TAX COURT OPINION

Case: David W. Eastwood
Docket Number: 11024-06S
Judge: Colvin
Opinion Type: bench
Filed: 04/18/2008
Pages: 11

UNITED STATES TAX COURT Washington, D .C . 2021 7 DAVID W . EASTWOOD, Petitioner, V . Docket No . 11024-06S COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R ADM . RECORDE D 1r J SERVICE STA TS.T . . JUDGE FILE S Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Special Trial Judge Lewis R . Carluzzo at Tampa, Florida, on March 6, 2008, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be under Rule 155 . (Signed ) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . April 18, 2008 SERVED APR 2 2 2008 3 1 Bench Opinion by Special Trial Judge Lewis R . Carluzzo 2 March 6, 200 8 3 Eastwood v . Commissioner Docket No . 11024-06S 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case, an d 6 the following represents the Court's oral findings of 7 fact and opinion . The oral findings of fact and 8 opinion shall not be relied upon as precedent in any 9 other case . 10 This proceeding for the redetermination of a 11 deficiency is a Small Tax Case conducted pursuant to 12 the provisions of Section 7463 of the Internal Revenue 13 Code of 1986, as amended, and Rules 170 through 175 of 14 the Tax Court Rules of Practice and Procedure . 15 This bench opinion is made pursuant to the 16 authority granted by Section 7459(b) of the Internal 17 Revenue Code of 1986, as amended, and Rule 152 of the 18 Tax Court Rules of Practice and Procedure . 19 Hereinafter in this bench opinion, unless 20 otherwise indicated, section references are to the 21 Internal Revenue Code of 1986, as amended, in effect 22 for 2005 . Rule references are to the Tax Court Rules 23 of Practice and Procedure . 24 David W . Eastwood appeared pro se . Terra- 25 Lynn Zentara appeared on behalf of the Respondent . Heritage Reporting Corporatio n (202) 628-4888 4 1 In a notice of deficiency, dated March 20 , 2 2006, the Respondent determined a $3,737 deficiency in 3 Petitioner's 2004 Federal income tax . The issues to 4 be decided are : (1) The amount of compensatio n 5 Petitioner earned and received from Dick's Towing 6 Service (Towing) during 2004 ; and (2) whether such 7 compensation constitutes self-employment incom e 8 subject to the tax imposed by Section 1401 . 9 Some of the facts have been stipulated and 10 are so found . At the time that the petition wa s 11 filed, Petitioner resided in Pennsylvania . 12 The Petitioner was employed at least part of 13 2004 as a truck driver/delivery person for a pavin g 14 company . While making a delivery in connection with 15 that employment, he met Darryl Keller, the owner, o r 16 one of the owners, of Towing . ~~lw 17 That chant meeting gave rise to an 18 employment opportunity for the Petitioner at Towing . 19 During 2004, Petitioner provided services to Towing as 20 a tow truck driver . Petitioner also was called upon 21 to assist customers of Towing who had locke d 22 themselves out of their cars . 23 Petitioner did not own the tow truck he used 24 in connection with the services described above, and 25 at least for a period of time, he did not own th e Heritage Reporting Corporation (202) 628-4888 5 1 tools necessary to allow him to "unlock" a car when 2 called upon to provide that service . 3 The fees charged to Towing's customers fo r 4 either service were split with Petitioner, with Towing 5 receiving the majority of any given fee . Petitione r 6 was essentially compensated on a piecemeal basis and 7 this compensation was paid to him in cash . 8 Towing's method of compensating Petitioner, 9 and apparently other individuals as well, was somewhat 10 unconventional . A check made payable to "cash" was 11 drawn on a checking account maintained by Towing . 12 There are copies of five such checks in the record . 13 Notations on the checks show amounts next to 14 Petitioner's name, as well as the names of othe r 15 individuals and amounts for "fuel ." Sometimes the 16 amounts so notated equal the amount of the check, 17 sometimes they do not . 18 Otherwise, there are copies of what appear 19 to be deposit slips that contain the same type o f 20 notations, but are otherwise blank, or if other useful 21 information was shown on the originals, tha t 22 information is illegible on the copies made available 23 to the Court . 24 According to Towing ' s records, Petitioner 25 was paid $ 9,148 during 2004 in connection with th e Heritage Reporting Corporation (202) 628-4888 6 1 services discussed above . That amount is the amount 2 shown on a Form 1099 , Miscellaneous Income, issued to 3 Petitioner by Towing for that year . 4 Petitioner apparently was experiencin g 5 marital difficulties during 2004 . As a result of, and 6 in connection with those difficulties, he wa s 7 incarcerated twice during that year, once over 8 Thanksgiving , and again over Christmas . 9 Petitioner ' s 2004 Federal income tax return 10 was timely filed . On that return, he reported th e 11 wages he earned from the paving company, and the 12 unemployment compensation he received during the time 13 that he was unemployed . 14 T b P etitioner's 2004 return does not 15 include any of the compensation Petitioner received 16 from Towing . In the notice of deficiency that forms 17 the basis for this case , Respondent increase d 18 Petitioner's income by the amount of compensation 19 shown on the above-referenced Form 1099 . 20 Respondent further determined that such 21 compensation constitutes net earnings from self- 22 employment subject to the Section 1401 tax . Other 23 adjustments made in the notice of deficiency are 24 computational and need not be addressed . 25 Petitioner admits that he worked for Towing Heritage Reporting Corporatio n (202) 628-4888 7 1 during 2004 . According to Petitioner, he earned and 2 was paid far less than the amount Towing, and now 3 Respondent, claim that herd, and he takes th e 4 position that whatever he was paid by Towing should 5 not be subject to the tax on self-employment income . 6 We turn our attention first to Petitioner's 7 challenge to the amount of compensation he receive d 8 from Towing . At trial, Petitioner estimated tha t 9 amount to be between $1,000 and $1,500 over the course 10 of the year . 11 The Petitioner claims that he only worke d 12 several nights per week when called upon to do so, and 13 points out that the amounts shown in Towing's records 14 would be exorbitant for such little work . 15 He further points out that he wa s 16 incarcerated over Thanksgiving and Christmas holidays, 17 and could not have earned anything from Towing during 18 the periods of his incarceration . 19 Under tae circumstances, we expect tha t 20 Petitioner has a distinct recollection of his periods 21 of incarceration during 2004, but otherwise, i t 22 appears that his recollection quickly faded with 23 respect to the services he provided for Towing . 24 After all, within months of the close o f 25 2004, Petitioner apparently forgot that he had worked Heritage Reporting Corporation (202) 628-4888 8 1 there, as he reported nothing on his timely filed 2004 2 return relating to that employment . 3 Rejecting Petitioner's testimony on hi s 4 estimate of the amount of his compensation leaves only 5 Towing's records from which the amount of Petitioner's 6 earnings can be determined . 7 Those records, considering the unorthodo x 8 method in which that company recorded compensation and 9 other expenses paid, are not overwhelmingl y 10 compelling . Nevertheless, weighing Petitioner's 11 unpersuasive testimony against Towing's peculiar 12 records, we find that Petitioner was paid $8,309 .61 by 13 Towing during 2004 . 14 This amount is computed by subtracting the 15 following items from the amount shown in Towing' s 16 records and reported on the above-referenced For m 17 1099 : (1) $480 .75 . This item is duplicated and shown 18 both in the January summary of payments, as well a s 19 the February summary of payments ; (2) $67 .62 shown for 20 November 25 . This relatively small amount is no t 21 necessary inconsistent with Petitioner's claim to have 22 been incarcerated over Thanksgiving, but we give the 23 Petitioner the benefit of the doubt ; and (3) the 24 amounts shown for December 23 and December 30, that is 25 $83 and $207 .02, respectively . Heritage Reporting Corporation (202) 628-4888 9 1 Having set the amount of Petitioner's 2 compensation from Towing for 2004, we turn our 3 attention to the characterization of tha t 4 compensation . According to the Respondent and Towing, 5 Petitioner was paid as a "self-employed" individual . 6 Petitioner disagrees and so do we . 7 In addition to the income tax imposed by 8 Section 1, Section 1401(a) imposes a tax upon a 9 taxpayer's self-employment income . Disregarding 10 irrelevant exceptions,' "Self-employment income" i s 11 defined as "net earnings from self-employment", which, 12 in turn, is defined as "the gross income derived by an 13 individual from any trade or business carried on b y 14 such individual, less the deductions allowed [words 15 omitted] which are attributable to such trade or 16 business" . Section 1402(a) and (b) . 17 Other than under circumstances not present 18 in this case, services performed by an individual as 19 an employee do not constitute a trade or business for 20 self-employment tax purposes . Section 1402(c)(2) . 21 According to Respondent, the compensation 22 that Petitioner received from Towing during 200 4 23 constitutes self-employment income subject to tax 24 under Section 1401 . Petitioner, having failed t o 25 report any such income on his 2004 return, did not, of Heritage Reporting Corporation (202) 628-4888 1 0 1 course, report any Section 1401 tax on that return 2 with respect to that income . 3 Petitioner now claims that he performe d 4 services for Towing during 2004 as an employee, rather 5 than an independent contractor . 6 The question of whether an individual 7 performs services for another as an employee or 8 independent contractor is generally considered a 9 question of fact . Packard v . Commissioner , 63 T .C . 10 621, 629 (1975) . 11 In resolving such questions, this and other 12 Federal courts apply what is commonly referred to as 13 the common law .test embodied in Sections 31 .3121(d)- 14 1(c)(2), and 31 .3401(c)-l(b), Employment Tax Regs . 15 Matthews v . Commissioner , 907 F .2d 1172, 1178 (D .C . 16 Cir . 1990), affg . 92 T .C . 351 (198) ; Packard v . 17 Commissioner, supra . 18 An employee is defined as "any individual 19 who, under the usual common law rules applicable in 20 determining the employer-employee relationship, has 21 the status of an employee" . Section 3121(d)(2) , 22 Employment Tax Regs . 23 The relevant factors taken into account to 24 determine the status of an individual as an employee 25 or independent contractor include : (1) The degree of Heritage Reporting Corporatio n (202) 628-4888 11 1 control exercised by the principal over the details o f 2 the work ; (2) which party invests in the facilities 3 used in the work ; (3) the opportunity of the hire d 4 party for profit or loss ; (4) whether the type of work 5 is part of the principal's regular business ; (5) th e 6 permanency of the relationship between the parties to 7 the relationship ; (6) whether the principal has th e 8 right to discharge the individual ; (7) whether th e 9 principal provides benefits to the hired party typical 10 of those provided to employees ; and (8) the 11 relationship the parties believe they are creating . 12 13 Professional and Executive Leasing, Inc ., v . Commissioner , 89 T .C . 225, 232 (1987), affd . 862 F .2d 14 751 (9th Cir . 1988) ; see also United States v . Silk , 15 331 U .S . 704, 716 (1947) . 16 Although no single factor is determinative, 17 "employer control over the manner in which the work is 18 performed [works omitted] is the basis test ." General 19 Investment Corp . v . United States , 823 F .2d 337, 341 20 (9th Cir . 1987) . 21 Respondent's position that the Petitioner 22 was not an employee of Towing during 2004 seems to be 23 entirely based upon the manner in which Towin g 24 reported the compensation , that is, on a Form 1099 , 25 which in fact, does undermine Petitioner ' s position on Heritage Reporting Corporatio n (202) 628-4888 12 1 the point . 2 Nevertheless, the application of the other 3 relevant factors leads to the conclusion that Towing 4 possessed and exercised sufficient control over th e 5 services performed by the Petitioner so as to consider 6 him an employee . 7 It follows that the compensation tha t 8 Petitioner received from Towing during 2004 does not 9 constitute self-employment income within the meaning 10 of Section 1401, and Respondent's imposition of the 11 tax under that section is rejected . 12 To reflect the foregoing , decision will be 13 entered under Rule 155 . This concludes the Court's 14 oral findings of fact and opinion in this case . 15 (Whereupon , at 11 : 50 a .m ., the bench opinion 16 in the above - entitled matter was concluded . ) 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888