A),

(D)(ii).

Petitioner agrees that he received income in amounts of at

least $22,914, $45,073, $39,134, and $38,706 respectively for

1999, 2000, 2001, and 2002 (the amounts shown on the Forms 1099
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3 At a recent Minnesota Tax Court trial to determine

petitioner’s liability to pay 2000 and 2001 Minnesota income

taxes, petitioner refused to testify under oath and argued that

he had not received from ECI any earnings in 2000 and 2001. The

Minnesota Tax Court found petitioner liable for State income tax

for 2000 and 2001 based on income from petitioner’s truck driving

activity with ECI. See generally Byers v. Commissioner, 2006

WL2380586 (Minn. Tax Reg. Div. Aug. 14, 2006), amended on rehg.

2006 WL3155401 (Minn. Tax Reg. Div. Nov. 2, 2006), and affd. 735

N.W.2d 671 (Minn. 2007). 

less the truck lease payments), amounts far in excess of the

exemption amount.3 

Petitioner has not shown that the bank deposits charged to

petitioner by respondent as additional income for the years in

issue represented nontaxable income. See Ellis v. Commissioner,

T.C. Memo. 2007-207. We sustain respondent’s determination of

petitioner’s taxable income for 1999 through 2002, and we

conclude that petitioner was required to file Federal income tax

returns for 1999 through 2002 and to pay Federal income taxes.

Petitioner argues that he was an employee of ECI, that under

section 3402(a)(1) employers are required to withhold Federal

income taxes from employee wages, and that ECI rather than he

should be held liable for payment to respondent of petitioner’s

unpaid Federal income and employment taxes.

However, an employer’s failure to withhold from employee

wages Federal income taxes does not extinguish an individual

taxpayer’s requirement to report income and to pay to respondent

Federal income taxes. See Church v. Commissioner, 810 F.2d 19,

20 (2d Cir. 1987); Latos v. Commissioner, T.C. Memo. 2007-265;
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Kuntz v. Commissioner, T.C. Memo. 1962-98; see also Ravelo

Escandon v. Commissioner, T.C. Memo. 2007-128 (an employer’s

misclassification of an employee as an independent contractor

does not reduce or discharge the employee’s liability to pay

Federal income taxes). Further, there is no withholding

requirement under section 3402 for payors of independent

contractors. 

Petitioner argues that amounts ECI deducted from

petitioner’s gross earnings as petitioner’s truck lease payments

and remitted to CCI should be recharacterized as Federal income

tax withholdings and that respondent should credit the funds

remitted by ECI to CCI against petitioner’s Federal income and

self-employment taxes for the years in issue.

Set forth below for each year in issue is a comparison of

petitioner’s truck lease payments remitted to CCI and the tax

deficiencies respondent determined against petitioner:

Year Truck Lease Payments

Tax

Deficiencies

1999 $25,900 $ 7,921

2000 52,911 25,179

2001 46,029 13,601

2002 45,961 11,571

Based on the above, petitioner argues that he owes no tax

deficiencies and that respondent owes him a refund of overpaid

Federal taxes for each year in the amount of the above positive
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difference between the truck lease payments (that petitioner now

requests be treated as tax payments) and the tax deficiencies.

An individual taxpayer, however, is not entitled to a

section 31 credit toward Federal income and employment taxes for

taxes not actually withheld from the individual’s earnings. See

United States v. Kuntz, 259 F.2d 871, 872 (2d Cir. 1958); Edwards

v. Commissioner, 39 T.C. 78, 83-84 (1962), affd. on this issue

323 F.2d 751 (9th Cir. 1963).

Herein, no Federal income and self-employment taxes were

withheld from petitioner’s earnings, and petitioner has not cited

any authority that would authorize us now to recharacterize truck

lease payments to CCI as Federal income and self-employment taxes

withheld from petitioner’s earnings.

Petitioner’s liability for self-employment taxes for the

years in issue turns on whether petitioner’s relationship with

ECI constituted an independent contractor relationship

(respondent’s position) or an employment relationship

(petitioner’s position).

Under section 1401, self-employed taxpayers, including

independent contractors, are liable for a tax on self-employment

income. See Jones v. Commissioner, T.C. Memo. 2007-249; Jackson

v. Commissioner, 108 T.C. 130, 133-134 (1997); Allen v.

Commissioner, T.C. Memo. 2005-118; Turnidge v. Commissioner, T.C.

Memo. 2003-169. 
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Self-employment income is defined as net earnings from selfemployment. Sec. 1402(b). “Net earnings from self-employment” 

is defined as “gross income derived by an individual from any

trade or business carried on by such individual”. Sec. 1402(a).

In general, services performed as an independent contractor

give rise to self-employment income. See sec. 1402(c)(2)

and (3); Jackson v. Commissioner, supra at 133-134.

Generally, a taxpayer who works for another but who controls

the means and methods for accomplishing the work is treated as an

independent contractor. Secs. 31.3121(d)-1(c)(2),

31.3306(i)-1(b), Employment Tax Regs. 

In deciding whether a taxpayer is to be treated as an

independent contractor or as an employee, we apply seven factors

(see, e.g., Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263,

270 (2001); Peno Trucking, Inc. v. Commissioner, T.C. Memo. 2007-

66; secs. 31.3121(d)-1(c)(2), 31.3306(i)-1(b), Employment Tax

Regs.), as follows:

(1) Control over manner of accomplishing work;

(2) Investment in work facilities and tools;

(3) Opportunity for profit or loss;

(4) Termination of the work relationship; 

(5) Participation in service integral to regular business;

(6) Length of the relationship; and

(7) Intent of the parties as to the type of 

 relationship formed.
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The United States Court of Appeals for the Eighth Circuit,

to which appeal of this case would lie, uses two additional

factors, see Day v. Commissioner, T.C. Memo. 2000-375, as

follows:

(8) Substantial cost incurred; and

(9) Special skills required.

We apply the factors as appropriate under the circumstances. 

Aymes v. Bonelli, 980 F.2d 857, 861 (2d Cir. 1992). No single

factor is dispositive. Ewens & Miller, Inc. v. Commissioner,

supra.

Control over Manner of Accomplishing Work

Petitioner controlled the manner in which he scheduled and

made pickups and deliveries without control from ECI.

This factor indicates an independent contractor

relationship. 

Investment in Work Facilities and Tools

Because petitioner was required either to own or lease his

own truck, tools, and other equipment, petitioner made a

significant investment in his truck driving activity. Cf. Air

Terminal Cab, Inc. v. United States, 478 F.2d 575, 580-581 (8th

Cir. 1973).

This factor indicates an independent contractor

relationship.
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Opportunity for Profit or Loss

Because petitioner was paid not a fixed wage but a

percentage of gross amounts billed to customers, and because the

number of deliveries petitioner made depended significantly on

petitioner’s efficiency, petitioner had an opportunity to

participate in ECI’s profits. Because petitioner provided and

paid for the truck and insurance, among other things, petitioner

risked a net loss if his profits did not exceed his expenses. 

This factor indicates an independent contractor

relationship.

Termination of the Work Relationship

Under the June 1999 operating agreement, ECI and/or

petitioner were to give 30 days’ notice before a termination of

petitioner, but ECI had a practice of allowing truck drivers to

terminate without notice, if the truck drivers so desired.

We regard this factor as neutral.

Participation in Service Integral to Regular Business

Because truck drivers were an integral part of ECI’s regular

delivery service, petitioner participated as a truck driver in

ECI’s regular business for the years in issue. 

This factor indicates an employment relationship.
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Length of the Relationship

Because petitioner performed delivery services for ECI for

almost 6 years, petitioner had a long-term relationship with ECI. 

This factor indicates an employment relationship.

Parties’ Intent as to Type of Relationship Formed

The June 9, 1999, operating agreement clearly states that

petitioner was to be treated as an independent contractor. 

Because petitioner worked for years under the operating agreement

and never objected to the Forms 1099 issued by ECI, the operating

agreement does not in any way support petitioner’s claim that an

employment relationship with ECI was intended. Further,

petitioner was treated by ECI as an independent contractor (i.e.,

no accrued paid leave, no health or pension benefits, and no wage

withholding).

This factor indicates an independent contractor

relationship.

Substantial Costs Incurred

Petitioner incurred substantial costs (i.e., 55 percent of

reported gross earnings) to lease a truck which allowed

petitioner to make deliveries to and from ECI customers.

This factor indicates an independent contractor

relationship.
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Special Skills Required

Outside of the skills needed to drive trucks, ECI did not

require that petitioner have special skills. See Day v.

Commissioner, T.C. Memo. 2000-375. 

This factor indicates an employment relationship. 

Of the nine factors, five factors indicate an independent

contractor relationship, three factors indicate an employee

relationship, and one factor is neutral.

We conclude that petitioner is to be treated as an

independent contractor for the years in issue and that petitioner

is liable for self-employment taxes for each year.

Petitioner refers us to Peno Trucking, Inc. v. Commissioner,

T.C. Memo. 2007-66, and to Day v. Commissioner, supra. The

taxpayer employers in Peno Trucking and Day exercised a

significant degree of control over driver schedules, provided

free-of-charge trucks (covering fuel, maintenance, and insurance

costs), tools, and other equipment, and retained a right to

immediately terminate drivers. Peno Trucking and Day are

distinguishable from this case.

Additions to Tax

Respondent bears the burden of production in connection with

additions to tax under sections 6651(a)(1) and 6654. Sec.

7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
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Under section 6651(a)(1), a taxpayer who fails to file a

Federal income tax return by the date due may be liable for an

addition to tax unless the taxpayer demonstrates reasonable cause

and not willful neglect.

Generally, a taxpayer who is required to pay but who

significantly underpays estimated Federal income taxes shall be

liable for an addition to tax. Sec. 6654(a).

Petitioner admits that he had no reasonable cause for his

failure to file Federal income tax returns for the years in

issue. We sustain respondent’s determination of section

6651(a)(1) failure to file additions to tax and section 6654

estimated tax additions to tax against petitioner for 1999, 2000,

2001, and 2002.

We have considered all arguments made herein, and, to the

extent not addressed, we conclude that they are without merit or

are irrelevant.

To reflect the foregoing,

Decision will be entered

for respondent.