TAX COURT OPINION

Case: Nancy J. Swyers
Docket Number: 15651-09S
Judge: Colvin
Opinion Type: bench
Filed: 02/10/2011
Pages: 7

UNITED STATES TAX COURT 20217 Washington, D.C. NANCY J. SWYERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, . Respondent . ) ) ) ) ) ) ) ) Docket No. 15651-09S O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit the transcript of the trial of herewith to petitioner and to respondent a copy of pages of Special Trial Judge Lewis R. Carluzzo at Fresno, California, on January 13, 2011, containing his oral findings of opinion rendered at the conclusion of trial. the above case before the fact and In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. February 10, 2011 $$RVED FEB 10 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 Bench Opinion by Special Trial Judge Lewis R. Carluzzo Nancy J. Swyers v. Commissioner Docket No. 5651-09S January 13, 2011 THE COURT: The Court has decided to rendèr oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. This proceeding for the redetermination of a deficiency is conducted as a small tax case, pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice & Procedure. This bench opinion is made bursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice & Procedure. Subsequent section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for 2007. Rule references are to the Tax Court Rules of Practice & Procedure. Nancy J. Swyers appeared pro se. Melissa C. Quale appeared on behalf of Respondent. In a notice of deficieAcy dated March 23, 2009, Respondent determined a $3074 deficiency,in Petitioner's 2007 federal income tax. The issue for decision is whether Petitioner understated the wage income shown on her 2007 Heritage Reporting Corporation (202) 628-4888 4 federal income tax return. Some of the facts have been stipulated and are so found. Petitioner was a resident of California on the date the petition was filed. Petitioner is a certified sonographer, and she was so employed during 2007. She provided her services' as such to inmates at a California state prison, a position she was recruited for by Mediscan Diagnostic Services, Inc. (Mediscan). Mediscan was, and apparently is, in the business of recruiting medical care professionals. If there was a written employment contract between Petitioner and Mediscan in effect during 2007, that document has not been made part of the record. In any event, during the first part of 2007, that is, from January through the middle of July, Petitioner was treated by Mediscan as an independent contractor. Following an audit conducted by a state agency, Mediscan reclassified Petitioner as an employee, and she was so compensated, apparently at the same rate of $36 per hour, for the rest of 2007. Petitioner was paid by Mediscan on a semi-monthly basis through direct deposits to her bank account. The amount paid varied from period to period, depending upon the number of hours that Petitioner worked during any given period. From January through July 13, while treated as an 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 independent contractor, no employment taxes or federal income tax withholdings were made from the compensation paid to Petitioner by Mediscan. The amounts directly deposited into her bank account for that period totaled $19,858.60. For the remainder of 2007, after Petitioner was treated as Mediscan's employee, her wages totaled $10,530, from which employment taxes and federal income taxes were withheld. The amounts directly deposited into Petitioner's bank account during this period, of course, total less than $10,530, as those deposits were made net of amounts withheld. Mediscan issued a 2007 form W-2, wage and tax statement, showing Petitioner's 'wages' as $10,530., As noted, this amount represents the gross wages paid to Petitioner by Mediscan from the middle of 2007 to the end of that year. Later, although how much later is not known, Mediscan issued a corrected form W-2 showing Petitioner's wages as $32,174.56. Apparently, Petitioner never received this corrected form W-2. The amount shown as Petitioner's wages on the corrected form W-2 includes the amount of wages sh wn on the form W-2 first received by Petitioner as:well as the amounts paid to Petitioner as an independent contractor, plus amounts described as 'gross-ups'. If a form 1099, miscellaneous income, typically issued to an employer's | Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6 independent contractors, was issued by Mediscan to Petitioner for the compensation she was paid for the first part of 2007, she never received it. The amounts described as 'gross-ups' apparently represent the employment taxes that should have been withheld from the compensation that Petitioner was paid if she were treated as an employee instead of as an independent contractor during the first part of 2007. Petitioner's timely filed 2007 federal income tax return, submitted on a form 1040-EZ, and prepared bŸ a paid income tax return preparer service, shows wages, income, of $10,530, the amount shown as wages on the form W-2 : originally issued by Mediscan to Petitioner. Petitioner now acknowledges that this amount is incorrect and understated. Petitioner does not suggest, and the form 1040-EZ gould not allow, that any amount earned while treated as an independent contractor has already been taken into account | on her 2007 return. In the notice of deficiency, Respondent increased Petitioner's income by $21,844. This amount represents the difference between the amount shown as wages on Petitioner's 2007 return and the amount shown as wages on the corrected form W-2. At trial, the Court expressed some concern regarding the inclusion of the after-the-fact gross-up amounts in the wages shown on the corrected form W-2, which Heritage Reporting Corporation (202) 628-4888 7 amounts are included in the adjustment to Petitioner's income here in 'dispute . According to Respondent, thóse amounts are includable in Petitioner' s 2007 income because they represent amounts paid on her behalf . We are not so sure. First, we have some concerns about the timing of the correction. Respondent's records shoÙ th t some of the amounts were actually paid over, but t-hose amounts a but those records show the status of Peti ion r's 2007 account as of a date well beyond the year in issu . Nevertheless, we proceed as tho gh everything occurred during 2007. More importantly, however, Še assume that Petitioner and Mediscan originally agi.-eed that she should be treated as an independent contractor, ( but as noted, no written employment contract has been provided. The ! circumstances surrounding Petitioner's reclassification from independent contractor status to employee status are not entirely clear, and it is unknown whet-her the I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20, reclassification was made with or without Petitioner's 21 22 23 24 25 consent or agreement . Unlike Respondent, we are unwilling to proceed as though the 'grossed-up' amount represent payments that would 16 have necessafily extinguished liabilities otherwise accruing against Petitioner. Absent a firm finding on the point, we Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 have our doubts whether such amounts are properly treated as includable in Petitioner's income. As we view the matter, Petitioner' s compensation from Mediscan during 2007 should be cómpuéed and is includable in her income for that year, as follows: (1) The amount directly deposited into her account from January through July 13, 2007, that is, $19,858.50, plus the amount shown as wages on the form W-2 that Petitioner received, that is, $10,539, for a total of $30,388.50. To reflect the foregoing, decision will be entered under Rule 155. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 11:27 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // Heritage Reporting Corporation (202) 628-4888