T.C. M em o . 2 0 1 8 -8 7
UNITED STATES TAX COURT

H AM PTON SOFTWA RE DEVELOPM ENT, LLC, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 3 0 2 31 -1 3 L. Fi l edJ u n e 1 9 , 2 0 1 8
. Bri an n a Ti p t o n an dZach ary K. Greg ory , fo r p et i t i o n er. G. Ch ad Bart o n , fo r res p o n d en t
.

M EM ORANDUM FINDINGS OF FACT AND OPINION CHIECHI, J ud g e: Th is cas e ari s es fro m a p et it i on fi l edi n res p o n s e t o a
n o t i ce o f d et erm i n at i on co n cern i n g co l l ect i o n act i on (s ) u n der s ect i o n 6 3 2 0 an d/ o r 6 3 3 0 1 th atres p o n d en t’ s Ap p eal s Offi ce (Ap p eal s Offi ce) i s su edt o p et i t io n er (n o t i ce o f d et erm in at i o n ).

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev en u e Co de i n effect atal l rel ev an tt i m es . Al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 2
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[* 2 ] In th e n ot ice o f d et erm i n at i o n , res po n den t’ s Ap p eal s Offi ce d et erm i n edth at p et i t i o n er was p recl u d edu n d er s ect i o n 6 33 0 (c)(2 )(B) fro m ch al l en gi n g th e u n d erl y i n g l i ab i l i t i es th atres p o n den th adas s es s edag ai n s tp et i t i o n er fo r (1 ) res p ect i v e
em pl o y m en tt ax es fo r t h e qu art ers en d edo n J u ne 3 0 , Sep t em b er 3 0 , an dDecem

b er 3 1 , 2 0 0 9 , an d March 3 1 , J u n e 3 0 , Sep t em b er 3 0 , an dDecem

b er 3 1 , 2 0 1 0 , (2 ) u n em pl o y m en tt ax fo r 2 0 1 0 , an d (3 ) res p ect iv e ad d i t i o ns u n d er s ect i o n 6 6 5 1(a)(1 )
an d (2 ) t o an dp en al ti es u n d er s ect i o n 6 6 5 6 (a) o n tho s e res p ect i v e t ax es fo r t h o s e qu art ers . 2 In Ham

p t o n So ft ware Dev ., LLC v . Co m m i s s i o n er, T.C. M em o . 2 0 1 6
- 3 8 , we h el dth atp et i t i o n er was n o tp recl u d edu n d er s ect i o n 6 3 3 0 (c)(2 )(B) fro m ch al l en g i n g th e u n d erl y i n g t ax es ati s su e. Pet i t i o ner d i s p u t es h ere t h e d et erm i n at i o n i n th e n ot i ce o f d et erm i n at i o n
s u s t ai n i n g a p ro po s edl ev y t o co l l ectth e u n d erl y i n g t ax es ati s s u e. 3 In o rd er t o

2 W e s hal l refer co l l ect i v el y t o th e u n d erl y in g t ax l i ab i l it i es th at res p on d en t h ad as ses s edag ai n stp et i t i o n er fo r (1 ) res p ect i v e em p l oym en tt ax es fo r t h e qu art ers en d edo n J u n e 3 0 , Sep t em b er 3 0 , an d Decem

b er 3 1 , 2 0 0 9, an dM arch 3 1 , J u n e 3 0 , Sep t em

b er 3 0 , an d Decem

ber 3 1 , 2 0 1 0 , (2 ) u n em

p lo ym en tt ax fo r 2 0 1 0 , an d (3 ) res p ect i v e ad d i t io n s u n der s ec. 6 6 5 1(a)(1 ) an d (2 ) t o an dp en al t i es u nd er s ec. 6 6 5 6 (a) o n th o s e res pect i v e t ax es fo r t h o se q u art ers as th e u n d erl y i n g t ax es at i s su e. W e s hal l s o m et im es refer co l l ect i v el y (1 ) t o t h e qu art ers en d edo n J u n e 3 0 , Sep tem b er 3 0 , an dDecem

b er 3 1 , 2 0 0 9 , an d M arch 3 1 , J u n e 3 0 , Sep tem ber 3 0 , an d Decem b er 3 1 , 2 0 10 , as th e qu art ers i n qu es t i o n an d (2 ) t o th e quart ers i n qu es t i o n an d t h e y ear 2 0 1 0 as t h e t ax ab le p eri od s i n qu es t i o n .

3 Pet i t i on er al s o d i sp u t es t h e o t h er d et erm i n at io n s i n th e n o t i ce o f d et erm i n a- (co n ti n u ed ...)- 3
-

[* 3 ] res o l v e wh et h er t o s u s t ai n th atd et erm i n at i o n , we m u s td eci d e t h e fo l lo wi n g i s su es :(1 ) W as Ro b ertHern d on an em p l o y ee o r an i n d ep en den tco n tract o r o f p et i

t i on er fo r t he q u art ers i n qu es t io n ? W e h o l dth at Ro b ertHern d o n was an em p l o y ee o f p et i t io n er. (2 ) Al t h o ug h we h av e h el dth atRo b ertHern d o n was an em p l o y ee o f p et i

t i on er fo r t he q u art ers i n qu es t io n , i s p et i t i o n er n o n et hel es s en t i t l ed t o rel i ef u n d er
s ect i on 5 3 0 o f t h e Rev en u e Acto f 1 97 8 , Pub . L. No . 9 5 -6 0 0 , 9 2 St at . at2 88 5 , as
am en d ed , fo r th o s e quart ers ? 4 W e h o l dth at p et it i on er i s n o t en ti tl edt o s u ch rel i ef. (3 ) Is p et i t io ner l i ab l e fo r t h e ad di t i o n s u n d er s ect i o n 6 6 51 (a)(1 ) an d (2 ) t o
an d t h e p en al t i es u n d er s ect i o n 6 6 5 6 (a) o n t he res p ect iv e em pl o ym en tt ax es an d
u n em p l o ym en tt ax fo r t h e t ax ab l e p eri od s i n qu es t i o n ? W e h o l dthatp et i t i o n er i s
s o l i ab l e.

3 (...co n t in u ed ) t i on th atrel at e t o th e d et erm in at i o n i n th atn o ti ce t o s u s t ai n t h e p ro p o sedl ev y t o co l l ectth e u n d erl y i n g t ax es ati s s u e. Th e o n l y i s su es p res en tedattri al an do n b ri ef rel at e t o th atl at t er d et erm i n at i o n .

4 W e s hal l refer t o s ec. 5 3 0 o f t h e Rev en u e Acto f 1 9 7 8, Pub
. L. No . 9 5 -6 0 0 , 9 2 St at . at2 8 8 5 as sect i o n 5 3 0 . W e s h al l s o m et im es refer t o th e rel i ef p ro v i d ed u n d er s ect i o n 5 3 0 as s ect i o n 5 3 0 rel i ef.- 4
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[* 4 ] FINDINGS OF FACT 5 So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Pet i t i o ner h ad a m ai l i n g ad d res s i n Bro k en Arro w, Ok lah o m a, atth e t i m e i t fi led th e p et i t i o n . Pet i t i o ner i s a l i m i t edl i ab i l it y co m p an y o rg an i zedo n Sep t em

b er 1 9 , 2 0 0 5 , u n d er t h e l aws o f t h e St at e o f Ok l ah o m a. W il l i am Ham p t o n an dBren tHam

p t o n were t h e s o l e o wn ers o f p et i t io n er. (W e s h al l s o m et i m es refer co l l ect iv el y t o W i ll i am Ham p t o n an dBren tHam

p t on as th e t wo o w n ers . Ou r referen ces t o p et i

t i on er freq u en t l y

are referen ces t o o n e o r b o t h o f t h e t wo o wn ers wh o were au t h o ri zedt o co n du ctp et i t i o n er’ s b u s i n es s.) Pet i t i o ner was i n th e b us i n es s o f o wn i n g an d o p erat i n g th e Orch ardPark Ap art m en t s (ap art m en tco m p l ex b u s i n es s ), a 6 0-u n i t ap art m en tco m p l ex i n Tu l s a, Ok l ah o m a (ap art m en t co m pl ex ), wh i ch i th adacq u i redan dp l aced i n s erv i ce i n J u l y 2 0 0 6. At t h e t i m e o f t h atacq u i s i t io n , Ro b ert Hern d o n (M r. Hern d o n ) was p ro v id i n g v ari ou s s erv i ces fo r t h e ap art m en tco m p l ex t o th e fo rm er o wn er. Aro u n d t h e t i m e p et i t i on er acq ui redth e ap art m en tco m p l ex i n J ul y

2 0 06 , i tret ai n edM r. Hern d o n t o co n t i n u e p ro v i d i n g v ari ou s s erv i ces fo r t hatco m p l ex t o p et i t i o n er, t he

5 Un l es s o t h erwi s e i nd i cat ed , o u r fi nd i n g s o f fact p ert ai n t o the y ears 2 0 0 9 an d 2 0 1 0 . W e s om et i m es refer i n o u r fi n di n g s t o th e y ears 2 0 0 9 an d 2 01 0 fo r cl ari t y .- 5
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[* 5 ] n ew o wn er. Atth e t i m e o f t h e t ri al i n th is cas e, M r. Hern d on was s t i l l p ro v id i n g v ari ou s s erv i ces fo r t h e ap art m en tco m p l ex t o p et it i o n er. Pet i t i o ner, as the o wn er an dth e o p erat o r o f t h e ap art m en tco m p l ex , es t ab

l i sh edth e am o u n t o f ren tth ati tch arg edfo r each ap art m en tatth atco m p lex . Pet i

t i on er al s o es t ab li s hedthe p o l i ci es , ru l es , an d/ o r reg u l at i o n s th atwere t o ap p l y at t h e ap art m en t co m

p l ex , s uch as p o l i ci es o n p et s an dru l es o r reg u l at i o ns g o v ern i n g t h e s wi m m i n g p oo l atth atco m

p l ex . On l y

p et i t i o n er h adth e au t ho ri t y t o ch an g e
an y p o l i ci es , ru l es , an d/ o r reg u l at i o n s th ati t h ades t ab l i s h edfo r t h e ap art m en t
co m p l ex . Pet i t i o ner m ai n t ai n edan o ffi ce at th e ap art m en tco m p l ex (p et it i on er’ s
o ffi ce). Pet i t i o n er’ s o ffi ce co n s i s t edo f t wo ap art m en t s t h ath adb een m o d ifi edt o
s erv e as p et i t i o n er’ s o ffi ce. Pet i t i o n er h adp l aced cert ai n eq u i p m en tan do t h er i t em s i n th ato ffi ce fo r u s e i n carry i n g o n i t s ap art m en tco m p l ex b us i n es s , i n cl u d

i n g a co m p u t er an da p ri n t er, a fi l e cab i n etfo r ret ai n i n g t en an t fi l es , a b o o ko f b l an kren trecei p ts , a dro p b o x fo r ren tp aym en ts , a b an k d ep o s i tb ag fo r u s e b y p et i t i o n er’ s t wo o wn ers t o t ak e ren t p aym en ts t o i t s b an kfo r d ep o s i t, b lan kren t al ap p li cat io n fo rm s , an d b l an k l eas e fo rm s. M r. Hern d o n s erv edas th e p ro p ert y m an ag er at th e ap art m en t co m pl ex fo r p et i t i o n er. He was th e o n l y p ers o n wh o p erfo rm edwo rkreg u l arl y atth at co m

p l ex- 6
-

[* 6 ] fo r p et i t io n er. M r. Hern do n d i dn o ts up erv i s e an y p ers o n wh o m

p et i ti o n er ret ai n ed fro m

t i m e t o t im e t o p erfo rm

wo rkatth e ap art m en tco m p l ex th atM r. Hern d o n was n o t qu al ifi edt o h an d l e. Fro m th e t i m e M r. Hern d o n b eg an wo rk i n g fo r p et i ti o n er i n 2 00 6 as t h e p ro p ert y m an ag er at th e ap art m en tco m p l ex , h e res i d edi n an ap art m en tatth at
co m p l ex , wh i ch was i m

m ed i at el y ad jacen tt o p et i ti o n er’ s o ffi ce. Pet i t i o ner d i rect edM r. Hern d o n t o u n d ert ak e, i n t er al i a, th e fo l l o wi n g wo rk atthe ap art m en tco m

p l ex , wh i ch i n cl u d edn oto n l y cert ai n m an ag em en tty

p es o f
wo rkb u tal s o cert ai n o t h er t y p es o f wo rk : (1 ) g en eral m ai nt en an ce wo rk , s u ch as (a) d o i n g wh at ev er ro u t i n e wo rk(e.g ., ro u t i n e p l u m b in g wo rk ) was n eed edt o
m ai n t ai n th e ap art m en t s , (b ) d oi n g wh at ev er wo rkwas n eed edi n v acan tap art m en t s t o m ak e t h em

s u i t ab l e fo r t h e o ccup an cy o f n ew t en an t s (e.g ., s h eet ro ck rep ai r, rem o vi n g an drep l aci n g o l d carp et , an dp ai n t i n g), (c) p erfo rm i n g co n cret e
an d fen ce p o s trep ai r wo rk as n eed edfo r t h e area aro u ndth e s wi m m in g p oo l , (d ) m o wi n g t h e l awn wi t h p et it i o n er’ s l awn m o wer, an d(e) d oi n g o t h er wo rk rel at i n g t o th e g en eral m ai n t en an ce o f t he ap art m en tco m p l ex ; (2 ) p laci n g n ews p ap er ad v ert i s em en t s s h o wi n g t h e av ai l ab il i ty o f ap art m en t s fo r ren t ; (3 ) accep t i n g ap p li cat io n s t o ren t fro m

p ro sp ect i v e t en an t s ; (4 ) s h o wi n g ap art m en t s fo r ren tt o p ro s p ect i v e t en an t s ; (5 ) rev i ewi n g ap p l i cat i o n s t o ren tfro m p ro s p ect i v e t en an t s ;- 7
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[* 7 ] (6 ) d eci d i n g wh eth er t o accep to r rejectth os e ap p l icat i o ns b y fo l l o wi n g th e g u i d el i n es th atp et i t i o n er h ades t ab l i s hedfo r accep t i n g o r reject i n g p ro s p ect i v e t en an t s ; (7 ) u s u al l y d eci di n g wh et h er t o ev i cta t en an t , al t h o ug h s o m et i m es
co n su l t i n g wi t h o n e o f t h e two o wn ers ab ou twh et h er t o ev i ct a t en an t ; (8 ) an s weri n g t el ep h o n e cal l s m ad e t o p et i t i o n er’ s o ffi ce wh en n ei t h er o f th e t wo o wn ers n o r M r. Hern d o n was i n th ato ffi ce, wh i ch , i n th atev en t, were au t o m at i cal l y fo rward ed t o M r. Hern d on ’ s m o b il e t el ep h o n e; an d(9 ) p ro ces si n g ren t al p aym en t s recei v ed b y (a) i np u t t i n g i n t o p et i t i o n er’ s co m p u t er i n p et i t i o n er’ s o ffi ce t h e s tatu s o f ren t al p aym en t s, (b ) u s i ng p et i ti o n er’ s b an ks t am p o n ren tp aym en t ch eck s fo r d ep o s i tt o p et i t i o n er’ s b an kacco u n t , (c) p l aci n g th o s e s tam pedch eck s i n t o a b an k b ag t o b e p i ck edup b y

o n e o f t h e two o wn ers , (d ) i s s ui n g recei p t s t o t en an t s fo r ren tp ai d , an d (e) p l aci n g co p i es o f t h os e recei p ts i n a s o -cal l ed b oo ko f recei p t s t h ato n e o f t h e t wo o wn ers th ereaft er ret ri ev ed fro m p et i t i o n er’ s o ffi ce. In p erfo rm i n g s o m e o f t h e g en eral m ai n t en an ce wo rkatth e ap art m en tco m p l ex , M r. Hern d o n u s edh i s o wn m ai n t en an ce t o o ls (e.g ., h amm er, s aw, dri l l , an d
m u d b u ck etfo r carp en try

wo rko r p l u m

bi n g m ai nt en an ce wo rk ). 6

6 As d i s cu s s edb el ow, M r. Hern d o n al s o u s edth e s am e t o o l s th at h e o wn ed an d u s edatth e ap art m en tco m pl ex fo r s o m e g en eral m ai n t en an ce wo rkth ath e d i d fo r cert ai n i n d i v idu al s wh o were n o trel at edt o p et i t io n er.- 8
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[* 8 ] Pu rs uan tt o t h e wo rk arran g em en tthatM r. Hern d o n h adwi t h p et i ti o n er, p et i t i o n er h adth e ri g h tt o d i s ch arg e h i m atan y t i m e, an d h e h adthe ri g h tt o res i g n atan y t i m e. Pu rs uan tt o th at arran g em en t , p et i t i o n er h adthe ri gh tt o co nt ro l o r d i rect wh atwo rkM r. Hern do n was t o p erfo rm atth e ap art m en tco m

p l ex an dh o w h e was t o d o thatwo rk
. No to n l y d i dp et i t i on er h av e t h e ri g h t t o co n t ro l o r d i rect wh atwo rkM r. Hern d o n was t o p erfo rm

atth e ap art m en tco m

p l ex an d h o w h e was t o d o th at
wo rk , i t al s o ex erci s edthatri g h tas fo l lo ws . Pet i t io n er d i rect edo r co n t ro l l edwh at
wo rkM r. Hern d o n was t o p erfo rm atth e ap art m en tco m

p l ex an dh o w h e was t o d o t h atwo rkb y , i nt er al i a, g iv i n g h i m i n st ru ct i o n s as t o wh att o d o o r wh atn o tt o d o; g i v i n g h i m

i n s t ru ct i o n s o n h ow t o d o t h e wo rk t h ath e was d i rect edt o p erfo rm ; g i v i n g h i m

i n s t ru ct i o n s s p eci fy i n g th e d at es o n wh i ch i t req ui redM r. Hern d o n t o d o cert ai n wo rk ; p ri o ri t i zi n g t h e wo rkth at i t req u i redM r. Hern d o n t o p erfo rm ; g i v i n g h i m

g u id el i n es wh i ch th e t wo o wn ers d i s cu s s edwi t h h i m an dwh i ch h e was req u i redt o fo ll o wi n p erfo rm i n g m o s to f t h e wo rkfo r wh i ch h e was res p o n s i b l e;
an d req u i ri n g M r. Hern d o n t o s ub m i trep o rt s o n th e s t atu s o f t h e n o n ro u t i n e wo rk t h ath e was d o i n g . To i l l u s trat e p et i t i o ner’ s co n t ro l o r d i rect i o n o f M r. Hern d o n ’ s
wo rkatth e ap art m en tco m p l ex , as d i s cu ss edab o ve, M r. Hern d o n h adt o fo l l o w p et i t i o n er’ s g u id el i n es fo r reject i n g o r accep t i n g ap p l i cat i o n s t o ren tfro m p ro s p ec-- 9
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[* 9 ] t i ve t en an t s . 7 In ad d it i on , M r. Hern d o n h adt o as k p et i t i o n er fo r ap p ro v al b efo re i n cu rri n g an ex p en s e fo r wo rkatth e ap art m en tco m p l ex th atex ceed edan
am ou n twh i ch p et it i o n er h ades t ab li s hedi n g u i d el i nes rel at i n g t o wo rk -rel at ed
ex p en d i tu res (s o m et i m es , wo rk -rel at edex p en d i tu re g u i d el i n es ). As a fu rt h er i l lu s t rat i o n o f p et i t i o n er’ s co nt ro l o r d i rect i o n o f M r. Hern d o n ’ s wo rk , p et it i o n er
as k edM r. Hern do n fro m

t i m e t o t i m e t o reco m

m en da qu al i fi edp ers o n t o p erfo rm
wo rkatth e ap art m en tco m p l ex th atM r. Hern d o n was n otqu al ifi edt o h an d l e, b u t
o n l y p et i ti o n er h adth e au th o ri t y t o ret ai n an y p ers on th at M r. Hern do n reco m m en d ed
. Pet i t i o ner g en eral ly

d i d n o tcl o sel y

s uperv i s e M r. Hern d on o r d i dn o ts up erv i s e h i m atal l i n h i s p erfo rm an ce o f ro u t i n e g en eral m ai n t en an ce wo rk o r m i n o r t as k s . Th ati s b ecau s e as o f 2 0 0 9 an d2 01 0 M r. Hern d o n h ads erv edas th e p ro p ert y m an ag er at th e ap art m en tco m p l ex fo r p et it i on er an dth e fo rm er o wn er fo r a t o t al o f 1 2 t o 1 3 y ears . Co n s eq u en t l y , h e was th o ro u gh l y fam i li ar wi th h o w t o

7 As o f 2 0 09 an d2 0 10 , M r. Hern d o n h ads erv edas th e p ro p ert y m an ag er at t h e ap art m en t co m

p l ex fo r p et i t i o n er an dfo r t h e fo rm er o w n er fo r a t o t al o f 1 2 t o 1 3 y ears . Du ri n g th att i m e, h e b ecam e ex p eri en ced i n d eci d i n g wh et h er t o accep t o r reject ap p l i cat i o n s t o ren tfro m p ro s pect i v e t en an ts b y fo ll o wi n g the g u i d el i n es t h ath e was req u i redt o fo l l o w i n m ak in g th o s e d et erm in at i o n s. Des p i t e h av i n g p et i t i o n er’ s g u id el i n es , M r. Hern do n was n o t al way s s u re wh et h er t o ap p ro v e o r d i s ap p ro v e cert ai n ap p li cat i o n s t o ren tfro m p ro s p ect iv e t en an t s . In th o se ev en t s , wh i ch o ccu rred s ev eral t i m es a m o n t h , h e co n t act ed o n e o f th e t wo o wn ers an d as k edh i m

wh et h er h e s h o u l dap p ro v e o r d i s ap p ro v e t h o se ap p li cat i o n s .- 1 0 -

[* 1 0 ] p erfo rm , an dex p eri en cedi n p erfo rm i n g , ro u t i ne g en eral m ai n t en an ce wo rk
o r m in o r t as k s , an d t h erefo re p et i t i o n er g en eral l y d i dn oth av e t o s up erv i s e cl o s el y
o r s up erv i s e atal l t h o s e t y p es o f wo rko r t as k s. Each o f t h e t w o o wn ers v i s i t edth e ap art m en t co m p l ex s ep arat el y

a few t i m es each week . Du ri n g th o s e v i si t s , each o f t h em wen tt o p et i t io n er’ s o ffi ce an d t o u redth e ap art m en t co m p lex i n o rd er t o d et erm i n e, i n t er al i a, wh ati n s t ru ct i o n s t o g i v e t o M r. Hern d o n reg ard i ng wo rkth ateach wan t edh i m t o d o . If M r. Hern d o n
was n otatth e ap art m en tco m p l ex wh en each o f t h e t w o o wn ers v i s i t ed , each l eft h i m a n o t e co n t ai n i ng i n s t ru ct i o n s reg ard i n g wo rkth ateach wan t edh i m t o d o . Pet i t i o ner h ad a cred itcardi n i t s n am e (p et i ti o n er’ s cred i tcard ) wh ich i t al l o wed Mr. Hern d o n t o u s e, s ub jectt o i t s wo rk -rel at edex p en d i tu re g u i del i n es , t o p u rch as e m at eri al s th ath e n eed edi n o rd er t o p erfo rm g en eral m ai n t en an ce wo rkat t h e ap art m en t co m

p l ex . Pet i t i on er al s o g av e M r. Hern do n a s p eci fi ed g as o l i n e al l o wan ce b y

al l o wi n g h i m

t o u s e p et i t i o n er’ s cred i tcardt o p u rch as e a s p eci fi ed
am ou n to f g as ol i n e fo r h i s p ers o n al v eh i cl e b ecau s e M r. Hern d on u s edh is p ers o n al v eh i cl e n o t o n l y

fo r p ers on al reas o n s b u t al s o fo r erran d s rel at in g t o wo rk t h ath e was d o i n g at th e ap art m en tco m pl ex . Pet it i on er, n o t M r. Hern d o n , was
res p o n s i b l e fo r an dp ai dal l o f p et i t i o n er’ s cred itcardch arg es .- 1 1 -

[* 1 1 ] M r. Hern d o n was n o tqu al i fi edt o h an d le al l o f t h e wo rkreq u i red atth e ap art m en tco m

p l ex . Inth e ev en two rkwas req u i redatth atco m p l ex th atM r. Hern d o n was n o t qu al ifi edt o h an d l e, h e co n t act edan i n d ep en d en ts erv i ce p ers o n t o ev al u at e t h e n atu re an d p ro p o s e t h e co s to f an y s u ch wo rk . M r. Hern do n th ereaft er i n fo rm edth e t w o o wn ers , wh o m ad e t h e d eci s i o n as t o wh et h er t o h av e t h e
wo rkd o n e b y

th ati n dep en den ts erv i ce p ers o n . Pet i t i o ner p ai d M r. Hern d o n fo r h i s s erv i ces atth e ap art m en t co m p l ex a t o t al o f $ 2 , 0 0 0 each m o n t h, 8 reg ard les s o f h o wm an y h o u rs h e wo rk ed o r h o w
s u cces s fu l p et it i o n er’ s ap art m en tco m p l ex b u s i nes s was . Pet it i on er d i d n o tex p res s l y p ro v id e t o M r. Hern d on an y s o -cal l edp ai dv acat i o n t im e. Ho wev er, M r. Hern d o n was ab l e t o t ak e s o m e t i m e o ff fro m h i s wo rkatth e ap art m en tco m p l ex wh en h i s s ch edu l e o f wo rk t h ere p erm i t t ed . Inth o s e i n s tan ces , M r. Hern do n
n o t i fi ed t h e t wo o w n ers o f th e d at e(s ) o n wh i ch h e p lan n ed t o t ak e o ff wo rkatth e ap art m en tco m

p l ex . Thu s , p et i t i o n er p ai d M r. Hern d o n fo r an y t im e th ath e t o o k
o ff fro m h i s p erfo rm in g h is du t i es atth e ap art m en tco m p l ex . Pet i t i o n er d idn o t p ro v id e M r. Hern d o n an y ad d i t i o n al b en efi t s, s uch as h eal t h i n s u ran ce, fo r h i s
wo rkatth e ap art m en tco m p l ex .

8 Pet i t i on er p ai dM r. Hern d o n fo r h i s s erv i ces atth e ap art m en tco m p lex b y i s su i ng t o h i m

a ch eckfo r $ 1 ,0 0 0 twi ce each m on t h
.- 1 2 -

[* 1 2 ] In ad d i t i o n t o s erv i n g as th e p ro p ert y m an ag er at th e ap art m en tco m p l ex an d p erfo rm i n g th e wo rkthatp et i t i o n er req u i red h i m t o d o i n thatro l e, M r. Hern d o n
s p en t s o m e t i m e, o ft en du ri n g ev en i ng s an do n week en d s , p erfo rm i n g cert ai n g en eral m ai n ten an ce wo rk(e.g ., p ai n t in g ) fo r cert ai n i n d i v i du al s wh o l i vedi n th e
n ei g h b o rh o o do f t h atco m p lex (s o m et i m es , h o m eo wn ers ) an dwh o were n otrel at ed t o p et i ti o n er. 9 (W e s h al l s o m et i m es refer t o th e g en eral m ai n ten an ce wo rkth atM r. Hern d o n s p en ts o m e t i m e d o i n g fo r cert ai n h o m eo wn ers as o ut s i d e h an d ym an
wo rk .) Th e o u t s i d e h an d y m an wo rk

was s i m i l ar t o t h e t y

p es o f g en eral m ai n t en an ce wo rkth atM r. Hern d o n d i datth e ap art m en tco m p l ex . Th e co m

p en s at i o n th at M r. Hern d o n recei v ed fo r an y o u t s i d e h an d y m an wo rkwas es t ab li sh edb y h i s
s ub m i t t i n g a b i dt o t h e h o m eo wn er. Pet i t i o ner d i dn o ti s s u e M r. Hern d o n Fo rm 1 0 9 9 -M ISC, M i s cel l an eo u s In co m e (Fo rm

1 09 9 -M ISC), o r an y

o t h er Fo rm 1 0 9 9 , fo r h i s t ax ab l e y ear 2 0 0 9
. Fo r t h e qu art ers i n qu es t i o n , p et i ti o n er d i dn o tfi l e Fo rm 9 4 1 , Em p lo y er’ s Qu art erl y Fed eral Tax Retu rn (Fo rm 9 4 1 ), o r p ay

o v er t o th e Fed eral Go v ern m en t (Go vern m en t ) em

pl o ym en tt ax es wi t h res p ectt o t h e co m pen sat i on th ati th adp ai d M r. Hern d o n du ri n g an y

o f t h e qu art ers i n qu es t i o n . No r d i dp et i t i o n er fi l e Fo rm

9 Th e reco rdd o es n o t es t ab l i s h h o w m u ch t i m e M r. Hern d o n s p en td o i n g o u t s i d e h an d ym an wo rk
.- 1 3 -

[* 1 3 ] 9 4 0 , Em

p l o y er’ s An n u al Fed eral Un em p l o ym en t(FUTA) Tax Retu rn (Fo rm 9 4 0 ), o r p ay

o ver t o the Go v ern m en tu n em pl o ym en tt ax wi th res p ect t o th e
co m p en s at i o n t h ati th adp ai dM r. Hern d o n du ri n g an y o f t h o se q u art ers . Res p o n d en tco n duct edan ex am i n at i o n fo r p et i t i on er’ s qu art ers i n ques t i o n
an d p ro p o s edt o treat as wag es th e co m p en s at i o n t hati th adp ai dt o M r. Hern d o n t h ro u g h ou t2 0 0 9 an d2 0 1 0 . As a res u l to f t h atex am i n at io n , res p o nd en t p rep ared a
s ub s t i tu t e fo r ret u rn fo r each Fo rm 9 4 1 an d each Fo rm

9 4 0 thatres po n den t ’ s
ex am i n er h adco n cl u d edp et i ti on er was req u i redt o fi l e b ecau s e i t h adp ai dwag es t o M r. Hern d on . 1 0 Res p o n d en ti s su edt o p et i t i o n er a n o t i ce o f d et erm i n at i o n o f wo rk er cl as s i fi

cat i on i n wh i ch res p o n d en t d et erm i n edth atfo r each o f t h e qu art ers i n qu es t i o n (1 ) M r. Hern do n was an em p lo y ee o f p et i t i o n er; (2 ) p et i t i o n er i s n o ten t i t l edt o
s ect i on 5 3 0 rel i ef; an d (3 ) p et i ti o n er i s l i ab l e fo r em p l o ym en tt ax es , u n em

p l o y m en tt ax , ad d i t i o n s t o t h o s e t ax es u nd er s ect i o n 6 6 5 1 (a)(1 ) an d(2 ) an d p en al t i es
o n th o se t ax es u n der s ect i o n 6 6 5 6 (a). Th ereaft er, res p o n d en tas s es s edth o se
em pl o y m en tt ax es , u n em

p l o ym en tt ax , an dad d i t i o n s t o an dp en al t i es o n t h o s e t ax es . (W e s h al l s o m et i m es refer t o the em p l o ym en tt ax es , u nem

p l o y m en t t ax ,

1 0 Th e rev en u e ag en tp rep ared a s ub s t itu t e fo r Fo rm 9 4 0 fo r n o to n l y

2 0 1 0 b u tal s o fo r 2 0 09 . Fo rm 9 4 0 fo r 2 0 0 9 i s n o tati s s u e. Our fi nd i n g s are l im i t edt o Fo rm 9 4 0 an d u n em

p l o ym en t t ax fo r 2 0 1 0
.- 1 4 -

[* 1 4 ] ad di t i o n s t o an d p en al t i es o n th o s e t ax es fo r t h e t ax ab le p eri o d s i n qu es t i o n , as wel l as i n teres tas p ro v i d ed b y l aw t h ereo n , as p et i t i o n er’ s al l eg edu np ai d l i ab i l i t i es .) Res p o n d en ti s su edt o p et i t i o n er a n o t i ce o f i n t en tt o l ev y an d n o ti ce o f y ou r ri gh t t o a h eari n g wi t h res p ect t o p et i t i o n er’ s al l eg edu np ai d l i ab i l i t i es (n o t i ce o f l ev y ). Pet i t i o ner t i m el y

s ub m i t t edt o res po n d en tFo rm 1 2 1 53 , Req u es tfo r a Co l lect i on Du e Pro ces s o r Equ i v al en tHeari n g . Th ereaft er, t he s et t l em en to ffi cer
co n du ct ed a h eari n g . Res p o n d en t ’ s Ap p eal s Offi ce i s s u edthe n o t i ce o f d et erm i n at i o n t o p et i t i o n er, i n wh ich i t s us t ai n edthe n o ti ce o f l ev y t o co ll ectp et i t i o n er’ s al l eg edu np ai d l i ab i l i t i es . Th e n o t ice o f d et erm i n at i o n s t at edi n p ert i nen tp art : Sum m a ry o f Determ i na ti o n Ou r d et erm i n at i o n i s n o tt o g ran t y o urel i ef u n d er In t ern al Rev en u e Co d e (IRC) s ect i o n 6 3 3 0 fro m th e p ro po s edco l l ect i on act i o n . W e co u l d n o treach an ag reem en t , ex t en dan y rel i ef t o y o u , o r ev en co n s i d er an y al t ern at iv es t o th e p ro p o s edl ev y , b ecau s e aft er y ou req u es t ed an ap p eal an d a h eari n g was o ffered , y o ud i dn o tex p res s an i n t eres ti n co ll ect i o n al t ern at i v es . Yo u were u nab l e t o ch al l en g e t h e l i ab i l i t y du ri n g the h eari ng . Un d er t h es e ci rcu m s t an ces we can o n l y s u s t ai n the l ev y

b y th e Co l l ect io n Di v i s io n , fi n d in g i tn eces s ary an d n o m o re i n tru s i v e t h an n eces s ary . Pl eas e s ee t h e at t ach m en tfo r fu rt h er ex p l an at i o n . An at tach m en tt o t h e n o t i ce o f d et erm i n at i o n s tat edi n p ert i n en t p art :- 1 5 - Sum m a ry Yo u fi leda req u es tfo r a Co l lect i o n Du e Pro ces s (CDP) h eari n g u nd er In t ern al Rev en u e Co d e (IRC) § 6 3 3 0 fo l l o wi n g recei p to f a CP2 9 7 A, No t i ce o f In t en t t o L ev y an dNo t i ce o f Yo u r Ri g h tt o a Heari n g . Th e Au t o m at edCo l l ect io n Sy s t em (ACS) Sect i o n atthe Ph i l ad el p h i a Serv i ce Cen t er i s su edth e n o t i ce o n J ul y 8 , 2 0 13 v i a Cert i fi edM ai l , Ret u rn Recei p tReq u es t ed . Yo u r Fo rm 1 2 1 5 3 req u es t i n g a CDP h eari n g was recei vedb y

ACS J u l y

1 5 , 2 01 3 . Yo u r req u es twas t i m el y as i twas m ad e wi t h i n th e 3 0 -d ay p eri odfo r req u es t i n g a CDP h eari n g [.] Yo u d i dn o tex p res s an i n t eres ti n en t eri n g i n t o a co ll ect i o n al t ern at i ve. Yo uwere u n ab l e t o ch al l en g e th e l i ab i li t y du ri ng th e Co l l ect i o n Du e Pro ces s Heari n g . Th erefo re, n o co l l ect i o n al t ern at i v es co u l db e co n s i d eredi n l i eu o f t h e p ro p o s edl ev y . Th e Set t l em en t Offi cer’ s d et erm i nat i o n i s b as edo n th e rev i ew o f t he av ai l ab l e i n fo rm at i o n i n t h e ad m i n is t rat i ve fi l e. Th e p ro p o sedl ev y act i o n i s t h e ap pro p ri at e act i o n i n th i s cas e. Bri ef Ba ck g ro und On Sep t em

b er 1 3 , 2 0 1 3 , th e Set t l em en tOffi cer m ai l edy o u a l et t er s ch edu l i n g a t el ep h o n e co n feren ce i n thi s cas e o n Oct o ber 9 , 2 0 1 3 at 3 : 0 0 p m Cen t ral Ti m e. Th e l et t er p res en t ed y o uthe o p t i on s o f h av i n g a face t o face co n feren ce at th e Ap p eal s o ffi ce cl o s es tt o y o uo r h av i ng the co n feren ce b y co rres p o n d en ce. Th e l et t er req u es t edy o u s ub m i ta co m

p l et edFo rm

4 3 3 -B, Co l l ect i on In fo rm at i o n St at em en t wi t h in 2 1 d ay s fro m

th e d at e o f t h e l et t er. Du e t o th e g ov ern m en t s h u t d o w n , th e Set t l em en tOffi cer was n o tav ai l ab le fo r t he s ch edu l ed t el ep h o n e co n feren ce. On Oct ob er 2 1, 2 0 1 3 , th e Set t l em en tOffi cer m ai l edy o ua s ub s eq u en tl et t er res ch edu l i n g th e t el ep h o n e co n feren ce fo r No v em

ber 6 , 2 0 1 3 at1 :3 0 p m

Cen t ral Ti m e. Th e l et t er ad v is edth e p rev io us i n fo rm at i o n req u es t edh adn o tb een s ub m i t t edan dg av e y o u 1 4 ad d i t io n al d ay s t o s ub m i tthati n fo rm at i o n an dan y o t h er i n fo rm at i on y o uwi s h edt o b e co n s i d ered . Th e t el ep h o n e co n feren ce was h el d [* 1 5 ]- 1 6 -

atth e s ch edu l ed t i m e. Ho wev er, t h e fi n an ci al i n fo rm at i o n req u es t ed was n o ts ub m i t t ed
. Di s cus s i o n a nd Ana l y s i s IRC § 6 32 0 & § 6 3 30 t ak en t og et h er req u i re t h e Serv i ce t o : a) Veri fy

atth e Heari n g t h atth e req u i rem en t s o f l eg al an d ad m i ni s trat iv e p ro cedu res h av e b een m et ; b ) Ad eq u at el y rev i ew s peci fi c i s s u es rai s ed b y a t ax pay er at a Heari n g , an d ; c) Bal an ce t h e n eed s o f t h e Serv i ce t o effi ci en t l y co l l ect t he t ax wi t h the t ax p ay er’ s ex p ect at io n th atth e p ro p o s ed act i o n s b e n o m o re i n t ru si v e t han n eces sary . Veri fi ca ti o n o f Leg a l a nd Pro cedura l Requi rem ents Th e req u i rem en ts o f ap pl i cab l e l aw o r ad m in i s t rat i ve p ro cedures h av e b een m etan d t h e act i o n s t ak en were ap p ro p ri at e u n d er t h e ci rcu m s t an ces . * Th e Set t l em en tOffi cer v eri fi edth ro u g h tran s cri p tan al y s i s th atan as s es s m en t was m ad e o n th e ap p l i cab l e CDP n o t i ce p eri od s b as edo n ex am i n at i o n as s es s m en t s , an dth e n o t i ce an dd em an dfo r p aym en t l et t er was m ai l edt o y o u r l as tkn o w n ad d res s , wi t h in 6 0 d ay s o f t h e as s es s m en t , as req u iredb y IRC § 6 3 0 3 . Th e Set t l em en tOffi cer al s o v eri fi edth ro u g h tran s cri p tan al y s i s an drev i ew o f a co py o f t h e d et erm i nat i o n l et t er fro m th e Offi ce o f Ap p eal s ; th aty o uap p eal edth e as s es s m en t s, b u tth e ap p eal was d en i ed
. * Th ere was a b al an ce du e wh en th e CDP n o t i ce was i ss u ed p er IRC § § 6 3 30 an d 6 3 3 1 (a). Th ere i s s t il l a b al an ce du e.* IRC § 6 3 3 1 (a) p ro v i d es th ati f an y

p ers o n l i ab l e t o p ay

s u ch t ax wi t h in 1 0 d ay s aft er n o t i ce an dd em an dfo r p aym en t , th e Secret ary i s au th o ri zedt o co l l ect s u ch t ax b y

l ev y o n th e p ers o n ’ s p ro p ert y . * IRC § 6 3 3 1(d ) requi res thatth e Serv i ce n o ti fy a t ax pay er at l eas t3 0 d ay s b efo re a No t i ce o f Lev y can b e i ss u ed
. Th e t ran s cri pt s o f t h e [* 1 6 ]- 1 7 -

acco u n tan d th e ad m i n i s t rat i v e fi l e s h o w th atth i s n o t i ce was m ai led t o y o ub y cert i fi edm ai l.

* IRC § 6 3 3 0(a) i m

p os es th e req u i rem en t t h at a t ax p ay er b e g i ven an o p p o rtun i t y

fo r h eari n g b efo re t h e In t ern al Rev en u e Serv ice can l ev y o n th e t ax p ay er’ s p ro p ert y . * Yo uwere g i v en th e o p p o rtu n i t y t o rai s e an y

rel ev an ti ss u es rel at in g t o th e u np ai d t ax o r t h e p ro p o s edl ev y act i o n atth e Heari n g i n acco rd an ce wi t h IRC § 6 3 30 (c).

* Th e Set t l em en tOffi cer v eri fi edth e co l l ect io n p eri o dal l owedb y s t atu t e t o co l l ectth es e t ax es h as b een s u s p en d edb y t h e ap pro p ri at e co m p ut er co des fo r t h e t ax p eri o d s at i s s u e.
* Th ere i s n o o ffer-i n -co m pro m i s e o r i n s tal l m en tag reem en t p en d i ng o r cu rren tl y

i n effect . Th ere i s al s o n o p en d i ng i n no cen ts p o us e req u es t
. * Th ere i s n o p en d i n g b an krupt cy cas e, n o r d idy o uh av e a p en d in g b an krup t cy cas e atth e t i m e t h e CDP n o t ice was s en t(1 1 U.S.C. § 3 6 2 (a)(6 )).

* Th i s Set t lem en tOffi cer h as h adn o p ri o r i n vo l vem en twi t h t h i s t ax p ay er co n cern i n g t h e ap pl i cab l e t ax p eri o db efo re t h i s CDP cas e.

I s s ues ra i sed by the ta x pa y er: On Fo rm 1 2 1 5 3 req u es t i n g t h e Co l l ect i on Du e Pro ces s Heari n g , th e l i enwi t h drawal b o x is ch eck ed . At tach edt o Fo rm 1 21 5 3 i s a s t at em en tth at y o u are rev o ki n g th e p o wer o f at t o rn ey o f y o u r rep res en t at i ves fro m

Green s p o on M ard er l aw fi rm . Al s o at t ach edare co p i es o f p rev io us co rres p o nd en ces s en tt o IRS (d at edAp ri l 1 1 , 2 0 1 3 , M ay 1 0 , 2 0 1 3 , Oct o b er 4 , 2 01 2 an dDecem b er 2 8 , 2 0 1 1). In th o s e co rres p o nd en ces , i t s tat es th atatth e co n cl u s i o n o f t h e n eg o t i at io n s , th e Ap p eal s Offi cer was fu ll y

aware o f y o ur i nt en tt o d i sp u te t h e fi n d i n g s i n Tax Co u rt . It s tat es y o uwere wai t i ng o n wri t t en co m m u n icat i o n fro m t h e [* 1 7 ]- 1 8 -

Ap p eal s Offi cer t hatei t h er res p o nd ed t o y o u r co u nt er p ro p o sal o r an ex p l an at i on o f h is fi n al d et erm in at i on , s o th at y o uco u ldp ro ceed t o t ax co urt
. Itex p l ai n edy o un ev er recei v edth atco m m u n i cat i o n aft er d i s cu s s i o n i n Sep t em

b er/ Oct o b er o f 2 01 2 . Its ay s th atth e Ap p eal s Offi cer as sert s th aty o u refu s eds erv i ce o f cert i fi edm ai l. Yo u d i s p u t e t h at , s t at i ng i f i n fact a l et t er was s en tv i a cert i fi edm ai l, y o u are n o t aware o f i t , b u tcert ai n l y

d i dn o trefu se s erv i ce. Ital s o s ay s y o u r p o wer o f at t o rn ey was n o trep res en t i ng y o u at t h e t im e. Itex p l ai n s t h atth e Ap p eal s Offi cer s t at edh e s en ta fax o f t h e d eci si o n t o y o uan d t h e p ro ces s fo r ap p eal i n g t o th e t ax co u rtt o t h e n u m b er o n y o ur J an u ary 2 , 2 0 1 3 co m

m u n i cat i o n t o th e Ap p eal s Offi cer req u es t i n g s t atu s o f the cas e. It s tat es th at fax was n o t recei v ed an d t h e Ap p eal s Offi cer h as b een u n ab l e t o p ro du ce i t . Its t at es th atreg ard l es s , y o ud o n o tfi n dthi s t o b e s u ffi ci en tn ot i ce u n d er t h e ci rcu m s tan ces . Itrequ es t s the IRS al l ow y o u y o ur d ay i n co u rt , an dp ro v i d e n o t i fi cat i on t o y o u r o ffi ce, an d al l o w y o u3 0 d ay s t o m ak e t he fi l i n g s o y o u m ay p ro ceed t o t ax co u rt . Th e co p i es o f t h e co rres p o n d en ce s ho w th e d i s p u t e was reg ard i n g wh et h er s o m eo n e was an em pl o y ee o r an i n d ep en d en tco n t ract o r. Its t at es y ou d o n o t ag ree wi t h th e as s es s m en to f t ax b ecau s e y o ufi l eda t ax retu rn s h o wi n g n o em pl o ym en t t ax es du e. Itfu rth er s t at es th e IRS creat eda t ax retu rn fo r y o u , fo r wh i ch y o u d o n o tag ree. It rei t erat es th aty o u d o n o to we an y t ax es . On Sep t em

b er 1 3 , 2 0 1 3 , th e Set t l em en tOffi cer m ai l edy o u a l et t er s ch edu l i n g a t el ep h o n e, co n feren ce i n th i s cas e o n Oct o b er 9 , 2 0 1 3 at 3 : 0 0 p m Cen t ral Ti m e. Th e l et t er p res en t ed y o uthe o p t i on s o f h av i n g a face t o face co n feren ce at th e Ap p eal s o ffi ce cl o s es tt o y o uo r h av i ng the co n feren ce b y co rres p o n d en ce. Th e l et t er req u es t edy o u s en da co m

pl et ed Fo rm

4 3 3 -B, Co l l ect io n In fo rm at io n St at em en t
. Du e t o the g ov ern m en ts h u t do wn , the Set t lem en tOffi cer was n o t av ai lab le fo r t h e s ch edu l edt el ep h on e co nferen ce. OnOct o b er 2 1 , 2 0 1 3 , th e Set t l em en tOffi cer m ai l edy ou a s ub s eq uen tl et t er res ch ed

u l i n g t h e t el ep h o n e co n feren ce fo r No v em b er 6 , 2 0 1 3 at 1 : 3 0 p m Cen t ral Ti m e. Th e l et t er ad v i s edth e p rev i ou s i n fo rm at io n req u es t ed [* 1 8 ]- 1 9 -

[* 1 9 ] h adn o tb een s ub m i t t edan d g av e y o u1 4 ad d i t i o n al d ay s t o s ubm i t t h ati n fo rm at i o n an d an y

o t h er i n fo rm at i o n y o u wi s hedt o b e co n s i d

ered
. Du ri n g th e t el ep h o ne co nferen ce o n No v em b er 6 , 2 0 1 3 , y o uex p l ai n edy o uh adb een o p p o s edt o th e am o u n ts du e fro m th e b eg i nn i n g . Yo u rei t erat edth e i s s u e co n cern i n g wh et h er o r n o tth e p ers on th at wo rk ed fo r y o uwas an em pl o y ee o r an i n d ep en d en tco n t ract o r. Yo u m ai n t ai n th atp ers o n was an i n d ep en d en tco nt ract o r. Yo uex p l ai n ed y o um et wi t h the IRS l o cal l y an dal s o h add eal i n g s wi t h t h e IRS o v er t h e p h o n e. Yo uth en rei t erat edth e i s s u e o f n o t h av i n g a ch an ce t o g o t o t ax co u rt . Th e Set t l em en tOffi cer i nfo rm edy o u t h atth e Offi ce o f Ap p eal s p rev i o us l y

m ad e a d et erm i n at io n an di ss u eda l et t er wh i ch g av e y ou th e ri g h tt o g o t o t ax co urt . Yo u s t at edth e l et t er was n ev er recei v ed . Th e Set t l em en tOffi cer ex p l ai nedi twas i s s u edt o t h e b u s i n es s ad dres s at t h e t i m e v ia cert i fi edm ai l o n Oct ob er 2 3, 2 0 1 2 , b u twas retu rn edu n cl ai m ed . Yo u s t at edn o o n e atth e o ffi ce ev er s aw i t an d t h ey

d i dn o trecei v e n o t i ce o f at t em pt edd el iv ery . Th e Set t l em en tOffi cer ad v i s edthatup o n retu rn t o t h e IRS, t h e en vel o p e s ho ws t h ere were 3 at t em

p t s t o d el i v er t h e l et ter. Yo uwere ad am an tab o u t h av i ng the ch an ce t o g o t o t ax co u rtan d s tat edy o u were t o l dth aty o u wo u ldh av e t o wai tt o req u es ta Co l l ect i o n Du e Pro ces s Heari ng . Th e Set t l em en tOffi cer ex p l ai n ed t h ats i n ce t h e l i ab i l i t y i s s u e h adp rev i

o u s l y b een rai s edwi t h t h e Offi ce o f Ap peal s an da d et erm i n at i o n was m ad e, i t co u l d n o t b e rai seddu ri ng th e Co l l ect i o n Du e Pro ces s Heari n g . Yo uas k edwh atth e h eari n g i s fo r. Th e Set t l em en t Offi cer ad v i sedth ati ti s t o d et erm in e i f t h e Fi nal No t i ce o f In ten t t o Lev y was ap p ro p ri at el y

i s s u edan dfo r co ns i d erat i o n o f co l l ect i o n al t ern at i v es . Yo uas k edi f t h e Set t l em en tOffi cer co u l dco n s id er a l es s er am o u nt . Th e Set t l em en tOffi cer ad v i s edy o uwere referri ng t o an Offer i n Co m

p ro m i se. Th e Set tl em en t Offi cer ex p l ai n edth e Offi ce o f Ap p eal s d o es n o th av e t h e au t h o ri t y t o ju sts et tl e fo r a l es ser am o u n t
. Th e Set t l em en tOffi cer i n fo rm edy o u t h atb as edo n y ou r i s s u e; y o u can s ub m i tan o ffer u n d er th e b as i s o f Do ub tas t o Li ab i l i t y t o th e In t ern al Rev en u e Serv i ce. Th e Set t l em en tOffi cer fu rther i n fo rm ed y o uth aty o u can o bt ai n th e ap p ro p ri at e fo rm o ff o f t h e web s i t e (i rs . g o v ). Yo u i n d i cat edth ati s wh aty o u are g o i n g t o d o . Th e Set tl em en t- 2 0 -

Offi cer ex p l ai n edth e h eari n g req u es twas t i m el y , s o en fo rced co ll ect i on i s s u s p en d edan d wi l l rem ai n s u s p en d edfo r atl eas t6 0 d ay s fro m d at e o f th is l et t er. Th e Set t l em en tOffi cer al s o ex p lai n edth i s l et t er g i v es y o u t h e ri gh tt o p et i t i o n th e t ax co u rti f y o u d i s ag ree wi t h th e Set t l em en tOffi cer’ s d et erm i n at i o n . Yo u g av e y o u r n ew ad d res s t o th e Set t l em en tOffi cer, ex p l ai n i ng th e o ffi ce was n o w s h u td o wn an dad d res s o f t h e co m p an y i s n o w y o ur res i d en ce. Other I s s ues Ra i s ed Yo u rai s edn o o t h er i s s u es rel at i n g t o th e u np ai dt ax es . Co l l ecti o n Al terna ti v es Offered by the Ta x pa y er Yo u d i dn o tex p res s i n teres ti n co ll ect i o n al t ern at iv es . Ba l a nci ng Need fo r Effi ci ent Co ll ecti on W i th Ta xpa y er Co ncern Tha t the Co l l ecti o n Acti o n Be No Mo re I ntrus i v e Tha n Neces s a ry Th e Set t l em en tOffi cer b al an cedth e co m pet i ng i n t eres ts i n fi n d i n g t h e p ro p o s edl ev y

ap p ro p ri at e. Yo u ex pres s edn o i n t eres t i n en t eri n g i n t o a co l l ect io n al t ern at i v e du ri n g t h e Co l l ect i o n Du e Pro ces s Heari n g . Yo uwere u n ab l e t o ch al l en ge t h e l i ab i l i t y du ri n g th e h eari n g . Th erefo re, n o co l l ect i o n al t ern at i v es co u l db e co n s i d ered an d t h e p ro p o s ed l ev y

b al an ces th e n eedfo r effi ci en tco l lect i o n wi t h y o u r co n cern thatan y

co ll ect i o n act i on b e n o m o re i n t ru s iv e t h an n eces s ary [.] OPINION Pet i t i o ner b ears th e b u rd en o f p ro vi n g fo r th e quart ers i n ques t i o n th atM r. Hern d o n was an i n d ep en d en t co n t ract o r, n o tan em pl o y ee, o f p et i t i o n er o r t h at , i n [* 2 0 ]- 2 1 -

[* 2 1 ] th e al t ern at i v e, i tqu al i fi es fo r rel i ef u n d er s ect i o n 5 3 0. 1 1 See Ru l e 1 4 2 (a)(1 ); W el ch v . Hel veri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3 ); Bo l es Tru ck i n g , In c. v . Un i ted St at es , 7 7 F.3 d2 3 6, 2 4 0 (8 t h Ci r. 1 99 6 ); Ewen s & M i ll er, In c. v . Co m m i s s i on er, 1 1 7 T.C. 2 6 3 , 2 6 8 (2 00 1 ). W e ad dres s fi rs twh et h er fo r t h e qu art ers i n qu es t i o n M r. Hern do n was an
em pl o y ee, as res p o n den tco n t en d s , o r an i n d ep en d en t co n t ract o r, as p et it io n er
co n ten d s. Befo re co n s i d eri n g th ati s su e, we s u m m ari ze b ri efl y

th e co n t ex t i n wh i ch th ati s su e ari s es . Em p l o y ers an dem

p l o y ees are s ub

jectt o s o -cal l ed em

p l oym en tt ax es u n d er t h e Fed eral In su ran ce Co nt ri b u t i o n s Act(FICA) an ds o -cal l ed u n em p l o ym en tt ax
u n d er t h e Fed eral Un em

p lo ym en t Tax Act(FUTA). FICA i m p o s es So ci al Secu
ri ty t ax es an dM ed i care t ax es o n b o t h em p l o y ers an d em

p l o y ees wi t h res p ectt o wag es p ai dt o em

p l oy ees . See s ecs . 3 1 0 1 (a), 3 1 11 (a). FUTA i m p os es u n em

p l o y m en tt ax o n em

p l o y ers wi t h res p ectt o wag es p ai dt o em p l o y ees . See s ec. 3 3 0 1
.

1 1 Sec. 7 4 91 (a) d oes n o tap p l y t o em p lo ym en tt ax d i s p u t es . See s ec. 7 4 9 1 (a)(1 ); Ch arl ot t e’ s Offi ce Bo u t i qu e, v . Co m m i s s io n er, 1 2 1 T.C. 8 9, 1 0 2 (2 0 0 3), aff’ d , 4 2 5 F.3 d1 2 0 3 (9 t h Ci r. 2 0 05 ); J o sep h M . Grey Pub. Acco u n t an t , P.C. v . Co m

m i s s i o n er, 1 1 9 T.C. 1 2 1 , 1 2 3 n .2 (2 0 02 ), aff’ d , 9 3 F. Ap p ’ x 4 7 3 (3 d Ci r. 2 0 04 ). Sec. 5 3 0 p l aces th e b u rd en o f p ro of o n th e Co m m i s s i o ner o f In t ern al Rev en u e wi t h res p ectt o cert ai n i ss u es u nd er s ec. 5 3 0 wh ere, i n ter al i a, t h e t ax p ay er fi rs tes t ab l i s h es a p ri m a faci e cas e t h ati twas reas o n ab l e n o tt o treat an i n d i v i du al as an em

p l o y ee.- 2 2 -

[* 2 2 ] Em p lo y ers are req ui redt o wi t h h o l dFICA t ax an dFed eral i n co m e t ax o n wag e p aym en t s th atth ey

m ak e t o th ei r em

p l oy ees . See s ecs . 3 1 0 2 , 3 4 0 2
. In d et erm in i n g wh et h er an i n d i vi dual i s an em pl o y ee fo r em

p l o ym en tt ax p u rp os es , s ect i o n 3 1 2 1 (d )(2 ) p ro v i d es th atth e t erm “ em p l o y ee” i n cl u des “ an y i n d i v i du al wh o , u n d er t h e u s u al co m m on l aw ru l es ap p l i cab l e i n d et erm i n i n g th e
em pl o y er-em

p l o y ee rel at i on s h ip , h as th e s t atu s o f an em pl o y ee”. Th e s am e d efi n i

t i on ap p l i es i n d et erm i n i n g wh et h er an i n d i v i du al i s an em p l o y ee fo r u n em

p l o y m en tt ax p u rp o s es . See s ec. 3 3 0 6 (i ). Wh et h er an i n di v i du al i s an em p l o y ee o r an i n d ep en d en tco n tract o r i s a qu es ti o n o f fact
. See W eb er v . Co m m i s s io n er, 1 0 3 T.C. 3 7 8 , 3 8 6 (1 9 94 ), aff’ dp er
cu ri am , 6 0 F.3 d1 1 0 4 (4 th Ci r. 1 9 95 ). In d et erm i n i n g wh et h er an i n d i vi du al wh o p erfo rm s wo rk(s o m et im es , wo rk er) fo r an o t h er p ers o n (s o m et i m es , p ri n ci pal ) i s
an em p l oy ee o r an i n d ep en d en tco n t ract o r, t h e co urt s h av e co n s i d ered v ari o u s fact ors , i n cl u d i n g t h e fo l l o wi n g : (1 ) t h e d eg ree o f co n t ro l ex erci s edb y th e p ers on fo r wh o m th e wo rk i s p erfo rm edo v er t h e d et ai l s o f t h e wo rk ; (2 ) wh ich p art y i n v es t s i n th e faci l i t i es u s edb y th e wo rk er; (3 ) t he o p p o rtu n i t y o f t h e wo rk er fo r p ro fi t o r t h e ri s ko f t he wo rk er fo r l o s s ; (4 ) wh et h er t h e p ri n ci p al h as th e ri g h tt o d i s ch arg e t h e wo rk er; (5 ) wh et h er t h e wo rki s p art o f t h e p ri nci p al ’ s reg u l ar b u s i n es s ; (6 ) t h e p erm an en cy o f t h e rel at i on s hi p b et w een the p ri n ci p al an d t h e- 2 3 -

[* 2 3 ] wo rk er; (7 ) t he rel at i on s h i p th atth e p ri n ci p al an dth e wo rk er b el i ev edth ey were creat in g ; an d(8 ) wh et her t h e p ri n ci p al p ro v i d edth e wo rk er an y s o -cal l ed
em pl o y ee b en efi t s. See i d . at3 8 7 , 3 9 2 -3 93 . Inres o l v i n g th e i s s u e o f wh et h er a
wo rk er i s an em

p lo y ee, al l o f t h e fact s an dci rcu m st an ces m u s tb e co ns i d ered , an d
n o o n e fact o r i s d i s p o s i t i v e. See i d . at3 87
. Deg ree o f Co n tro l In g en eral , th e rel at i o n s h i p o f em p l o y er an dem

p l o y ee ex is t s u n d er co m

m o n l aw wh en th e p ers o n fo r wh o m s erv ices are p erfo rm edh as th e ri g h t t o ex erci s e
co n tro l o v er t h e i nd i v i dual p erfo rm i n g th e s erv i ces fo r t h atp ers o n wi t h res p ectt o
n o to n ly th e res ul t t o b e acco m

p l i s h edb u tal s o th e d et ai ls an dth e m ean s b y wh i ch t h e res u l ti s acco m

p l i s h ed . See i d .; s ecs . 3 1 .3 1 21 (d )-1 (c)(2 ), 3 1.3 3 0 6 (i )-1 (b ), 3 1 .3 4 0 1 (c)-1 (b ), Em

p l oym en t Tax Reg s . W e h av e referred t o thatri g htb y th e p ri n ci p al as the “ cru ci al t es t” i n d et erm i n i n g wh eth er an em p lo y er an dem

p l o y ee rel at i o n s h i p ex i s t s b et ween th e p ri n ci p al an dth e wo rk er. See W eb er v . Co m m is

s i on er, 1 0 3 T.C. at3 8 7 ; s ee al s o s ecs . 3 1 .3 1 2 1 (d )-1 (c)(2 ), 3 1 .3 3 0 6 (i )-1 (b ), 3 1 .3 4 0 1 (c)-1 (b ), Em

p l oym en t Tax Reg s . It is n o treq u i redi n o rd er fo r anem pl o y er an d em

p l o y ee rel at i o n s h i p t o ex i s t t h atth e p ers o n fo r wh o m th e s erv i ces are p erfo rm edi n fact co n t ro l o r d i rect th e
m an n er i n wh i ch th e i n d iv i du al p erfo rm s th e s erv ices fo r th atp ers o n. In o rd er fo r- 2 4 -

[* 2 4 ] a p ri nci pal t o h av e t h e co n t ro l n eces s ary t o fi n dth ata wo rk er i s an em p l o y ee
o f t h at p ri n ci pal , th e p ri nci p al “ n eedn o ts t an d o v er t h e * * * [wo rk er] an d d i rect
ev ery m o v e m ad e b y

th at* * * [wo rk er]
. ” W eb er v . Co m m i s s io n er, 1 0 3 T.C. at 3 8 8 . Iti s s u ffi ci en tfo r an em p l o y er an dem

p l o y ee rel at i o n sh i p t o ex i sti f t h e p ri n ci p al h as th e ri g h tt o d o s o . See i d .; s ecs . 3 1 .3 1 2 1 (d )-1 (c)(2 ), 3 1.3 3 0 6 (i )-1 (b ), 3 1 .3 4 0 1 (c)-1 (b ), Em

p l oym en t Tax Reg s . No r i s i t n eces s ary

i n o rd er fo r an em

p lo y er an dem

p l o y ee rel at i o ns h i p t o
ex i s t t h atth e p ri n ci p al es tab l i s h t h e h o u rs o f t h e wo rk er o r s up erv i s e ev ery d et ai l
o f t h at wo rk er’ s wo rken v i ro n m en t . See Ewen s & M il l er, In c. v . Co m m i s s i o n er, 1 1 7 T.C. at2 70 . Th atth e wo rk er es t ab l i s hes th e h o urs th ath e/ s h e wo rk s d o es n o t req u i re a fi n d i n g th at t h e wo rk er i s n o tan em p lo y ee o f t h e p ri n ci p l e. See i d
. In ad d i ti o n , th e d eg ree o f co n t ro l n eed edt o fi n d em p l o y ee s t atus v ari es d ep en d i ng up o n th e n ature o f t h e s erv i ces p ro v id ed . See i d . Wh en the n atu re o f t h e wo rk i s m ore i n d ep en d en t , a l es s er d eg ree o f co n t ro l b y th e p ers o n fo r wh o m t h e s erv i ces are p erfo rm ed m ay s t i l l res u l ti n a fi n di n g o f an em p l o y er an dem p l o y ee rel at i o n s h i p . See TFT Gal v es t o n Po rt fo l io , Lt d . v . Co m m i s s io n er, 1 4 4 T.C. 9 6 , 1 1 6 (2 0 1 5 ). In th e p res en t cas e, p et i t i o n er, as th e o wn er an dthe o p erat o r o f th e ap art m en tco m p l ex , es tab l i s h edth e am o u n to f ren t t h ati tch arg edfo r each ap art m en tat- 2 5 -

[* 2 5 ] th atco m

pl ex . Pet i t io n er al s o es t ab li s h edth e p o l i ci es , ru l es , an d/ o r reg u l at i on s thatwere t o ap p l y atthe ap art m en t co m p l ex , s u ch as p o li ci es o n p et s an d
ru l es o r reg u l at i o n s g o v ern i n g th e s wi m m i n g p o o l at t h atco m

p l ex . On l y

p et i

t i on er h adth e au t h o ri t y

t o ch an g e an y

p o l i ci es , ru l es , an d/ o r reg u l at i o n s t h ati th ad
es t ab l i s h edfo r t h e ap art m en t co m p l ex . Pet i t i o ner d i rect edM r. Hern d o n t o u n d ert ak e, i n t er al i a, th e fo l l o wi n g wo rk atthe ap art m en tco m

p l ex , wh i ch i n cl u d edn oto n l y cert ai n m an ag em en tty

p es o f
wo rkb u tal s o cert ai n o t h er t y p es o f wo rk : (1 ) g en eral m ai nt en an ce wo rk , s u ch as (a) d o i n g wh at ev er ro u t i n e wo rk(e.g ., ro u t i n e p l u m b in g wo rk ) was n eed edt o
m ai n t ai n th e ap art m en t s , (b ) d oi n g wh at ev er wo rkwas n eed edi n v acan tap art m en t s t o m ak e t h em

s u i t ab l e fo r t h e o ccup an cy o f n ew t en an t s (e.g ., s h eet ro ck rep ai r, rem o vi n g an drep l aci n g o l d carp et , an dp ai n t i n g), (c) p erfo rm i n g co n cret e
an d fen ce p o s trep ai r wo rk as n eed edfo r t h e area aro u ndth e s wi m m in g p oo l , (d ) m o wi n g t h e l awn wi t h p et it i o n er’ s l awn m o wer, an d(e) d oi n g o t h er wo rk rel at i n g t o th e g en eral m ai n t en an ce o f t he ap art m en tco m p l ex ; (2 ) p laci n g n ews p ap er ad v ert i s em en t s s h o wi n g t h e av ai l ab il i ty o f ap art m en t s fo r ren t ; (3 ) accep t i n g ap p li cat io n s t o ren t fro m

p ro sp ect i v e t en an t s ; (4 ) s h o wi n g ap art m en t s fo r ren tt o p ro s p ect i v e t en an t s ; (5 ) rev i ewi n g ap p l i cat i o n s t o ren tfro m p ro s p ect i v e t en an t s ; (6 ) d eci d i n g wh eth er t o accep to r reject th os e ap p l icat i o ns b y fo l l o wi n g th e- 2 6 -

[* 2 6 ] g u i d el i n es th atp et i t i o n er h ad es t ab l i s h edfo r accep t i n g o r reject i n g p ro s p ect i ve t en an t s ; (7 ) u s u al l y d eci di n g wh et h er t o ev i cta t en an t , al t h o u g h s o m et i m es
co n su l t i n g wi t h o n e o f t h e two o wn ers ab ou twh et h er t o ev i ct a t en an t ; (8 ) an s weri n g t el ep h o n e cal l s m ad e t o p et i t i o n er’ s o ffi ce wh en n ei t h er o f th e t wo o wn ers n o r M r. Hern d o n was i n th ato ffi ce, wh i ch , i n th atev en t, were au t o m at i cal l y fo rward ed t o M r. Hern d on ’ s m o b il e t el ep h o n e; an d(9 ) p ro ces si n g ren t al p aym en t s recei v ed b y (a) i np u t t i n g i n t o p et i t i o n er’ s co m p u t er i n p et i t i o n er’ s o ffi ce t h e s tatu s o f ren t al p aym en t s, (b ) u s i ng p et i ti o n er’ s b an ks t am p o n ren tp aym en t ch eck s fo r d ep o s i tt o p et i t i o n er’ s b an kacco u n t , (c) p l aci n g th o s e s tam pedch eck s i n t o a b an k b ag t o b e p i ck edup b y

o n e o f t h e two o wn ers , (d ) i s s ui n g recei p t s t o t en an t s fo r ren tp ai d , an d (e) p l aci n g co p i es o f t h os e recei p ts i n a s o -cal l ed b oo ko f recei p t s t h ato n e o f t h e t wo o wn ers th ereaft er ret ri ev ed fro m p et i t i o n er’ s o ffi ce. Pu rs uan tt o t h e wo rk arran g em en tthatM r. Hern d o n h adwi t h p et i ti o n er, p et i t i o n er h adth e ri g h tt o co n t ro l o r d i rect wh atwo rkM r. Hern d o n was t o p erfo rm atthe ap art m en tco m

p l ex an d h o w h e was t o d o t h atwo rk
. 1 2 No to n l y d i dp et i

t i on er h av e t h e ri g h tt o co n tro l o r d i rect wh at wo rkM r. Hern d o n was t o p erfo rm at t h e ap art m en t co m

p l ex an dh o wh e was t o d o th atwo rk , p et i t io n er i n fact d i rect ed

1 2 M r. Hern d o n ack n o wl ed g eddu ri n g h i s t es ti m o n y attri al th atp et i t i o n er h ad t h e ri g htt o co n tro l o r d i rectwh ath e was t o d o atthe ap art m en tco m p l ex .- 2 7 -

[* 2 7 ] o r co n t ro l l ed wh atwo rkM r. Hern do n was t o p erfo rm atth e ap art m en t
co m p l ex an dh ow h e was t o d o th atwo rk
. Itd i ds o b y , i n t er al i a, g i v i n g h i m i n s t ru ct i o n s as t o wh att o d o o r wh atn o tt o d o ; g i v i ng h i m i n s t ru ct i o n s o n h o w t o d o th e wo rkth ath e was d i rect edt o p erfo rm ; g i v i n g h im i ns t ru ct i o n s s p eci fy i n g th e d at es o n wh i ch i treq u i redM r. Hern d o n t o d o cert ai n wo rk ; p ri o ri t i zi n g the wo rk t h ati treq u i redM r. Hern d o n t o p erfo rm ; g i v i ng h i m g u i d el i nes wh i ch t h e t wo
o wn ers d i s cu s s edwi t h h i m an dwh i ch h e was req ui red t o fo l l o w i n p erfo rm i n g
m o sto f t h e wo rkfo r wh i ch h e was res p o ns i b l e; an dreq u i ri n g M r. Hern do n t o
s ub m i trep o rt s o n the s t atu s o f t h e n on ro u ti n e wo rkth ath e was d o i n g . To i l l u s t rat e p et i t i o n er’ s co n t ro l o r d i rect i o n o f M r. Hern do n ’ s wo rkatth e ap art m en t
co m p l ex , M r. Hern do n h adt o fo l l o w p et i t i o n er’ s g u i d el i n es fo r reject i n g o r accep t i n g ap p l icat i o n s t o ren tfro m p ro s p ect i v e t en an t s . 1 3 In ad di t i o n , M r. Hern d o n h adt o as kp et it i on er fo r ap p ro v al b efo re i n cu rri n g an ex p en s e fo r wo rkat t h e ap art m en t co m

p l ex th atex ceed edan am ou n twh i ch p et i t i o n er h ades t ab l i s h ed

1 3 As o f 2 00 9 an d 2 0 1 0 , M r. Hern d o n h ads erv edas t h e p ro p ert y m an ag er at t h e ap art m en t co m

p l ex fo r p et i t i o n er an dfo r t h e fo rm er o w n er fo r a t o t al o f 1 2 t o 1 3 y ears . Du ri n g th att i m e, h e b ecam e ex p eri en ced i n d eci d i n g wh et h er t o accep t o r reject ap p l i cat i o n s t o ren tfro m p ro s pect i v e t en an ts b y fo ll o wi n g the g u i d el i n es t h ath e was req u i redt o fo l l o w i n m ak in g th o s e d et erm in at i o n s. Des p i t e h av i n g p et i t i o n er’ s g u id el i n es , M r. Hern do n was n o t al way s s u re wh et h er t o ap p ro v e o r d i s ap p ro v e cert ai n ap p li cat i o n s t o ren tfro m p ro s p ect iv e t en an t s . In th o se ev en t s , wh i ch o ccu rred s ev eral t i m es a m o n t h , h e co n t act ed o n e o f th e t wo o wn ers an d as k edh i m

wh et h er h e s h o u l dap p ro v e o r d i s ap p ro v e t h o se ap p li cat i o n s .- 2 8 -

[* 2 8 ] i n g u i d el i n es rel at in g t o wo rk -rel at edex p en d i tu res . As a fu rt h er i l l u s t rat i o n
o f p et i ti o n er’ s co n t ro l o r d i rect i o n o f M r. Hern d o n ’ s wo rk , p et i t i o n er as k edM r. Hern d o n fro m

t i m e t o t i m e t o reco m

m en da qu al i fi edp ers o n t o p erfo rm wo rkat t h e ap art m en t co m

p l ex th atM r. Hern d on was n o tqu al i fi edt o h an d le, b u to n l y p et i t i o n er h adth e au th o ri t y t o ret ai n an y

p ers o n th atM r. Hern d on reco m m en d ed
. Pet i t i o ner g en eral ly

d i d n o tcl o sel y

s uperv i s e M r. Hern d on o r d i dn o ts up erv i s e h i m atal l i n h i s p erfo rm an ce o f ro u t i n e g en eral m ai n t en an ce wo rk o r m i n o r t as k s . Th atfi n d i ng d o es n o tu nd erm i n e o u r fi n d i n g s th atn o t o n l y d i d p et i t i o n er h av e th e ri gh tt o co nt ro l o r d irect wh atM r. Hern d o n d i datth e ap art m en tco m p l ex , b u tp et i t i o n er i n fact d irect edo r co n t ro l l edwh atwo rk M r. Hern d o n p erfo rm edat t h atco m p l ex . Th e d i s cret i o n th atp et i t i o ner al l owedM r. Hern d on i n p erfo rm i n g
an y ro u t i ne g en eral m ai nt en an ce wo rko r m i n o r t as ks i s n o ts u rp ri s i n g g i v enM r. Hern d o n ’ s ex t en s i v e ex peri en ce i n d o i n g t h atty p e o f wo rkatth e ap art m en tco m p l ex fo r p et i t io n er an d t h e fo rm er o wn er. See TFT Gal ves t o n Po rt fo l i o , Lt d . v . Co m m i s s i o n er, 1 4 4 T.C. at1 1 6-1 1 7 . Du ri n g 2 0 09 an d 2 0 1 0 , M r. Hern d o n h ad
s erv edas the p ro p ert y

m an ag er at th e ap art m en tco m pl ex fo r p et i t i on er an dth e fo rm er o wn er fo r a t o t al o f 1 2 t o 1 3 y ears . Co n s eq u en tl y , h e was th o ro u g h l y fam i l i ar wi t h h o w t o p erfo rm , an dex p eri en cedi n p erfo rm in g , ro u t i n e g en eral- 2 9 -

[* 2 9 ] m ai n t en an ce wo rko r m i n o r t as k s , an dth erefo re p et i t i o n er g en eral l y d i dn o t h av e t o s up erv i s e cl o sel y o r s up erv i se at al l tho s e ty p es o f wo rk

o r t as ks
. On th e reco rdb efo re u s , we fi n dth at t h e d eg ree-o f-co n t ro l fact o r wei g h s i n fav o r o f fi n d i n g thatfo r t h e qu art ers i n qu es ti on M r. Hern d o n was p et i ti o n er’ s
em pl o y ee. In v es t m en ti n Faci l i t i es Wh ere t h e wo rk er h as n o i n v es tm en t i n t he faci l i t i es , s uch as t o o l s , u s ed i n t h e wo rk t h atth e wo rk er d o es fo r t h e p ri n ci p al , th atfact g en eral l y i s i n d i cat i v e t h at t h e wo rk er i s an em

p l oy ee o f t h e p ri n ci pal . See i d . at1 1 7 . Wh ere t h e wo rk er p ro v i d es th e wo rk er’ s o wn t o o ls , th at fact g en eral l y i s i n di cat i ve t h atth e wo rk er i s an i n d ep en den tco n t ract o r. See i d
. In th e p res en t cas e, M r. Hern d o n u s edh i s o w n m ai n t en an ce t o o l s (e.g ., h amm er, s aw, dri ll , an d m u d b u ck etfo r carp en t ry

wo rk o r p lu m

b i ng m ai n t en an ce
wo rk ) i n p erfo rm i n g s om e o f t he g en eral m ai n t en an ce wo rkatth e ap art m en tco m p l ex . M r. Hern d o n al s o u s edtho s e s am e m ai n t en an ce t o ol s i n p erfo rm i n g s o m e
o u t s i d e h an d ym an wo rk , i .e., g en eral m ai n ten an ce wo rk , fo r cert ai n i n d i v idu al s wh o were n o trel at edt o p et i t i o n er. Th e o u t s i d e h an d ym an wo rkwas s i m i l ar t o the t y p es o f g en eral m ai nt en an ce wo rkth atM r. Hern d o n d i dat t h e ap art m en t co m p l ex .- 3 0 -

[* 3 0 ] Pet i t i o ner, h o wev er, o wn edan d/ o r p ro v i d edth e faci l it i es an dm o sto f t h e t o o l s an dequ i p m en tthatM r. Hern d o n u s edi n p erfo rm i n g h i s wo rkatth e ap art m en tco m p l ex . Sp eci fi cal l y , p et i t io n er m ai n t ai n edan o ffi ce at th e ap art m en t
co m p l ex . Pet it i on er’ s o ffi ce co n s is t edo f two ap art m en t s t h ath adb een m od i fi ed t o s erv e as p et it i o n er’ s o ffi ce. Pet i t io n er h adp l aced cert ai n equ ip m en tan do t h er i t em s i n th ato ffi ce fo r u s e i n carry i n g o n i t s ap art m en tco m p l ex b us i n es s , i n cl u d

i n g a co m p u t er an da p ri n t er, a fi l e cab i n etfo r ret ai n i n g t en an t fi l es , a b o o ko f b l an kren trecei p ts , a dro p b o x fo r ren tp aym en ts , a b an k d ep o s i tb ag fo r u s e b y p et i t i o n er’ s t wo o wn ers t o t ak e ren t p aym en ts t o i t s b an kfo r d ep o s i t, b lan kren t al ap p li cat io n fo rm s , an d b l an k l eas e fo rm s. M o reo v er, M r. Hern d o n m o w edth e l awn atth e ap art m en tco m p l ex wi t h p et i t i o ner’ s l awn m o wer. In ad d i t io n , fro m t h e t i m e M r. Hern d on b eg an wo rk i n g fo r p et i t i o n er i n 2 0 0 6 as th e p ro p ert y
m an ag er at the ap art m en tco m p l ex , h e res i d edi n an ap art m en tatth atco m p l ex , wh i ch was i m

m ed i at el y ad

jacen tt o p et i t i o n er’ s o ffi ce. 1 4 Pet i t i o ner al s o h ada cred i tcardi n i t s n am e wh i ch i t al l o wedM r. Hern d o n t o u s e, s ub

ject t o it s wo rk -rel at edex p en d i tu re g u i d el i n es , t o p u rch as e m at eri al s t h ath e n eed edi n o rd er t o p erfo rm g en eral m ai nt en an ce wo rkatth e ap art m en t

1 4 Al t h o u g h n otal to get h er cl ear fro m th e reco rd , i tap p ears th at M r. Hern d o n d i dn o t p ay

p et i ti o n er ren tfo r t h atap art m en t
.- 3 1 -

[* 3 1 ] co m

pl ex . Pet i ti o n er al so g av e M r. Hern d o n a s p eci fi edg as o l in e al lo wan ce b y al l owi n g h i m

t o u se p et i t i on er’ s cred i tcard t o p u rch as e a s p eci fi edam o u n to f g as o li n e fo r h i s p ers o n al v eh icl e b ecau s e M r. Hern do n u s edh i s p ers o n al v eh i cl e
n o to n ly fo r p ers o n al reas o ns b u tal s o fo r erran d s rel at in g t o wo rkth ath e was d o i n g atth e ap art m en t co m p l ex . Pet i t i o ner, n o tM r. Hern d o n , was res p o ns i b l e fo r
an d p ai dal l o f p et i ti o n er’ s cred i tcardch arg es . On th e reco rdb efo re u s , we fi n dth at t h e i n v es t m en t -i n -faci l i ti es fact o r wei g h s i n fav o r o f fi nd i n g thatfo r t h e qu art ers i n qu es t io n M r. Hern d on was p et i

t i on er’ s em

p l o y ee. Op p o rtu n i ty

fo r Pro fi tan d Ri s ko f Lo s s Wh ere t h e wo rk er d o es no th av e an o p p ortu n it y fo r p ro fi to r ri s k o f l o s s i n
wo rk i n g fo r t h e p ri n ci p al , th at fact g en eral l y i s i n di cat iv e t h atthe wo rk er i s an
em pl o y ee o f t h e p ri n ci p al
. See TFT Gal ves t o n Po rt fo l io , Lt d . v . Co m m i ss i o n er, 1 4 4 T.C. at1 17 . A n eg o t i at edfl atfee p ai d t o a wo rk er (1 ) i ns u l at es th e wo rk er fro m s u fferi n g a l o ss i f t h e co s to f a p ro ject ex ceed s th e am o u n tb u d g et edas th e
co s to f t he p ro

j ectan d (2 ) p rev en t s t h e wo rk er fro m real i zi n g a p ro fi ti f aft er
co m p l et i o n o f t h e p ro

jectth e act u al co sti s l es s t h an th atb u d g et edam ou n t . See Ku rekv . Co m

m i s si o ner, T.C. M em o . 2 0 1 3 -6 4 , at * 1 2 . A fl atfee p aym en tal s o- 3 2 -

[* 3 2 ] p rev en t s a wo rk er fro m i n creas in g thro u g h t h e wo rk er’ s effo rt s the earn i n g s t h atth e wo rk er wi l l recei v e fo r h i s / h er wo rk . See i d
. In th e p res en t cas e, p et i t i o n er p ai dM r. Hern d o n fo r h i s s erv i ces atth e ap art m en tco m p l ex a t o t al o f $ 2 , 0 0 0 each m o n t h , 1 5 reg ard l es s o f h o w m an y h o u rs h e
wo rk edo r h o w s u cces sfu l p et i t i o n er’ s ap art m en t co m pl ex b us i n es s was . On th e reco rdb efo re u s , we fi n dth at t h e o p p ortu n it y -fo r-p ro fi t o r ri s k -o fl o s s fact o r wei g hs i n fav o r o f fi n d i n g thatfo r t h e qu art ers i n qu es ti o n M r. Hern d o n
was p et i t i o n er’ s em

p lo y ee. Ri g htTo Di s ch arg e t h e W o rk er An em p l o y er ty p ical l y h as th e ri g h t t o t erm i n at e an em p l oy ee at wi l l . See El l i so n v . Co m

m i ss i o n er, 5 5 T.C. 1 4 2 , 1 5 5 (1 9 7 0 ). In th e p res en t cas e, p u rs u an tt o t h e wo rkarran g em en t t h atM r. Hern d o n h ad wi t h p et i t i o n er, p et i t i o n er h adth e ri g h tt o d i s ch arg e h i m atan y t i m e, an dh e h ad t h e ri gh tt o res ig n atan y

t i m e. On th e reco rdb efo re u s , we fi n dth at t h e ri g h t -t o -d i s ch arg e-t h e-wo rk er fact or wei g h s i n fav o r o f fi n d i n g th atfo r t h e qu art ers i n qu es t i o n M r. Hern d o n was p et i t i o n er’ s em

p lo y ee.

1 5 Pet i t i o ner p ai dM r. Hern d o n fo r h is s erv i ces at t h e ap art m en t co m pl ex b y i s su i ng t o h i m

a ch eckfo r $ 1 ,0 0 0 twi ce each m on t h
.- 3 3 -

[* 3 3 ] In t eg ral Part o f t h e Pri nci p al ’ s Bu s in es s Wh ere t h e wo rk er i s an es s en t i al p arto f a p ri n ci pal ’ s n o rm al b u s i n es s
o p erat i o n s , th atfact g en eral l y i s i n d i cat i v e t h at t he wo rk er i s an em pl o y ee o f t h e p ri n ci p al . See TFT Gal ves t o n Po rt fo l i o, Lt d. v . Co m m i s si o n er, 1 4 4 T.C. at1 1 8
. In th e p res en t cas e, M r. Hern d o n s erv ed as th e p ro p ert y m an ag er at th e ap art m en tco m

p l ex fo r p et i t i o n er, t h e o wn er an do p erat or o f t hatap art m en tco m p l ex b us i n es s . M r. Hern d o n was the o n l y p ers on wh o p erfo rm edwo rkreg u l arl y at t h atco m p l ex fo r p et i t i o n er. Pet i t i on er d i rect edM r. Hern d o n t o u n dert ak e, i n t er al i a, t h e fo l l owi n g wo rkatth e ap art m en t co m p l ex , wh i ch i n cl u dedn ot o n ly cert ai n
m an ag em en tty

pes o f wo rk b u tal s o cert ai n o th er t y p es o f wo rk : (1 ) g en eral m ai n t en an ce wo rk , s u ch as (a) d o i n g wh at ev er ro u t i n e wo rk (e.g ., ro u t i n e p l um b i n g
wo rk ) was n eed edt o m ai nt ai n th e ap art m en t s , (b ) d o i ng wh at ev er wo rkwas n eed

edi n v acan tap art m en ts t o m ak e t h em s u i tab l e fo r t h e o ccup an cy o f n ew t en an t s (e.g ., s h eet ro ckrep ai r, rem o v i ng an d rep laci n g o l dcarp et , an d p ai n t i n g ), (c) p erfo rm i n g co n cret e an dfen ce p o strep ai r wo rkas n eed edfo r t h e area aro un d t h e
s wi m m i n g p o o l , (d ) m owi n g th e l awn wi th p et i t i o n er’ s l awn m o w er, an d(e) d o i n g
o t h er wo rk

rel at i n g t o th e g en eral m ai n t en an ce o f th e ap art m en t co m pl ex ; (2 ) p l aci n g n ews p ap er ad v ert i s em en t s s h o wi n g av ai lab i l i t y o f ap art m en ts fo r ren t ; (3 ) accep t i ng ap p l i cat i o n s t o ren tfro m p ro s p ect i v e t en an t s ; (4 ) s ho wi ng ap art m en t s fo r- 3 4 -

[* 3 4 ] ren tt o p ro s p ect i v e t en an t s ; (5 ) rev i ewi n g ap p l icat i o n s t o ren tfro m p ro s p ect i ve t en an t s ; (6 ) d eci di n g wh eth er t o accep t o r reject th o se ap p l i cat i o n s b y fo l l o wi n g th e g u i d el i n es th at p et i t io n er h ades t ab l i s h edfo r accep ti ng o r reject in g p ro s p ect i v e t en an t s ; (7 ) u s u al l y d eci d i n g wh et h er t o ev i cta t en an t , al t h o u gh s o m et i m es co n s u l t i n g wi t h o n e o f t h e t wo o wn ers ab o u twh et h er t o ev icta t en an t ; (8 ) an s weri n g t el ep h o n e cal l s m ad e t o p et it i on er’ s o ffi ce wh en n ei t h er o f t he t wo
o wn ers n o r M r. Hern d o n was i n th ato ffi ce, wh i ch , i n t h atev en t , were au t o m at i

cal l y fo rward edt o M r. Hern d o n ’ s m o b i le t el ep h on e; an d(9 ) p ro ces s i n g ren t al p aym en t s recei v edb y

(a) i np ut t i n g i n t o p et i t i o n er’ s co m pu t er i n p et i t i o n er’ s o ffi ce t h e s t atu s o f ren t al p aym en t s , (b ) u s i n g p et i t i o ner’ s b an ks t am p o n ren tp aym en t ch eck s fo r d ep o si tt o p et i t i o n er’ s b an kacco u n t , (c) p l aci ng th os e s t am p ed ch eck s i n t o a b an kb ag t o b e p i ck edup b y o n e o f th e t wo o wn ers , (d ) i s s ui n g recei p t s t o t en an t s fo r ren tp ai d , an d(e) p laci n g co p i es o f t h o s e recei p t s i n a s o-cal l ed b o o ko f recei p t s t h ato n e o f t h e t w o o wn ers th ereaft er ret ri ev edfro m p et i t i o ner’ s o ffi ce. Th e wo rkatth e ap art m en t co m p l ex thatM r. Hern d o n u nd ert o o ko n b eh al f o f p et i t i o n er “ p l ay edan i n t eg ral ro l e i n th e b us i n es s [p et i ti o n er’ s ap art m en tco m p l ex b u s i n es s ] b y

k eep i n g v acan ci es t o a m i n i m u m , [an d ] m ai n t ai ni ng th e p h y s i cal i n t eg ri t y o f t h e p ro pert [y ] ”. TFT Gal v es t o n Po rt fo l i o , Lt d . v . Co m m i s s i o n er, 1 4 4 T.C. at1 1 9
.- 3 5 -

[* 3 5 ] On th e reco rdb efo re u s , we fi n dth at t h e i n t eg ral -p art -o f-t h e-p ri n ci p al ’ s b u s i n es s fact o r wei gh s i n fav or o f fi n d i n g th atfo r th e quart ers i n qu es t i o n M r. Hern d o n was p et i ti on er’ s em p l o y ee. Perm an en cy

o f the Rel at i o n s h ip Wh ere t h e wo rk i n g rel at i o n s h i p b et ween th e wo rk er an dthe p ri n ci p al i s a
co n ti n u i n g , n o ta t ran s it ory , rel at i o n s h i p, t hatfact g en eral l y i s i nd i cat i v e t h atth e
wo rk er i s an em

p lo y ee o f t h e p ri n ci p al . See i d
. In th e p res en t cas e, aro u n dthe t i m e p et i t io n er acq u i red t h e ap art m en t
co m p l ex i n J u l y

2 0 0 6 i tret ai nedM r. Hern do n t o co n ti n u e p ro v i d i n g v ari o u s
s erv i ces fo r t h at co m

p lex t o p et i t io n er, t h e n ew o wn er. Atth e t i m e o f t h e t ri al i n t h i s cas e, M r. Hern d o n was s ti l l p ro v i di n g v ari o u s s erv ices fo r th e ap art m en t
co m p l ex t o p et i t i o n er. In ad d i t i o n , fro m the t i m e M r. Hern do n b eg an wo rk i n g fo r p et i t i o n er i n 2 0 0 6 as the p ro p ert y m an ag er atth e ap art m en tco m p lex , h e res i d edi n
an ap art m en t atth atco m

p l ex , wh i ch was i m

m ed i at el y ad jacen tt o p et it i o n er’ s
o ffi ce. 1 6 See Twi n Ri v ers Farm , In c. v . Co m m i s s i o n er, T.C. M em o . 2 0 1 2 -1 8 4 , 2 0 1 2 W L 2 5 3 3 9 4 9, at* 4
.

1 6 See s up ra n o t e 1 4
.- 3 6 -

[* 3 6 ] On th e reco rdb efo re u s , we fi n dth at t h e p erm an en cy -o f-t h e-rel at io n s h i p fact or wei g h s i n fav o r o f fi n d i n g th atfo r t h e qu art ers i n qu es t i o n M r. Hern d o n was p et i t i o n er’ s em

p lo y ee. Rel at i o n s h i p th e Part i es Bel i ev edTh ey Creat ed Wh ere t h e p ri n ci p al an dth e wo rk er i nt en d t o es t ab l i s h an i n d ep en d en tco nt ract o r rel at i on s h i p , “ s u ch an i nt en t io n d o es n otcarrym uch wei g h t[i n d et erm i n i n g wh et h er t h e wo rk er i s an i n d ep en d en tco nt ract o r an em p l oy ee] wh en the co m

m o n l aw fact o rs co m

p el a fi n d i n g t h atan em

p l o y er-em

p l oy ee rel at i o n s h i p ex i s t s .” TFT Gal v es to n Po rt fo l io , Lt d . v . Co m m i s s i o ner, 1 4 4 T.C. at1 1 9
. In th e p res en t cas e, n ei t h er o f t h e t w o o wn ers o f p et it i on er was a wi t n es s at t ri al , wh i ch s u gg es t s t o u s th atth e res p ect i ve t es t i m o n i es o f t h o s e o wn ers wo u l d
n o th av e b een fav o rab l e t o p et i t i o n er’ s p o s i t i o n. As fo r M r. Hern d on ’ s t es t i m o n y , h e d idn o tex pres s l y t es t ify wh at rel at i o n s h i p h e i n t en d edt o es t ab l i s h wi t h p et i t i o ner wh en h e b eg an wo rk i n g fo r i ti n 2 0 06
. Ho wev er, M r. Hern d o n d i dt es t i fy , an d we fo u nd , th at , i n ad d i t i o n t o s erv i n g as th e p ro p ert y m an ag er at th e ap art m en tco m p l ex an dp erfo rm i n g th e wo rkth atp et i

t i on er req u i redh i m

t o d o i n th atro l e, h e s p en ts o m e t i m e, o ft en du ri n g ev en i n g s
an d o n week en d s , p erfo rm i ng cert ai n g en eral m ai n t en an ce wo rko r o u t si d e h an d y m an wo rk

(e.g
. , p ai n t i ng ) fo r cert ai n i nd i v i du al s wh o l i v edi n t h e n ei g h b o rh o o do f- 3 7 -

[* 3 7 ] th atco m

pl ex an dwh o were n otrel at edt o p et it i o n er. 1 7 Th e o u t s i d e h an d y m an wo rk

was s i m i l ar t o th e t y

p es o f g en eral m ai n t en an ce wo rkth atM r. Hern d o n d i datth e ap art m en tco m

p l ex . Ho wev er, M r. Hern d o n al s o t es t i fi edth atth e
co m p en s at i o n t h ath e recei v edfo r an y o u t s i d e h an d y

m an wo rkwas es t ab l i s h edb y h i s s ub m it t i n g a b i dt o the h o m eo wn er. Th e way i n wh i ch M r. Hern d o n was
co m p en s at edfo r h i s o u t s i d e h an d ym an wo rki s i n m ark edco n t ras t t o t h e way i n wh i ch p et i t i on er co m

p en s at ed h i m

(i .e., p et i t i o n er p ai dM r. Hern d o n a fi x ed
m o nt h l y am ou n to f $ 2 ,0 0 0 ) fo r h i s s erv i ces at t he ap art m en t co m p l ex . On th e reco rdb efo re u s , we fi n dth at t h e rel at i o n sh i p -t h e-p art i es -b el i ev ed

t h ey -creat edfact o r i s a n eu t ral fact o r i n d et erm in i n g wh et h er fo r t h e qu art ers i n qu es ti o n M r. Hern d o n was p et i t i o n er’ s em p l o y ee. Pri n ci p al ’ s Pro v i s i o n o f Em p lo y ee Ben efi t s Wh ere t h e p ri n ci p al p ro v i d es t o th e wo rk er s o -cal l edem p lo y ee b en efi t s , th at fact g en eral l y

i s i n d i cat i v e t h atth e wo rk er i s an em p l o y ee o f t h e p ri n ci p al . See Ewen s & M il l er, In c. v . Co m m i s s i o n er, 1 1 7 T.C. at 2 7 0; W eb er v . Co m m i s s i o n er, 1 0 3 T.C. at3 87
.

1 7 Th e reco rdd oes n o tes tab l i sh h o w m u ch t i m e M r. Hern d o n s p en td o i n g o u t s i d e h an d ym an wo rk
.- 3 8 -

[* 3 8 ] In th e p res en t cas e, p et i t i o n er d i d n o t p ro v i d e M r. Hern d o n an y ad d i t i o n al b en efi t s , s u ch as h eal t h i n s u ran ce, fo r h i s wo rk at t h e ap art m en t co m

p l ex . Al

t h o u g h p et i t i o ner d i dn o tex p res s l y p ro v i d e t o M r. Hern d o n an y s o -cal l edp ai d
v acat i o n t i m e, M r. Hern do n was ab l e t o t ak e s o m e t i m e o ff fro m h i s wo rk atth e ap art m en tco m

p l ex wh en h is s ch edu l e o f wo rkth ere p erm i tt ed
. In th o s e i ns t an ces , M r. Hern d o n n o t i fi edth e t wo o wn ers o f t h e d at e(s ) o n wh i ch h e p l an n edt o t ak e
o ff wo rk atth e ap art m en tco m p l ex . Th u s , p et i t i o n er p ai dM r. Hern d o n fo r an y t i m e t h ath e t oo ko ff fro m

h is p erfo rm i n g h i s dut i es as p ro pert y m an ag er at th e ap art m en tco m p l ex . 1 8 On th e reco rdb efo re u s , we fi n dth at t h e p ri n ci pal ’ s -p ro v i s i o n -o f-em p l o y eeb en efi t s fact or i s a n eu t ral fact or i n d et erm i ni n g wh et h er fo r t h e qu art ers i n qu es t i on M r. Hern d o n was p et i t i o n er’ s em p lo y ee. Bas edup on o ur ex am i n at i o n o f t h e en t i re reco rdb efo re u s , we fi n dth atfo r t h e qu art ers i n qu es t i o n M r. Hern d o n was an em p l o y ee o f p et i t i o n er, n o tan i n d ep en den t co n t ract o r. W e co ns i der n o w, i n the al t ern at i v e, wh et her p et i t i o n er i s en t i t l ed t o s ect i o n 5 3 0 rel i ef. Pet i t i on er cl ai m s th atrel i ef o nl y fo r th e quart ers en d edo n M arch 3 1 ,

1 8 M o reo ver, i t ap p ears thatp et i t i o n er p ro vi d ed M r. Hern d o n th e ren t -free u s e o f anap art m en tatth e ap art m en tco m p lex . See s up ra n o t e 1 4
.- 3 9 -

[* 3 9 ] J u n e 3 0 , Sep t em

b er 3 0 , an d Decem

ber 3 1 , 2 0 1 0 (qu art ers i n qu es t i o n i n 2 0 1 0 ). Itd o es n o t cl ai m

s ect i o n 5 3 0 rel i ef fo r t h e qu art ers en dedo n J u n e 3 0 , Sep tem b er 3 0 , an dDecem

b er 3 1 , 2 0 0 9
. Sect io n 5 3 0 (a)(1 ) p ro v i d es a p ri nci p al rel i ef fro m em p l o ym en tt ax es an d
u n em p l o ym en tt ax wh ere t h e rel at i o n s h i p b et ween the p ri n ci p al an d t h e wo rk er i s
an em p l oy er an dem

p l o y ee rel at i o n s h i p , p ro v i d edth atth e p ri n ci p al s at i s fi es al l o f t h e fo l lo wi n g req u i rem en t s : (1 ) t h e p ri n ci p al h as n o ttreat edth e wo rk er as an
em pl o y ee fo r an y

p eri o d ; (2 ) t he p ri n ci p al h as co n s i st en t l y t reat edth e wo rk er as
n o tb ei n g an em

p l o y ee i n al l t ax retu rn s fo r p eri o d s aft er Decem ber 3 1 , 1 9 7 8 ; an d (3 ) t h e p ri n ci p al h ad a reas o nab l e b as is fo r n o t t reat i n g th e wo rk er as an em p l o y ee. See J o s ep h M
. Grey

Pub . Acco u n t an t , P.C. v . Co m m i s s i o n er, 1 1 9 T.C. 1 2 1 , 1 3 0 (2 0 0 2), aff’ d , 9 3 F. Ap p ’ x 4 7 3 (3 d Ci r. 2 00 4 ). (W e s h al l s o m et i m es refer t o th e t h ree req ui rem en t s th atp et i t i o n er m us ts at is fy

i n o rd er t o b e en t i t l edt o s ect i o n 5 3 0 rel i ef as th e s ect i o n 5 3 0 req u i rem en ts .) Tu rn i n g t o th e fi rs to f t h e s ect i o n 5 3 0 req u i rem en t s t h atp et it i on er m u s t
s at i s fy i n o rd er t o b e en t i t l edt o s ect io n 5 3 0 rel ief, p et i t i o n er m u st h av e co n s i s t en t l y treat edM r. Hern d o n as an i n d ep en d en t co n t ract o r i n i ts t ax retu rn s b y fi l i n g Fo rm 1 0 9 9 -M ISC, as req ui red b y s ect i o n 6 0 4 1 (a) an d6 0 41 A(a). See Ku rekv . Co m m i s s i o n er, at* 1 5 (ci ti n g J o h n Kel l er, Act i o n Au t o Bo d y v . Co m m i s s io n er,- 4 0 -

[* 4 0 ] T.C. M em o. 2 0 1 2 -6 2 , 2 0 1 2 W L 7 5 2 0 7 6, at* 6; s ecs . 1 .6 0 4 1 -1 (a)(1 ) an d(2 ), 1 .6 04 1 -6 , Pro ced . & Ad m i n . Reg s .). On th e reco rdb efo re u s , we fi n dth at p et i t io n er h as fai l edt o carry i ts b u rd en
o f es t ab l i s h i n g thati t i s s u edt o M r. Hern d o n Fo rm 1 0 9 9 -M ISC, o r an y o t h er Fo rm 1 0 9 9 , fo r h i s t ax ab le y ear 2 0 1 0. 1 9 Onth atreco rd , we fi n dth atp et i t i o n er h as fai l ed t o carryi t s b u rd eno f es t ab l i s h in g th ati ts at i s fi es th e fi rs to f th e s ect i o n 5 3 0 req u i rem en t s . Al t h ou g h n otn eces sary t o o ur u l t i m at e fi n di n g b el o w, we al s o fi ndo n th e
reco rdb efo re u s th at p et i t io n er h as fai l edt o carryi t s b u rd en o f es t ab li s hi n g t h at fo r t h e qu art ers i n qu es t i o n i n 2 0 1 0 i ts at i sfi es th e th i rdo f t h e s ect i on 5 3 0 req u i rem en t s . On b ri ef, p et i t i o n er co n t en d s t h at“ [t ] h e fact s an dci rcu m s t an ces s urro u n d

i n g th e wo rk i n g rel at io n s h i p b etween [p ] et i t i o n er an dM r. Hern d o n s up p o rtth e
reas on ab l e b el ief t h ati n d ep en d en tco n t ract o r s t atu s was the p ro p er t reat m en to f M r. Hern d o n du ri n g th e t ax p eri o d s 0 3 / 3 1 / 2 0 1 0 , 0 6/ 3 0 / 2 0 10 , 0 9 / 30 / 2 0 1 0 , an d 1 2 / 3 1 / 2 0 10 .” Onthe reco rdb efo re u s , we rejectthatco n t en t i o n . W e fo u n do n t h atreco rdcert ai n fact s an dci rcu m s t an ces th at req u i redu s t o fi n dth at fo r t h e

1 9 W e h av e fo u n d o n th e reco rdb efo re u s th atp et i t i o n er d i d n o ti s su e M r. Hern d o n Fo rm

1 0 9 9 -M ISC, o r an y

o t her Fo rm

1 0 9 9 , fo r h i s t ax ab l e y ear 2 0 0 9
.- 4 1 -

[* 4 1 ] qu art ers i n qu es t i o n , i n cl u d i n g th e qu art ers i n qu es ti on i n 2 0 1 0 , M r. Hern d o n was p et i ti on er’ s em p l o y ee. Bas edup on o ur ex am i n at i o n o f t h e en t i re reco rdb efo re u s , we fi n dth at p et i t i o n er h as fai l edt o carryi t s b u rd en o f es t ab l is hi n g thatfo r t h e qu art ers i n qu es ti o n i n 2 0 1 0 i ti s en t i t l edt o s ect i o n 5 3 0 rel i ef. W e tu rn fi n al l y to th e ad d i t i o n s u n der s ect io n 6 6 5 1 (a)(1 ) an d(2 ) t o an dth e p en al t i es u n d er s ect i o n 6 6 5 6 (a) o n th e res p ect i v e em p l o ym en tt ax es an d u n em p l o ym en tt ax fo r t h e t ax ab l e p eri o d s i n qu es ti on . Pet i ti o n er d o es n o tad d res s th o s e d et erm i n at i o n s i n i t s s i m

u l t an eo u s o p en in g b ri ef o r i t s s i m u l t an eo us an s weri n g b ri ef. 2 0 W e co n cl u d e t h atp et i t i o n er h as ab an d on ed ad v an ci n g an y arg u m en t s th at
res p o n d en t erred i n d et erm i n in g th atp et i t i o ner i s l i ab le fo r t he ad d it i on s t o t ax
u n d er s ect i o n 6 6 5 1 (a)(1 ) an d(2 ) an dth e p en al t i es u n d er s ect i o n 6 6 56 (a) t h atare at i s su e. 2 1 See M en d es v . Co m m i s s i o n er, 1 2 1 T.C. 3 0 8 , 3 1 2 -3 1 3 (2 0 03 ).

2 0 Al t h o u g h i t i s b y

n o m ean s cl ear fro m

p et i ti o ner’ s t wo b ri efs , p et it i o n er m ay b e wi ll i n g t o co n ced e th e d et erm i n at i o ns th ati ti s l i ab l e fo r t h e ad d i t i o n s t o t ax u n der s ec. 6 6 5 1 (a)(1 ) an d(2 ) an dth e p en al t i es u n d er s ec. 6 6 5 6(a) i f we were t o fi n d , wh i ch we h av e, t h atfo r t h e qu art ers i n qu es t io n M r. Hern d o n was an em pl o y ee o f p et it io n er an d t h ati ti s n o t en ti tl edt o s ect i o n 5 30 rel i ef.
2 1 Ev en i f we h adn o tco n cl u d edth atp et i ti o n er ab an d o n edad v an ci n g an y arg u m en t s th atres p o nd en t erredi n d et erm i ni n g thatp et i t i on er i s l i ab l e fo r t h e ad d it i o n s t o t ax u n d er s ec. 6 6 5 1 (a)(1 ) an d (2 ) an dth e p en al t ies u n d er s ec. 6 6 5 6 (a), we wo u ldh av e fo u ndo n t h e reco rdb efo re u s th atp et it i o n er i s l i ab l e fo r th o s e (co n ti n u ed ...)- 4 2 -

[* 4 2 ] W e fi n do n the b as i s o f o u r co ncl u s i o n thatp et i t i o ner h as ab an d o n edth e i s su e o f p et i t i o n er’ s l iab i l i t y fo r t h e ad di t i o n s t o t ax u n d er s ect io n 6 65 1 (a)(1 ) an d (2 ) an dth e p en al t ies u n d er s ect i o n 6 6 5 6 (a) t h at p et i t i o n er i s l i ab l e fo r t h o s e ad d it i o n s t o t ax an dth o s e p en al t i es fo r t he t ax ab l e p eri o ds i n qu es t i o n. 2 2

2 1 (...co n t i nu ed ) ad d it i o n s t o t ax an dth o s e p en al t i es . Th ati s b ecau s e p et i t io n er h as fai l edt o carry i t s b u rd en o f es t ab l i s hi n g th ati t s fai l u re t o fi l e u nd er s ec. 6 6 5 1(a)(1 ), i ts fai l u re t o p ay u n d er s ec. 6 6 5 1 (a)(2 ), an d i t s fai l u re t o d ep o si t u n d er s ec. 6 6 56 (a) were d u e t o reas on ab l e cau s e, n o t wi l l fu l n eg l ect
.

2 2 W e al l owedth e p art i es th e o p po rtu ni t y t o p ro v i d e u s wi t h t h ei r res p ect i v e v i ews o n th e i s s u e o f wh et h er, i n t h e l i g h to f Graev v . Co m m i s s i o n er, 1 4 9 T.C. _

_ (Dec. 2 0 , 2 0 1 7 ), s up p l em en t i n g an do v erru l in g i n p art 1 4 7 T.C. 4 6 0 (2 0 1 6 ), s ec. 6 7 5 1 (b )(1 ) ap p l i es t o th e ad d i t i o n s t o t ax u n d er s ec. 6 6 5 1 (a)(1 ) an d(2 ) an dth e p en al t i es u n d er s ec. 6 6 5 6 (a), wh i ch th ey d i di n res p ect i v e fi l i n gs th atth ey m ad e. W i t h res p ect t o th e ad d i t i o n s t o t ax u n d er s ec. 6 6 5 1 (a)(1 ) an d(2 ), t h e p art i es are i n ag reem en ti n t h ei r res p ect i v e fi l i n g s th ats ec. 6 7 5 1(b )(1 ) d o es n o tap p l y t o t h o s e ad d i t i o n s t o t ax b ecau s e o f t h e ex cep t i o n i n s ec. 6 7 5 1 (b )(2 )(A). W i t h res p ect t o th e p en al t i es u n d er s ec. 6 6 5 6 (a), res p o n d en t (1 ) rep res en t ed i n o n e o f res po n d en t ’ s fi l in g s th atth o s e p en al t ies were m an u al l y cal cu l at edan d (2 ) co n s eq u en t l y

co n ced es th ats ec. 6 7 5 1 (b )(1 ) ap p l i es t o th os e p en al t ies . Th e p art i es ag ree i n t h ei r res p ect i ve fi l i n g s t h ats ec. 7 4 9 1 (c) ap p l i es o n l y “ w i th res p ect t o the l i ab i l i t y

o f an y i nd i v i du al ” fo r, i n t er al i a, an y p en al t y an dth atth erefo re res p o n d en t d o es n o th av e t h e b u rd en o f p ro du ct io n u nd er s ec. 7 4 9 1 (c) fo r t h e p en al t i es u n d er s ec. 6 6 5 6 (a) t h atres p o n d en td et erm i n ed
. Th e p art i es al so ag ree i n t h ei r res p ect iv e fi l i ng s t h at p et i t i o n er h as th e b u rd en o f p ro o f an d t h e b u rd en o f p ro duct i o n wi th res pect t o th e p en al t i es u n d er s ec. 6 6 56 (a). Pet i t i o n er n o n et h el es s arg u es th at“ [r] es p on den two ul db e t h e o n l y p art y wi t h acces s t o t h es e reco rd s [an y reco rd s reg ard i n g t h e ap p ro v al t h ats ec. 6 75 1 (b )(1 ) requ ires ] an d , th erefo re, i t wo u l dp l ace an u n du e b u rd en o n * * * Pet i t i o n er t o b e requ ired t o p ro duce i n t ern al d o cu m en t s o f t h e In t ern al Rev en u e Serv i ce t o p ro ve a p en al t y as s es s edag ai n s t t h em [s i c] was p ro p er.” W e ag ree wi t h p et i t i o n er th at“ [r] es po n d en two u l db e t h e (co n ti n u ed ...)- 4 3 -

[* 4 3 ] W e h av e co n s id ered al l o f t h e co n t en ti o n s an darg u m en t s o f t h e p art i es th at
are n o td i s cu ss edh erei n , an dwe fi n dth em t o b e wi t h o u tm eri t, i rrel ev an t , an d/ o r
m o ot
. To refl ectthe fo reg o i n g an d t h e p art ies ’ res p ect i v e co nces s i o n s , An ap p ro p ri at e d eci s i o n wi l l b e en t ered
.

2 2 (...co n t i nu ed ) o n l y p art y wi t h acces s t o th es e reco rd s [an y reco rd s reg ard i n g the ap p ro v al th at s ec. 6 7 51 (b )(1 ) req u i res ] ”. W e d i s ag ree wi th p et i t i o n er t h at“ it wo u l d p l ace an u n du e b u rd en o n * * * Pet i t i o n er t o b e req u iredt o p ro du ce i n t ern al d ocu m en t s o f t h e In t ern al Rev en u e Serv i ce t o p ro ve a p en al ty as s es sedag ai n s tth em

[s i c] was p ro p er.” Th ati s b ecau s e p et i t io n er d i dn o tas ku s t o al lo w i t (1 ) t o co ndu ct d i s co v ery i n o rd er t o as cert ai n wh et her res p on d en th as an y reco rd s reg ard i n g th e ap p ro v al th ats ec. 6 7 5 1(b )(1 ) req u i res wi t h res pect t o the p en al t i es u nd er s ec. 6 6 5 6 (a) an d/o r (2 ) t o reo p en t h e reco rdi n o rd er t o d i s p ut e t h atth atap p ro v al o ccu rred
.