TAX COURT OPINION

Case: HI-Q Personnel, Inc.
Docket Number: 22101-04
Judge: Halpern
Opinion Type: reported
Filed: 05/04/2009
Pages: 34

132 T ..C'. No . UNITED STATES TAX C URT i HI-Q PERSONNEL, INC ., Pe t COMMISSIONER OF INTERNAL REV E Docket No . 22101-04 . P corporation provided skilled laborers for casual employment (tem more than 250 client companies . P laborers the option of being paid b For those paid in cash, P failed to income taxes and pay either the emp portions of FICA taxes (together, t .for all taxable quarters in 1995, 1 In 2002, P's president and sole sha guilty to failing to withhold and p taxes and .to conspiracy to defraud R determined P was liable for the e under secs . 3402, 3102, and 3111, I fraud penalties under sec . 6663(a), that N's guilty plea collaterally e its responsibility for paying the e from denying fraud . In the alterna P is the employer of the temporary that reason is liable for the emplo fraud penalties . P argues that R's orary laborers) to . ave temporar y check or in cash . withhold Federa l oyer or employe e e employment taxes ) 96, 1997, and 1998 . eholder, N, pleade d y the employment he United States . ployment taxe s R .C ., and impose d I .R .C . R argue s tops P from denyin g ployment taxes an d ive, R argues tha t aborers and fo r ent taxes an d determinations were f4 - 2 - 0 not timely because R did not makeithem within the 3- year period of limitations in sec . 6501(a), I .R .C . 1 . Held : P is collaterally estopped from denying its responsibility for paying the'lemployment taxes . 2 . Held , further , P is the statutory employer of temporary laborers under sec . 3401(d)(1), I .R .C ., and therefore is liable for paying the employment taxes . 1 3 . Held , further , P is liable for-fraud penalties under sec . 6663(a), I .R .C . 4 . Held , further , R's determinations were timely under sec . 6501(c)(1), I .R .C ., because P filed false or I'~ . fraudulent returns . Mark E . Cedrone , for petitioner . ,' Linda P . Azmon , .for respondent . f iG 'HALPERN, Judge : The .petition in this case was filed i n response to a Notice of Determination of Worker Classification a9 'j !q "(the'notice) regarding petitioner ' s liabilities pursuant to th e ro jFederai .Insurance Contributions Act (FICA) and for Federal incom e x withholding (together, employment taxes) for taxable quarter s in 1995, 1996, 1997, and 1998 . After concessions,' the followin g questions remain . (1) Is petitioner collaterally estopped .from denying tha t it was responsible for paying the employment taxes ? (2) Has respondent, properly determined that the worker s 'identified in the notice as "Temporary Laborers" should : be 1 Principally, petitioner concedes that it is not entitled toyrelief under sec . 530 . of the Revenue Act of 1978, Pub . L . 95-600, 192 Stat .'2885, as amended . 3 - legally classified as petitioner's empl gees for each quarter 1995, 1996, 1997, and .1998 ? (3) Is petitioner liable for the mployment taxes? (4) Is petitioner liable for frau penalties ? (5) Have the periods of limitatio s for assessing and , collecting the employment taxes expired ? A table setting forth the employment taxes and fraud penalties respondent determined is attached to this report as and appendix . Unless otherwise stated, all sectio references are to the Internal Revenue Code (the Code) in effe t for the taxable quarters in issue, and all Rule referenc s are to the Tax Cour t Rules of Practice and Procedure . FINDINGS OF FAC T Some facts are stipulated and are s found . The stipulatio n of facts, with accompanying exhibits, is incorporated herein by I this reference . At the time the petitio was filed, petitioner=' s principal place of business was in Ph iladelphia, Pennsylvania . I Background Beginning in 1995 and"extending thr ugh 1998, petitione r operated an employment service that provided skilled and unskilled laborers for casual employment (temporary laborers) to more than .250 client companies (clients) for a fee . Clients paid petitioner by check for the services of emporary laborers, and - 4 - 11 petitioner offered temporary laborers the choice of-being paid by check or of being paid in cash (temporary laborers paid by check and temporary laborers paid in cash, respectively) . Petitione r included temporary laborers paid by check on .its regular. payroll and treated them as its employees for employment tax purposes . Petitioner'disregarded temporary laborers paid in cash for employment tax purposes . To remain competitive in recruiting temporary laborers,, petitioner . honored temporary laborers' choices as to how to be paid . In placing temporary laborers with li cl ients, petitioner did not distinguish between temporary ,, 1 11 laborers paid by check, and temporary laborers paid in cash . During the taxable quarters here in issue, petitioner pai d $ 14,845,019 to temporary laborers paid in cash . .During those periods, Luan Nguyen ( Mr . Nguyen ) was president of petitioner and its sole shareholder . As more fully explained infra , Mr . Nguyen was indicted on, and pleaded guilty to, Federal criminal charges in connection with the failure to pay employment taxes ;ktiwith respect to the $14,845 , 01.9 paid to temporary laborer s I paid in cash . Petitioner's Client Contracts .p Petitioner's relationship with its clients was establishe d by contract . A typical client contract (client contract) 'included the following provisions : V - 5 - 1 . Hi-Q will provide to'CLIEIT the following classifications of temporary employees at the rates se t forth . SERVIC E GENERAL LABOR 2 . The hourly rate of payment for services listed above shall be paid by CLIENT to Hi-Q, per hour, pe r employee . * * * 3 . Payment shall be made in f check within 7 days from the date o rendered by Hi-Q . 5 . CLIENT agrees not to advan e any money, goods or services to Hi-Q employees witho t Hi-Q's prior written consent . CLIENT agrees not to leave CLIENT'S premises with any cash, negotiable 'nstrument, or other valuable items thereon * * * unatte ded in the presence of any Hi-Q employees or [to] entru t the same to the care, custody and control of any Hi Q employees without Hi-Q'.s prior written consent . 6 . CLIENT will not authorize i-Q employees to operate any vehicle without,Hi-Q's rior written consent . I 7 . In the unlikely event that Hi-Q employee prove unsatisfactory, immediately provide a replacement . the services of a Hi-Q shal l * * 8 . Hi-Q shall promptly pay al employees,' and shall make all federal, state and 1 cal payroll tax deductions, deposits and payments a required by law . * 10 . Hi-Q shall provide worker' compensation insurance coverage for all employee and provide evidence of same to CLIENT . - 6 - ~, 11 . Upon notification to Hi-Q by CLIENT and written consent of Hi-Q, CLIENT shall have the right to hire any Hi-Q employee who has worked for CLIENT for a p=eriod in excess of 520 consecutive hours or 13 consecutive weeks, at no fee or commission paid to HiQ . However, upon employing any Hi-Q employee prior to completion of 520 consecutive hours, CLIENT agrees to pay to Hi-Q a fee of ten (10%) percent of employee's annual salary, i .e . 2080 hours [att] employee's starting hourly rate paid by CLIENT to employee . it 12 . If without Hi-Q's prior written consent, any employee referred to CLIENT by Hi11-Q is employed by CLIENT, or by another division, subsidiary or affiliate of CLIENT, within six (6) months from the last date, said employee was on Hi-Q's payroll and working for CLIENT, CLIENT agrees to pay to Hi-Q a fee of ten (10%) percent of employee's annual salary, i .e . 2080 hours at employee's starting hourly rate paid by CLIENT to employee . ii Petitioner' s Business li, Petitioner employed job counselors, responsible for all aspects of recruiting temporary laborers . Job counselor s recruited temporary laborers through newspaper advertisements and referrals . Job counselors interviewed each temporary laborer an d performed background checks by calling the laborer's prior employer or listed reference . After recruiting a temporary laborer, job counselors matched the laborer with an appropriat e position according to the laborer's qualifications and the job descriptions clients provided . Before placing a .temporary laborer with a client, petitioner required the laborer to complete a job application . Approximately 80 to 90 percent of the temporary laborers petitioner recruited chose to be temporar y laborers paid in cash . ii In its promotional material,-petit oner made many promises) to clients . It stated that, by hiring emporary laborers through petitioner, .clients could avoid paying Employee Tax" and "Social Security" . It pledged to make "all fed ral, state and loca l payroll . tax deductions, deposits and pa ments as required by law ." It represented that it was respo sible for providing' workers' compensation insurance for all . temporary laborers. I t claimed that it "[offered] training to o ur employees on computers, on job-specific work, languages, and specialize d industrial machinery", and stated that, "if your location has no access to . public transit, we will provid HI-Q employees with [free] transportation to . your site ." Pe itioner also promised . that clients could "easily" hire any tem orary laborer, ensurin g that clients hired only "the best of the-best" to thei r "permanent staff . " As stated, petitioner treated temp o ary laborers 'paid by check as its employees for employment to purposes . On its Form s 941, Employer's Quarterly Federal Tax Re urn, it reported as wages the amounts it paid those .temporar laborers . For those temporary laborers, it withheld Federal ncome taxes under section 3402 . It also withheld those to porary laborers' share s of FICA taxes under section 3102 and pa i its own corresponding share of FICA taxes under section 3111 . In contrast, petitioner did not require temporary laborers paid :1 I Yi - 8 identification for Federal income tax purposes or to prepare th e , I 0 documents necessary for . payroll tax deductions . It did not issue to;' temporary laborers paid in cash either Forms 1099-MISC, Miscellaneous Income ., or Forms W-2, Wage and Tax Statement . To generate funds to pay temporary laborers paid intcash , petitioner cashed some client checks at check-cashing agencies . It; did not record on its books the proceeds of those clien t checks as business income or the payments to temporary laborer s paid in cash as payroll expenses . For the years in issue , petitioner failed to report $14,845,019 as cash wages paid . ' eu Clients could refuse the services of any temporary"laborer , and petitioner was contractually bound to provide a replacement laborer on request . Nonetheless, petitioner retained the righ t ,any time to reassign any temporary laborer from one client to 1 1 . another . Petitioner required temporary laborers unable to report ' to a client' s premises for work to notify petitioner ; petitioner , ,turn ; notified the client . Clients completed .timesheets for petitioner showing the hours temporary laborers worked . Petitioner billed clients for p I , temporary laborers' services by means11of invoices based on those ~'R timesheets . Often, however, . petitioner paid temporary laborers before, receiving payment from clients . 111 - 9 - { Criminal Proceeding s Mr . Nguyen was one of the defendan s in the criminal case of United States v . Nguyen , docket No . -2 :0 CR745 (E .D . Pa ., Nov . 6 , 2002) (the criminal . case) . .- On Novembe 6, 2002, Mr . Nguyen was indicted on 10 counts . Count 1 .of the ndictment charges a violation of 18 U .S .C . sec . 371, Conspi acy to commit offense or to defraud United States ; counts 2 through 10 of the indictment charge violations of section 7202, Will ul Failure To Collect or Pay Over Tax, and 18 U .S .C . sec . 2, Pri c .ipals (viz ., one who aids and abets the commission of an off nse against the United States is punishable as a principal) .. ' In pertinent part, the indictment states : (CONSPIRACY TO DEFRAUD TH E ITED STATES ) COUNT ONE INTRODUCTION THE GRAND JURY CHARGES THAT : 1 . At all times relevant to t Personnel ; Inc . ("Hi-Q Personnel") doing business * * * as a temporary that supplied casual laborers to c l is Indictment, Hi-Q as a corporation employment service ents for a fee . 2 The taxable quarters in issue wi t 16 quarters in 1995 through 1998) differ quarters in issue with respect to counts quarters in 1997 through 1998) . The rea limitations for violations of sec . 7202 6531(4) . Thus Mr . Nguyen, indicted Nov . charged with violations of sec . 7202 for November 1996 . respect to count 1 (the from the taxabl e 2 through 10 (the, 8 on is that the period 'of s 6 years . See sec . 6, 2002, could not be, returns filed before - 10 - 2 . At all times relevant to,1this Indictment, LUAN NGUYEN * * * was the president and sole shareholder of Hi-Q Personnel . i 3 . At all times relevant to this Indictment , PHUONG NGUYEN * * * was employed by Hi-Q Personnel and responsible for the day-to-day operation of the business, including, but not limited to, the supervision of the preparation of: the payroll[,] including the cash payroll ; the supervision of the hiring of temporary laborers who were given the option of being paid in cash ; and the cashing of checks used to pay the cash payroll . 4 . At all times relevant td' .this Indictment, the casual laborers supplied * * * to client businesses were employees of Hi-Q Personnel .,L As part of its business of providing laborers to its clients, Hi-Q Personnel acknowledged and agreed in its contracts with its clients .that Hi-Q Personnel, ;; and not the client , was responsible for collecting, accounting for and, paying over to the United States all employment taxes . 5 . [F]rom 1995 through 1998, Hi-,Q Personnel supplied temporary laborers to approximately 259 client companies . 6 . At all times relevant to this Indictment, LUAN NGUYEN, * * * as the President and sole shareholder of Hi-Q Personnel, was required by Title 26 of the United States Code, to collect, truthfully account for, and pay over to the United States, taxes imposed by Title 26, United States Code, namely Hi-Q Personnel's employees' federal income tax withholdings * * * [and FICA taxes,] ( * * * collectively . referred to as "employment taxes" * * *) . In this regard, LUAN NGUYEN * * * and Hi-Q Personnel were required truthfully to account for and pay over the employment taxes each quarter by filing * * * [Form 941] by reporting therein the total wages paid to Hi-Q Personnel employees and the amount of employment taxes due and owing to the United States on those wages, and by paying employment taxes due on those wages at the time the Form 941 was filed * * * . 1„ 1 - 11 - I 7 . [From January 1, 1995, th 1999, the defendants LUAN NGUYEN a conspired and agreed together * * United States concerning its gover rights, by impeding, impairing, ob defeating the lawful governmental Internal Revenue Service [IRS] * * ascertainment, computation, asses s of revenue,,that is, .the employmen to the United States * * * from H i ough January 31, d PHUONG NGUYEN ] to defraud th e mental functions and tructing and unctions of th e * in the ent and collection taxes due and'owing Q Personnel . 8 . The object of the conspi r the IRS from discovering the actua l employees of Hi-Q Personnel and fr o 9 . It was a part of the consp Personnel contracted with various b greater Philadelphia, Pennsylvania .businesses with casual laborers * * 10 . It was further a part of t Hi-Q Personnel acknowledged and agr with its clients that Hi-Q Personne client, was responsible for collect and paying over to the United State taxes due on wages earned by the l a conspiracy tha t ed in its contracts , and not the ng, accounting for all employment orers . . 11 . It was further a part of t defendants LUAN NGUYEN * * * and PH caused Hi-Q Personnel * * * to give a choice to be paid either in cash, understood to mean that there would taxes withheld from their wages, or case all appropriate payroll taxes accounted for, and paid over to th e e conspiracy that ONG NGUYEN * * * the laborers * * which the y be no employment by check in which ould be collected, United States . (a) When laborers * * * cash, they-were not required to pro identification for income tax purpo necessary documents for payroll tax not receive * * * [a Form W-2] from pted to be paid in uce prope r es or prepare the deductions, and did Hi-Q Personnel . I ii 11 - 12 - 11 1,, 12 . It was further a part of . the conspiracy that defendants LUAN NGUYEN * * * and PHUONG NGUYEN paid a substantial number of their employee laborers in cash to conceal the true number and identities of the employees , the amounts of cash wages paid to Hi-Q Personnel ' s employee laborers , and the fact that they did not collect or account for the employment taxes due on the cash wages paid . 13 . It was further a part ofithe conspiracy that to generate the-cash needed to meet and facilitate the concealment of its cash payroll,!Ithe defendants LUANI NGUYEN * * * and PHUONG NGUYEN * * * used check cashing agencies to cash checks obtained from their clients to pay for the labor provided by Hi-$Q Personnel . ~u r « 14 . It was further a part of . the conspiracy that to conceal the amount of employment tax due to the United States, the defendants LUAN NGUYEN * * * and PHUONG NGUYEN * * * substantially understated and misrepresented the wages paid tolithe employees . of Hi-Q Personnel on the * * * [Forms 9411 filed on behalf,lof Hi-Q Personnel each quarter withil .the IRS during the conspiracy . 15 . It was further a part of the conspiracy that * [from January 1, 1995, through January 31, 1999, ] the defendants LUAN NGUYEN * * *i, .and PHUONG NGUYE N * failed to account for, collect and pay over to the IRS employment taxes in the approximate amount of $3,326,054 .48 on total unreported wages of approximately $14,'845,019 .24 . OVERT ACT S 16 . In furtherance ofithe conspiracy and to accomplish its object, the defendants committed the following overt acts .* * * : II (a) [Between January 1, 1995, and Decembe r 31, 1998, 1 on different occasions, the defendants LUAN NGUYEN * * * and PHUONG NGUYEN, * * * together and separately, cashed : corporate checks received from client companies at check cashing agencies located i n Philadelphia, Pennsylvania . - 13 - (b) [Between January 1, 31, 1998,] on different occasions, NGUYEN * * * and PHUONG NGUYEN * * Personnel to pay employees of Hi-Q the offices of Hi-Q Personnel . 1995, and December the defendants LUAN * caused Hi- Q Personnel in cash a t (c) [T]he defendants LUJ N NGUYEN * * * and IRS in Philadelphia , PHUONG NGUYEN * * * filed with the Pennsylvania a false Form 941 for * * [each quarter, sixteen in total, in taxable years 1995 through 1998,] which substantially misrepresented the wages paid t o Hi-Q Personnel employees , each filing constituting a separate overt act .* * * 1 1 . 1 All in violation of Title 18 , ~C7nited States Code, Section 371 . * (FAILURE TO COLLECT, ACCOUNT FOR AND PA OVER EMPLOYMENT TAXES) , [COUNTS TWO THROUGH TE N THE GRAND JURY FURTHER CHARGES THATI: 1 . Paragraphs 1 through 6 of incorporated herein as if .fully se t ount One are forth . 2 . [For the taxable quarters 31, 1996, and through the taxable December 31, 1998, defendant LUAN Nperson required under Title 26, Uni collect, account for and pay over t Title 26, United States Code , . did w . collect and cause-to-be collected, for and cause to truthfully be acco over and cause to be paid over to t federal income tax withholdings and of approximately * * * [$ 2,224,384 . the United States on taxable . wages Personnel * * * to its employee laba approximately * * * [$ 9,640,197 .62] . eginning December arter ending UYEN,] being a ed States, Code, to xes imposed by . llfully fail to ruthfully account nted for, and pay e United States , * * * [FICA] taxes, 3] due and owing to aid by Hi- Q rers of All in violation of Title ' 26 , IUnited States Code, Section 7202 and Title 18, United Slates Code , Section 2 . I i Q - 14 - On March 10 , 2003, at the change of plea . hearing, Mr . Nguyen accepted the guilty plea agreement ( the plea agreement )," thereby pleading guilty to all 10 counts in the indictment . On July 24, 2663, the U .S . District Court for the !Eastern District o f ; .w Pennsylvania sentenced Mr . Nguyen to 150 months in prison an d $1,000 in special assessments , and, on October 10, 2003, the court entered a judgment of conviction against him in th e criminal case . The Notic e The notice states the amounts of employment taxes respondent determined for the taxable quarters in issue along with the fraud penalties he determined . See appendix . Respondent determined a 0 fraud penalty for each taxable quarter in issue. . I I The notice omits a list of the temporary laborers that respondent determined to be petitioner's employees during thos e .taxable quarters . That omission is explained as follows : Please Note : No individuals were listed .* * *1I'due to inadequate records . While the books and records provided by the Taxpayer did not identify each individual worker to be reclassified [as an employee], the administrative file contains sufficient evidence to support a class of" workers identified as "Temporary .IlLaborers" . I . Introduction OPINION Ih Petitioner operated an employment service providing temporary laborers to clients for a fee . Petitioner offered - 1 5 temporary laborers the option of being aid by check or in cash. Petitioner included temporary laborer s aid by check on it s regular payroll and treated them as its employees for employmen t tax purposes . Petitioner disregarded t mporary laborers paid in. cash for employment tax purposes . Mr . Nguyen, petitioner's president and sole shareholder, wa s indicted on, and pleaded guilty to, various counts involving conspiracy to defraud the United States and failure to pa y employment taxes with respect to the cash payments to temporary laborers paid in cash . The present action involves respon ent's attempts to collec t the unpaid employment taxes (and fraud p enalties) fro m petitioner . We shall address the issues remaini g for decision in the order stated . Our authority to determin the employmen t classification question here in,issue an the proper amount o f employment tax is found in section 7436 . II . Issue Preclusio n A . Introduction Relying on the doctrine of issue preclusion, respondent a argues that, as a result of, the plea agr ement, petitioner may not contest its responsibility to pay the employment taxes her e in issue . Petitioner objects . We agreelwith respondent . - 16 - The Doctrine of Issue-Preclusio n In Monahan v . Commissioner , 10 9 stated : T .C . 235, 240 (1997), we I The doctrine of issue preclusion, or collateral estoppel, provides that, once an issue of fact or law is "actually and necessarily determined by a court of competent jurisdiction, that determination i s conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation ." Montana v . United States , 440 U .S . 147, 1153 (1979) (citing Parklane Hosiery Co . v . Shore , 439 U .S . 322, 326 n .5 (1979)) . Under the doctrine of issue preclusion, or collatera l estoppel, (1) the issue to be decided in the second case Tmust be identical in all respects to the issue ;decided in the first case , (2) a court of competent jurisdiction must have rendered a fina l judgment in the first case, (3) a party may invoke the doctrin e only against parties to the first case or those in privity with them, (4) the .parties must have actually litigated 'the issue and the resolution of the issue must have .been essential to the prior decision, and (5) the controlling facts and legal principles must remain unchanged . See Jean Alexander Cosmetics, Inc . v . . L'Oreal USA, Inc . , 458 F .3d 244, 249 (3d Cir . 2006) ; Monahan v . commissioner, (cid:127) supra at 240 . C . Discussio n 1 . Petitioner's Argument o ; Petitioner does not dispute the second or fifth conditions . Petitioner, however, . contends the other three conditions are not 17 - satisfied , arguing that : ( 1) Thefourt condition is not satisfied because . Mr . Nguyen pleaded gu lty, and so did not actually litigate any issue ; ( 2) the f i st condition-is-no t satisfied because the issue before us i not identical to any issue decided in the criminal proceedi n s ; and (3) the thir d condition is not satisfied because pet i with Mr . Nguyen . We disagree with all 2 . Issue Actually Litigated A conviction based on a guilty ple is "nevertheless a judgment on the merits sufficient for p rposes of collatera l es determination o f which was essential to the conclusion re ched . Arctic Ice Cream Co .' v . Commissioner , 43 T .C . 68, 76 (196 ) ; see De Cavalcante v . Commissioner, 620 F .2d 23, 26-27 n .9 (3d Cir . 1980) (noting that a guilty plea has collateral estoppel of ect), affg . Barrasso v . Commissioner , T .C . Memo . 1978-432 .3 On ctober 10, 2003, th e U .S . District Court for the Eastern Dist ict of Pennsylvani a 3 Petitioner relies on Bower v . O'Hara, 759 F .2d 1117, 11241 1126 (3d :Cir . 1985), for the proposition that a guilty plea is insufficient for issue preclusion . The ule in Bower depends on the underlying law (e .g ., State law) . S e Anela-v . City of Wildwood , 790 F .2d 1063, 1068-1069 (3d C' r . 1986) . The controlling law in Bower was the organic statute of the U .S . Virgin Islands . The controlling law her , .however, is Federal common law . For that reason we follow D Cavalcante v . Commissioner , 620 F .-2d 23, 26-27 n .9 (3d Cir . 1980), affg . Barrasso v . Commissioner , . T .C . Memo . 197 -432, in which the Court of Appeals .for the Third Circuit affirme this Court's decision to give collateral estoppel effect to a axpayer's guilty plea in Federal court . Bower is inapposite . 18 - convicted Mr . Nguyen after accepting his guilty plea . His conviction is a judgment on the merits sufficient to preclude relitigation of the issues involved in the criminal case .. 11 3 . Issue Identity Mr . Nguyen pleaded . guilty to the charge of willfully failing to„,collect , truthfully account for , and pay employment taxes on taxable wages - petitioner paid temporary laborers paid in'cash . Specifically, Mr . Nguyen pleaded guilty to violating section 7202 and 18 U .S .C . sec . 2 .45 Section 7202 refers to the willful failure of any "person" required under the Code to collect, account . for, and pay over any tax imposed by the Code . The requirement here was to collect and pay the employment taxes due if on wages petitioner paid the temporary laborers paid in cash . I t 1: 1 1 r I is-the duty of the employer to collect , account for, and pay ove r PI' 4 Sec . 7202, Willful Failure To Collect or Pay Over Tax, provides : . 111 Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay .over such tax shall,,1[in addition to other penalties provided by law, be guilty of a felony * * * . 5 18 U .S .C . sec . 2, Principals, provides : Il, . ki (a) Whoever commits an offense against the United States or aids, abets, counsels, -commands, induces or procures its commission, is punishable as a principal . (b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal ., - 1 9 both the employees' and the employer's ICA taxes and to withhold income taxes . See secs . 3102(a) and (b) (employees' FICA taxes), 3111 (employer's FICA taxes), 3402 and 403 (Federal income tax withholding) . The reason Mr . Nguyen--and not petitioner--was .charged ._with. the violation of section 7202 is that section"7343 defines "person as used in section 7202, to include an officer o r employee of a corporation who, as such, is under a duty t perform the act in respect of which the iolation occurs . See United States v . Thayer , 201 F .3d 214, 2 9-220 (3d Cir . 1999) ("[T]he president and majority owner of * * [employers] was properly charged . and convicted as a 'per on' under § 7202 .!") . Mr . Nguyen was an officer of petitioner (its president), and petitioner does .not claim-Mr . Nguyen was an officer or employee of any client . ., In other words, Mr . Nguy n was . convicted of failing in his duty to collect, , account or, and pay the employment taxes imposed by law-on petit oner as the employer o f temporary laborers . Petitioner argues, however, that Mr Nguyen's guilty plea"is consistent with the theory that the clie Lis were=the temporary ' laborers' employers . Petitioner relies n 18 U .S .C . sec . 2, which "'[abolished] the distinction betw en .principals and accessories in offenses defined in the l ws .of the United States'" . United States v . Standefer , 6 0 F .2d 1076, 1082 (3d d 11 - 20 - Cir . 1979) (quoting Rooney v . United States , 203 F . 928, 932 (9th Cir..(cid:127) 1913)), affd . 447 U .S . 10 (1980) Under 18 U .S .C .' sec . 2, both those who commit crimes and thosel1who aid and abet their commission are principals . Id . at 1083 . Petitioner argues tha t Mr . Nguyen, although charged as a principal,'in fact merely aide d and abetted the clients' officers (the'"true" principals unde r sections 7202 and 7343) in their efforts to defraud the . Internal Revenue Service . We reject petitioner's theory . Petitioner's argument is founded on the precept that a i' guilty plea admits only the minimum facts necessary to sustain the indictment's charges . See, e .g ., De Cavalcante v . Commissioner , . supra at 26-27 n .9 . -Petitioner, however, cites no authority requiring us to ignore the indictment's plain language . In the criminal case, the ultimate issue was whether petitione r 11 di 11 filedifalse or :fraudulent Forms 941 for the 16 taxable quarter s in 11995 through 1998 by failing to pay employment taxes on the wages petitioner paid temporary laborers paid in cash . The, indictment not only lists the 16 dates petitioner filed the "false" Forms 941 that "substantially misrepresented the wages paid to Hi-Q Personnel employees", but also describe s petitioner's failure to provide temporary laborers with Forms W- 2 . In that way, the indictment implicitly names petitioner as the employer of the temporary laborers, because only their employer must record their wages on its Forms 941 and issue the m 11 i 21 - Forms W-2 . Moreover, .in several places the indictment explicitly refers to the temporary labo ers as petitioner's employees . The indictment in .no way su gests that any person or entity other than petitioner was the em foyer of the temporary laborers . The indictment itself is une ivocal : Petitioner wasI the employer of the temporary laborers . Because that issue-,is': now before us, the issue in the crimina case and the issue in, this case are-identical .- 4 . Privit y "A sole or controlling stockholder can be in privity with , his * * * closely held corporation . ." Lewitt v . Commissioner , T .C . Memo . 1995 - 464, affd . -without publi hed opinion 101 F(cid:127) .3d 69 1 (3d Cir . 1996) .- Petitioner argues that Jr . Nguyen and petitioner are not in privity and relies .on a flawe analogy between this . case and Am . Range Lines, Inc . v . Commis ioner, 17'T .C . 764 (1951), affd . on privity issue 200 F .2d 44 (2d Cir . 1952) . In Am . Range Lines v . Commissioner , supra a 771,(cid:127)after recognizing that the "official acts" of a corporatio could bind' th e "individual stockholders in their capaci y as such", we declined to allow the actions of "stockholders in their individua l capacity" to bind the corporation . That case is distinguishable because of the capacity in which Mr . Ng u en was acting . It is uncontroverted that Mr . Nguye was petitioner's - president and sole shareholder . Mr . Ngu' en committed tax fraudi 1 1. J - 22 - onebehalf of petitioner (not, as petitioner contends, in his J " individual capacity "), and his duty to file accurate Forms 94 1 arose !directly from his position as president of petitioner . Indeedh, "a corporation can act only through its officers and , * it . does not escape responsibility for the acts of its officers performed in that capacity . Corporate fraud necessarily depend s upon the fraudulent intent of the corporate officer ." Federbush v . Commissioner , 34 T .C . 740, 749 (1960), affd . 325 F .2d;1 (2 d 11 Cir . 1963) . Moreover, Mr . Nguyen did not benefit directly from his crimes ; rather, he acted to attract temporary laborers t o petitioner and thereby' to make petitioner competitive . That is, petitioner, and .so .Mr . Nguyen, "benefited by being able to stay in1business" . We-reject petitioner'sil'analogy between this case and Am . Range Lines, Inc . v . Commissioner ,: su ra, and find that .1 a '1 petitioner and Mr . Nguyen are in privity . D . Conclusio n The conditions for issue preclusion apply . In the criminal case, Mr . Nguyen was convicted of failing in-his duty to .collect, account for, and pay the employment taxes imposed by law on petitioner as the employer of temporary laborers . Petitioner is therefore precluded from denying thaOtemporary laborers paid in cash were its employees . As a corollary, petitioner is als o precluded from .denying its liability for the paymen t 0 1! employment taxes with respect to those temporary laborers, as se t 23 - forth .in the notice . III . Statutory and Common Law Employer o A . Introductio n While we have held that petitioner is precluded from denyin g its liability for the payment of emplo ent taxes with respect temporary laborers paid in cash, the pa ties, particularl y respondent, devoted considerable argume t to whether the evidence (apart from that supporting issue preclusion) . shows that petitioner was the common law employer o the temporary laborers . Even if we agreed with petitioner that i was not the common law employer of the temporary laborers (whit we'do not6), petitione r is nevertheless their statutory employer under sectio n 3401(d)(1) . See, e .g ., Educ . Fund of th Elec . Indus . v . United States , 426 F .2d 1053, 1057-1058 (2d Cir .1970) (holding that even though taxpayer was not common law mployer, taxpayer was,, . statutory employer liable for withholdin income taxes) . I I 6 Were it pertinent to our decision, we would find that, applying the factors courts generally us to determine whether an individual is the common law employee of the person for whom he performs services, e .g ., degree of contr 1, right to discharge, permanency of the relationship, and the elationship the parties intended to create, see Ewens & Miller, T .C . 263, 270 (2001), the temporary labo ers paid in cash were petitioner's, and not its clients', comm n law employees . nc . v . Commissioner, 117 11, t- B . The Requirement To Pay Employment Taxes , - 24 - Sections 3102, 3111, and 3402 require employers to withhold FICA taxes and income taxes from'wages they pay to employees, and to pay,; their own share of FICA taxes . Section 3401(d) . define s "employer", and provides in pertinent part : SEC . 3401(d) . Employer .--For purposes of this' chapter, the term "employer" means the person for whom an individual performs or performed any service, of : whatever nature, as the employee 'of such person, except that-- (1) if the person for whom the individual performs or performed the services does nothave control of th6payment of the wages for such services, the term "employer" * * * means the person having control of the payment of such wage s Although that definition is, by its terms, limited to chapter 2 4 of the Code, Collection of Income Tax at Source on Wages, the Supreme Court has applied it also to chapter 21 of the Code, FICA .,. See Otte v . United States , 419 U .S . 43, 51 (1974) ("The fact that the FICA withholding provisions of the Code do not define 'employer' is of no significance, for that term is not to be given a narrower construction for FICA withholding than for income tax withholding .") . The Supreme Court in Otte v . Unite d States , supra at 50, concluded that section 3401(d)(1) "obviously 111 was intended to place responsibility for withholding at the point of control ." I q 4 C . Control of the Payment for Service s - 2 5 Petitioner contends that the clien s "determined how much they would ultimately pay for any parti ular,* * * [temporary laborer] ." If petitioner means that th clients determined how much they paid petitioner for temporary laborers' services, that is uncontested and irrelevant . If petitioner means that the , clients determined how much petitioner i fact paid temporary laborers, that . is unsupported by any evi ence in the record .' Clients did nothing more than pay .petit i ner, according to rates set in the client contracts, for the se r ices temporary, laborer s performed . Those rates included not onl the gross wages of the temporary laborers (that is, before emp l yment taxes), but also fee for petitioner . Petitioner did not ffer convincing evidenc e F that all clients knew what salaries temp rary laborers received l or what fee petitioner earned .' We find that petitioner set th e salaries of :the'temporary laborers and- p id their wages . For that reason, we find that petitioner con t rolled the payment o f wages for the services temporary laborer ; rendered for client s and is, therefore, liable for all employ ent taxes associate d with those payments . See, e .g ., Winstead v . United States , 109'' . ' Indeed, petitioner often paid temprary laborers before receiving payment from clients . ' Although some client contracts inc uded an additional markup as a fee .(generally a .percentage f the hourly rate), petitioner failed to offer convincing evidence that it paid temporary laborers in accordance with the contract terms . - 26 - F .3d 989, 991-992 (4th Cir . 1997) (holding that taxpayer .who paid p day laborers directly from his personal checking account, even g j though not their common law employer, was liable for Federa l Unemployment Tax Act (FUTA) taxes and for both the employer and employee portions of FICA) ; Evans v . IRS (In re Sw . Resti[! Sys 11 ~ Inc . ), 607 F .2d 1237 (9th .Cir .. 1979) (holding that control of payment-of wages made debtor--and not1icommon law employers-- ii liable for Federal income tax withholding ., FUTA taxes, and both the employer and employee portions of, FICA) . D . Conclusio n For the reasons stated, petitioner is the statutory employer of the temporary laborers . Petitioner' is thus liable for th e employment taxes as set forth in the,notice . See Evans v . IRS (In re Sw . Rest . Sys ., Inc .), supra at 1240 ("[T]here is nothing inequitable in the placing of such a burden upon a corporation which?' voluntarily places itself in the position of handling th e A wages,1and reporting the amounts due under the taxing statutes but which then fails to deduct and remit the amounts required b y it law .") . IV . 1 1, i Amounts of Employment Taxes In .the petition, petitioner argues that the amount(cid:127)o f 11 employment taxes due and owing on the $14,845,019 of unreported j cash wages should be offset by the earned income credits to which !temporary laborers paid in cash wouldl~have been entitled unde r EI' - 27 - section 32 had they claimed those credi s . Petitioner does not renew that argument on brief, and, ther fore, , we shall consider petitioner to have abandoned it . See M ndes . Commissioner, 121- T .C . 308, 312-313 (2003) ("If an argume t is not pursued on brief, we may conclude that it has been abandoned .") . . Petitioner does, however, argue that respondent's determinations of employment taxes shou d be disregarded becaus e I they are "arbitrary, capricious or with ut reasonable foundation ."9 Petitioner so argues beca se respondent, claiming in the notice that he lacked informatio about individual laborers paid in cash, did not list those individuals but, instead, referred to a group of "Temporary Laborers" . The parties have stipulated the amount of unreported wages for each taxable period and disagree only as to t e withholding rate to'~be applied to those wages . Respondent argu s, and petitioner does not disagree, that, for each taxable qua ter, respondent used the "actual" rate petitioner used in filing he Forms 941 for the corresponding quarter to report the wage 3 of temporary laborers paid by check . Since he used the same i come tax withholding rate petitioner used in filing its Forms 941, respondent argues that his methodology was not arbitrary, apricious, or withou t 9 Respondent argues that petitioner is precluded from making that argument because it was,not raised n the petition . We deem the petition amended and allow petitions to make the argument . See Rule 41(b) - 28 .- reasonable foundation . We agree with respondent . We remind petitioner that it, not respondent, paid some temporary laborer s in;,cash, failed to require them to produce proper identification for income tax withholding purposes, and failed to have them prepare the necessary documents for payroll tax deduction . I purposes . Given petitioner's failure to secure Forms W-4, Employee's Withholding Allowance Certificate, from the temporary laborers paid in cash, respondent argues that he could have proposed an income tax withholding rate of 28 percent .10 . Instead, for each taxable quarter in i'ssue ; respondent used the more favorable "actual" rate petitioner itself used for income tax withholding purposes on its Forms 941 . See appendix . We shall sustain the employment taxes respondent determined . 1'u Although respondent did not cite the source of his authority to propose an income tax withholding rate of 28 percent, we assume he relies on the Internal Revenue Manual (IRM) . 2 Audit, IRM (CCH) pts . 4 .23 .8 .4,, at 10,779-773- :30 (Feb . 1, 2003) (Relief for Employer When Employees Have Paid Income Tax on Wages), and 4 .23 .8 .8, at 10,779-773-39 (Feb . 1, 2003) (Computing Income Tax Withholding), direct respondent to compute withholding either under existing law and regulations or using sec . 31 .3402(g)-1(a)(7)(iii), Employment Tax Regs ., which provides the appropriate flat withholding rates . See, e .g ., Varjabedian v . United States , 339 F . Supp . 2d 140, 163-165 (D . ,,Mass . 2004) . Petitioner's failure .toillprovide the necessary information made a calculation under the former impossible . Using1the latter, the proper rate is 28 percent . - 29 - V . (cid:127) Penalties for Fraud A . Introductio n We .next address whether, . for each axable quarter in issue, petitioner is liable for the fraud pena ty respondent determined . Section 6663 ( a) provides : " If any part of any underpayment of , tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 5 percent of the portion of the underpayment which is attributab e to fraud . " "Fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing ." Neely . Commissioner , 116 T .C . 79, 86 (2001) . The Commissioner bears t e burden of proving fraud and must establish it by clear and convincing evidence . See sec . 7454(a) ; Rule 142(b) . To satis y the burden, .of proof,a the Commissioner must show that (1) an u derpayment in tax 1 exists, and (2) the taxpayer intended to conceal, mislead, or otherwise prevent the collection . of taxe Neely v . v Commissioner , supra at 86 . If the Commi sioner establishes that any portion of an underpayment is attrib table to fraud, the entire underpayment is treated as attri b table to fraud, except with respect to any portion-of the unde r m ayment that the taxpayer establishes (by a preponderance of the e idence) is no t attributable to fraud . See sec . 6663(b) . In section IV . of this report we su tained the employment taxes respondent determined, and we here find that the entire 11 30 - underpayment is attributable to fraud . Given Mr . Nguyen's conviction for conspiracy to defraud the United States, we agre e with respondent that petitioner is precluded from denying fraud . Notwithstanding issue preclusion, we also find fraud by clear an d convincing evidence on the facts before us . B . Fraudulent Intent I~ - 1 . Issue Preclusion Mr . Nguyen pleaded guilty to one count'of defrauding the United States in connection with his willful failure as a n officer of petitioner to collect, truthfully account for, and pay the employment taxes here in issue . Thus, fraudulent intent to evade "the employment taxes here in issue was an element :of the crimes of which Mr . Nguyen was charged, pleaded guilty, and was convicted . Mr . Nguyen's fraudulent intent with respect to petitioner's employment tax obligations is imputed to petitioner . See Benes v . Commissioner ., 42 T .C . 358, 382 (1964) ("Where fraud is alleged against a corporate taxpayer, the requisite proof of fraudulen t 11 "intent is to be found in the acts of its officers, inasmuch as the corporation, being an artificial person created by law, can have ho separate intent of its own apart from those who direct its affairs ."), .affd . 355 F .2d 929 (6th Cir . -1966), overruled o n another issue by Truesdell v . Commissioner , 89 T .C . 1280 (1987) . ,,;A~corporation can act only through its officers and cannot escap e i v - 31 - responsibility for actions its officers1perform in their officia l capacity . Federbush v . Commissioner , 3 T .C . at 749 . "Corporate fraud necessarily (cid:127)depends . upon the frau ulent intent of the corporate officer ." Id . , Moreover, Mr . Nguyen did not enrich himself directly ; rather, his dishonest served petitioner's competitive purposes . Petitioner was a le to offer temporary laborers paid in cash, at the expense of the United States, a wage undiminished by employment taxes,-and to avoid paying its, own share of, FICA taxes . Because,Mr . Ng yen was acting as an a . agent of petitioner, his principal, we m y infer petitioner's fraudulent intent . See Benes v . Commissioner, supra at 382 . Petitioner's president and sole sha eholder was convicted o conspiracy to defraud the-United States y willfully failing'to comply with petitioner's statutory oblig tion to collect, account for, and pay employment taxes . That con iction precludes petitioner from here denying its fraudul nt intent .- 2 . Fraud on the Fact s Even if petitioner is not precluded from denying-its fraudulent intent, the facts independent'y support a finding of. fraud . Petitioner, acting through its a ents, offered temporary laborers cash wages not reduced by emplo ent taxes . Petitioner understood its employment tax obligation , as demonstrated-by it s proper payment of employment taxes for temporary laborers paid b check . To conceal its disparate employment tax treatment of i EI 32 - temporary laborers according to their method of payment, petitibner ignored temporary laborers paid in cash for all business purposes . Petitioner conceded .that it recorded on its booksaneither the proceeds of client checks cashed at check- cashing agencies as business income, nor the payments t o ip temporary laborers paid in cash as payroll expenses . In tha t way, petitioner effectively hid 80 to ;90 percent of its workforce . Those actions strongly suggest that petitione r 11 intended to evade its legal obligation to treat temporary laborers paid in cash as its employees for employment ta x purposes . 11 ;,F, ,To remain competitive, petitioner offered temporary laborers the opportunity to receive cash wages .;, Petitioner needed to supplement their net earnings either at its own expense or at th e expense of the U .S . Treasury : Petitioner chose the latter course . As a bonus, petitioner evaded its own FICA obligations . Petitioner argues that it simply honored ,the wishes of its temporary laborers and lacked any fraudulent intent : "Each worker determined whether he or she would be paid in cash . 11 We assume that, as a result of'understating its business "income, petitioner evaded 80 to 90 percent of its corporate income tax . 'We believe that any corporate income tax fraud was part and parcel of an overall intent to defraud the Government . Petitioner had to avoid both the income taxes and the employment ,,taxes due respondent to evade its responsibility to pay either . The reporting of one would almost certainly have led respondent to challenge the omission of the other . ii 4 I 33 - Petitioner did not determine who was to be paid in cash under any scenario ." That may be true, but it is irrelevant ; petitioner, knowingly ignored its obligation to wit hold and to pay employment taxes with respect to tempor ry laborers paid in cash . We find that petitioner intended to eva e its employment ta x obligations . C . Conclusio n Because petitioner is liable for t e underpayment of employment taxes and intended to prevent the collection of those taxes, petitioner is liable for the section 6663 (a) fraud penalties in their entirety . VI . Period of Limitations Because petitioner filed false or f audulent returns, i .e ., the false and fraudulent Forms 941, the sual 3-year period of limitations of section 6501(a) does not pply . See sec . 6501(c)(1) ; Neely v . Commissioner , 116 T C . at 85 . Respondent' s determinations were thus timely . VII . Conclusion We sustain respondent's determinations of deficiencies i n and penalties with respect to petitionerls employment taxes for . all taxable quarters in issue . - 34 - -APPENDIX -~ Federal Federa l Taxabl e guarter Unreporte d withholdin g withholding tax wages tax rate ' liability FICA ta x liability 2 Sec . 6663(a ) fraud penaltie s 1995 Ql Q2 Q3 $550,300 .17 0 .0565 $31,091 .96 . $84,195 .93 $86,465 .9 1 578,706 .40 0 .0494 28,588 .10 88,542 .08 87,847 .6 3 855,895 .25 0 .0510 43,650 .66 130,951 .97 130,951 .9 7 Q4. 734,370 .85 0 .0599 43,988 .81 112,358 .74 117,260 .6 6 1996 Ql Q2 669,742 .84 784,396 .38 Q3 1,031,409 .80 Q4 914,585 .63 0 .0616 0 .0643 0 .0643 0 .0746 41,256 .16 102,470 .65 107,795 .1 0 50,436 .69 120,012 .65 127,837 .0 0 66,319 .65 157,805 .70 68,228 .09 139,931 .60 168,094 .0 1 156,119 .7 7 1997 Q1 '925, 198 .32 0 . 0'818 - 75,681 .22- 141, 555- . 34 -16-2,92 .7 .4 2 Q2 982,099 .62 Q3 1,083,568 .56 Q4 1,003,822 .37 0 .0722 0 .0732 0 .0756 70,907 .59 150,261 .24 165,876 .6 2 79,317 .21 165,785 .99 183,827 .4 0 75,888 .97 153,584 .82 172,105 .3 4 1998 Q1 1,202,354 .30 0 .0857 103,041 .76 183,960 .21 215,251 .4 8 Q2 1,098,759 .00 0 .0791 86,911 .84 168,110 .13 191,266 .4 8 Q3 Q4 1,202,302 .80 0.0758 91,134 .55 183,952 .33 206,315 .1 6 1,227,506 .95 0 .0801 98,323 .30 187,808 .56 214,598 .9 0 ' To calculate for each taxable quarter the Federal withholding tax liability on the unreported wages petitioner paid to temporary laborers paid in cash , respondent used the "actual " withholding rate petitioner calculated in its corresponding Forms 941, which reported the wages and withholdings of temporary laborers paid by check . 2 Secs . 3101 and 3111 each required petitioner to pay 7 .65 percent of total wages . Therefore the FICA taxes in the notice . represented 15 .30 percent of the unreported wages .