Court Opinion

ID: 3034228
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:50:44.774079+00
Date Added: 2024-06-11T11:48:29.189446
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

CHARLOTTE’S OFFICE BOUTIQUE,         
INC.,
                                           No. 04-71325
             Petitioner-Appellant,
               v.                          Tax Ct. No.
                                             5077-01
COMMISSIONER OF INTERNAL
                                             OPINION
REVENUE,
             Respondent-Appellee.
                                     
              Appeal from a Decision of the
                United States Tax Court

                 Argued and Submitted
           July 11, 2005—Seattle, Washington

                  Filed October 7, 2005

       Before: Procter Hug, Jr., Richard A. Paez, and
          Consuelo M. Callahan, Circuit Judges.

                Opinion by Judge Callahan

                           13945
13948        CHARLOTTE’S OFFICE BOUTIQUE v. CIR

                         COUNSEL

Petitioner-appellant was represented by Robert E. Kovacevich
of Spokane, Washington.

Respondent-appellee was represented by Eileen J. O’Connor,
Assistant Attorney General, Thomas J. Clark, and Regina S.
Moriarty of Washington, D.C.

                          OPINION

CALLAHAN, Circuit Judge:

   On its face, this is an appeal by Charlotte’s Office Bou-
tique, Inc., from the Tax Court’s determination that its royalty
payments to Charlotte Odell, one of its two shareholders,
were actually wages and that appellant was liable for employ-
ment taxes on those wages and penalties. This appeal, how-
ever, also raises a challenge to the Tax Court’s jurisdiction,
which was first raised before the Tax Court by the Commis-
sioner of Internal Revenue (“Commissioner”) and is asserted
by both parties on appeal, with the Commissioner taking the
laboring oar.

   Following the trial in the Tax Court, the Commissioner
filed a motion to dismiss alleging that the Tax Court lacked
jurisdiction over three of the four tax years in question.
Appellant joined in the motion. The Tax Court, however,
denied the motion and rendered judgment in favor of the
Commissioner on all the issues framed by appellant’s petition
for review.
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR          13949
   Appellant filed a notice of appeal objecting to both the Tax
Court’s determination of jurisdiction and its rejection of
appellant’s challenges to the determination of taxes and penal-
ties. In response, the Commissioner first asserts that the Tax
Court lacked jurisdiction for three of the four tax years in
question, and then contends that to the extent that the Tax
Court retained jurisdiction, it properly determined that appel-
lant owes taxes and penalties.

   In affirming the Tax Court’s opinions, we first consider the
jurisdiction issue asserted by both parties, and determine that
the Tax Court’s jurisdiction under 26 U.S.C. § 7436(a) was
not limited by the Commissioner’s admission that appellant
treated Mrs. Odell as an employee in years 1996 through
1998. We then address appellant’s challenges to the Tax
Court’s determinations of liability, taxes and penalties, and
conclude that none are persuasive.

                               I

   Prior to 1976, Mrs. Odell and her then-husband did busi-
ness with various United States Post Offices, selling items
such as calculators, chairs and office supplies. When she
divorced in 1976, her ex-husband gave her the list of their
customers. Mrs. Odell explained that certain agencies had
“Buy Indian Programs” and that she is a Native American.
Starting in 1989, Mrs. Odell ran the business as a sole propri-
etorship.

  In January 1995, Mrs. Odell incorporated her business as
Charlotte’s Office Boutique, Inc. The stock was owned
equally by Mrs. Odell and her second husband, Theodore,
whom she married in 1988. Mrs. Odell is appellant’s presi-
dent, and she and Theodore are the only directors.

  In connection with the incorporation, the sole proprietor-
ship conveyed to appellant an ownership interest in certain
assets, such as bank accounts and inventory, but did not con-
13950        CHARLOTTE’S OFFICE BOUTIQUE v. CIR
vey the customer list used by the proprietorship. In August
1996, appellant and Mrs. Odell entered into three agreements
effective January 1, 1995. The Tax Court explained the
arrangements as follows:

    These agreements were an employment agreement,
    a rental agreement, and a licensing and sale agree-
    ment. Pursuant to the employment agreement,
    [appellant] agreed to pay $400 per month to Ms.
    Odell in return for her services, and Ms. Odell
    agreed that she would receive no employment com-
    pensation from January 1, 1995, through July 31,
    1996. Pursuant to the rental agreement, [appellant]
    agreed to pay to Ms. Odell $600 per month to rent
    certain of her property. Pursuant to the licensing and
    sale agreement, [appellant] agreed to pay to Ms.
    Odell a monthly royalty fee of the larger of $200 or
    5 percent of the gross receipts for all office supplies
    sold under the agreement. [Appellant] had resolved
    on February 15, 1996, to pay Ms. Odell for 1995 a
    royalty payment equal to 5 percent of gross receipts
    for the use of her existing Government contracts and
    her experience in obtaining Government contracts.
    [Appellant] also had resolved to pay Ms. Odell a sal-
    ary of $400 per month.

Charlotte’s Office Boutique, Inc. v. Comm’r, 121 T.C. 89, 93-
94 (2003).

   Appellant’s business required minimal labor. Mrs. Odell
primarily handled the day-to-day administration, such as deal-
ing with and paying suppliers, processing customer orders and
bookkeeping. She estimated that this took her a couple of
hours a day. Theodore also worked for appellant a couple of
hours a day, handling the shipping and the computer work,
and helping to facilitate sales. He was not paid by appellant.
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR          13951
  In all, appellant   reported the following payments to Mrs.
Odell:
    Year              Salary          Royalties
    1995                   0          $42,048
    1996              $2,000          $34,200
    1997              $4,800          $51,611
    1998              $4,800          $46,690

   The Commissioner commenced his audit of appellant’s and
the Odells’ tax returns in December 1997, and later expanded
the audit to cover 1995 through 1998. In January 2001, the
Commissioner issued a Notice of Determination Concerning
Worker Classification against appellant. The first four sen-
tences of the Notice read:

    As a result of an employment tax audit, we are send-
    ing you this NOTICE OF DETERMINATION
    CONCERNING WORKER CLASSIFICATION
    UNDER SECTION 7436. We have determined that
    the individual(s) listed or described on the attached
    schedule are to be legally classified as employees for
    purposes of federal employment taxes under subtitle
    C of the Internal Revenue Code and that you are not
    entitled to relief from this classification pursuant to
    section 530 of the Revenue Act of 1978 with respect
    to such individual(s). This determination could result
    in employment taxes being assessed against you.

    If you want to contest this determination in court,
    you may file a petition with the United States Tax
    Court for a redetermination of the above-referenced
    issues.

The Notice alleged that Mrs. Odell was appellant’s employee
for purposes of federal employment taxes, that the royalty
payments were actually wages, and that appellant was liable
for unreported employment taxes for 1995 through 1998, as
well as statutory additions to taxes because appellant had not
13952           CHARLOTTE’S OFFICE BOUTIQUE v. CIR
withheld employment taxes on the wages.1 The Notice also
alleged that appellant had “other workers.”

   Appellant filed a petition in the Tax Court for a redetermi-
nation of its employment tax liabilities. Trial was held in June
2002. Following the trial, the Commissioner filed a motion to
dismiss with regard to tax years 1996 through 1998. The
Commissioner argued that because appellant paid Mrs. Odell
a salary during this period of time, there was no actual contro-
versy as to whether she was an employee, and accordingly,
the Tax Court lacked jurisdiction under 26 U.S.C. § 7436(a).2

   The Tax Court ruled that it had jurisdiction, that the royalty
payments were wages, and affirmed the tax assessments and
the additions thereto. Charlotte’s Office Boutique, 121 T.C.
91. The Tax Court subsequently issued an opinion holding
that it had jurisdiction to redetermine additions to taxes attrib-
utable to nonpayment of employment taxes. Charlotte’s
Office Boutique, Inc. v. Comm’r, 87 T.C.M. 998
(2004).

                                    II

  We first consider the Commissioner’s assertion that the Tax
Court lacked jurisdiction for three of the four tax years
involved. Such a challenge to subject-matter jurisdiction is
reviewed de novo. Estate of Branson v. Comm’r, 264 F.3d
1
   The Commissioner’s brief to this court explained the additions to taxes
as follows:
     Section 6651 of the Internal Revenue Code imposes a penalty,
     not to exceed 25 percent of the tax liability required to be shown
     on the return, for failure to file any tax return or to pay any tax.
     Section 6656 of the Code imposes an additional penalty of 10
     percent of the amount of the underpayment for failure to timely
     deposit withholding taxes.
  2
    The Commissioner had conceded before the Tax Court that appellant
did not have any “other workers.”
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR          13953
904, 908 (9th Cir. 2001); I & O Publ’g. Co., Inc. v. Comm’r,
131 F.3d 1314, 1315 (9th Cir. 1997).

   The Commissioner argues that the Tax Court lost jurisdic-
tion over tax years 1996 through 1998 when he conceded that
appellant did not have any other workers for those years and
that appellant had treated Mrs. Odell as an employee in those
years. In other words, the Commissioner maintains that
because he and appellant agreed that Mrs. Odell was an
employee for tax years 1996 through 1998, there is no contro-
versy between the Commissioner and appellant as to Mrs.
Odell’s classification under 26 U.S.C. § 7436. The Commis-
sioner argues that this lack of controversy as to Mrs. Odell’s
classification for 1996 through 1998 deprives the Tax Court
of jurisdiction to review his determination of taxes and penal-
ties for those years, even though appellant continues to con-
test those taxes and penalties.

   In evaluating the Commissioner’s position, we turn first to
the statute at issue. Subsection (a) of § 7436 reads:

    Creation of remedy.— If, in connection with an audit
    of any person, there is an actual controversy involv-
    ing a determination by the Secretary as part of an
    examination that—

         (1) one or more individuals performing ser-
         vices for such person are employees of such
         person for purposes of subtitle C, or

         (2) such person is not entitled to the treat-
         ment under subsection (a) of section 530 of
         the Revenue Act of 1978 with respect to
         such an individual,

    upon the filing of an appropriate pleading, the Tax
    Court may determine whether such a determination
    by the Secretary is correct and the proper amount of
13954         CHARLOTTE’S OFFICE BOUTIQUE v. CIR
    employment tax under such determination. Any such
    redetermination by the Tax Court shall have the
    force and effect of a decision of the Tax Court and
    shall be reviewable as such.

   Section 7436 was added to the Internal Revenue Code
through the Taxpayer Relief Act of 1997, Pub. L. No. 105-34,
111 Stat. 788, 1055 (1997). Before its enactment, “judicial
review of IRS assessment of employment taxes or related
penalties was available only if a taxpayer paid a divisible part
of the assessment, filed a claim for refund, and filed a refund
suit in Federal district court or the Court of Federal Claims to
recover amounts paid.” Henry Randolph Consulting v.
Comm’r, 112 T.C. 1, 3 n.2 (1999). Congress determined that
it would “be advantageous to taxpayers to have the option of
going to the Tax Court to resolve certain disputes regarding
employment status.” H.R. Rep. No. 105-148, at 639 (1997);
S. REP. NO. 105-33, at 304 (1997).

   The Commissioner, noting that the Tax Court is a court of
limited jurisdiction, argues that under § 7436, the Tax Court’s
jurisdiction is restricted to situations in which there is an
actual controversy as to whether one or more of the taxpayer’s
workers are employees. The Commissioner cites the Tax
Court’s decision in Henry Randolph as supporting its interpre-
tation of the Tax Court’s narrow jurisdiction. 112 T.C. 5.

   [1] Although we agree with the Commissioner’s premise —
that the Tax Court is a court of limited jurisdiction — we dis-
agree with his interpretation of the statute. First, it should be
noted that the statute was amended in 2000, following the Tax
Court’s decision in Henry Randolph. H.R. Rep. No. 106-645
(2000). At the time of that decision, § 7436(a) read:

    upon the filing of an appropriate pleading, the Tax
    Court may determine whether such a determination
    by the Secretary is correct.
              CHARLOTTE’S OFFICE BOUTIQUE v. CIR             13955
112 T.C. 5 (quoting 26 U.S.C. § 7436(a) (1999)). The stat-
ute now reads, in pertinent part:

      upon the filing of an appropriate pleading, the Tax
      Court may determine whether such a determination
      by the Secretary is correct and the proper amount of
      employment tax under such determination.

26 U.S.C. § 7436(a) (2005) (emphasis added). The added lan-
guage indicates that Congress did not intend to limit the Tax
Court’s jurisdiction under § 7436 to determining only whether
an individual was an employee.

   [2] Second, the Commissioner’s approach is contrary to the
prevalent approach to subject-matter jurisdiction and the few
cases in which we have considered the Tax Court’s jurisdic-
tion. Although we recognize that subject matter jurisdiction
can be reviewed at any time during the course of litigation if
it becomes apparent that jurisdiction may be lacking, as a gen-
eral matter a federal court’s subject-matter jurisdiction is
determined at the time it is invoked. Cf. Scar v. Comm’r, 814
F.2d 1363, 1367 (9th Cir. 1987). The Commissioner, it should
be noted, agrees that appellant properly invoked the Tax
Court’s jurisdiction by filing a timely petition from the Notice
of Determination.

   [3] Moreover, we noted in Scar with regard to a notice of
deficiency that no particular form was required and that “the
Commissioner need not explain how the deficiencies were
determined.” Id. The notice must, however, indicate that the
Commissioner has determined the amount of the deficiency.
Id. In this case the Notice of Determination and its attach-
ments provided appellant with the requisite notice of the
Commissioner’s classification determination, the amount of
taxes due and the penalties imposed.3 See Portillo v. Comm’r,
  3
   Accordingly, we reject appellant’s contention that the notice was
invalid.
13956           CHARLOTTE’S OFFICE BOUTIQUE v. CIR
932 F.2d 1128, 1132 (5th Cir. 1991) (explaining that the
I.R.S. adequately linked the deficiency to the taxpayer by con-
sidering information directly related to the taxpayer’s income
tax return and investigating whether a deficiency indeed
existed).

   [4] The Commissioner’s jurisdictional argument is contrary
to our statement in Scar that a notice need not contain any
particular explanation. The Commissioner’s admission that
appellant treated Mrs. Odell as an employee in tax years 1996
through 1998 is not a concession that taxes and penalties are
not due. Rather, it concerns only one factor in the Commis-
sioner’s decision that additional taxes and penalties were due.
It follows that as the Notice of Determination was not
required to contain any particular explanation for the Com-
missioner’s position, an admission that does not change his
position on what taxes and penalties remain due cannot
deprive the Tax Court of the jurisdiction it acquired when the
appellant filed its petition for review of the Notice of Determina-
tion.4

   The Tax Court followed a similar line of reasoning in con-
cluding that it had jurisdiction. It explained:

      Generally, in the setting of employment taxes, we
      have jurisdiction under section 7436(a) to determine:
      (1) Whether an individual providing services to a
      person is that person’s employee for purposes of
      Subtitle C; (2) whether the person, if in fact an
      employer, is entitled to relief under section 530 of
      the Revenue Act of 1978; and (3) the correct
  4
    For a parallel explanation of the Tax Court’s continuing jurisdiction,
see Andrea K. Feirstein, Note, Smith v. Commissioner: Unilateral Conces-
sions by Taxpayers, 4 Va. Tax Rev. 187, 200 (1984) (noting that a conces-
sion by the Commissioner does not reduce the Tax Court’s jurisdiction
because the parties’ adversity is established by the notice of deficiency,
but that a taxpayer’s concession of liability does affect the parties’ adver-
sity).
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR         13957
    amounts of employment taxes which relate to the
    Commissioner’s determination concerning worker
    classification. See Evans Publg. Inc. v. Commis-
    sioner, 119 T.C. 242, 244, 2002 WL 31487842
    (2002); Henry Randolph Consulting v. Commis-
    sioner, 112 T.C. 1, 1999 WL 10017 (1999). It is the
    Commissioner’s determination of worker classifica-
    tion that provides the predicate for our jurisdiction
    under section 7436(a), and the ultimate merits of that
    determination do not affect our jurisdiction. Neely v.
    Commissioner, supra at 290 n. 8 . . . . Although
    respondent now concedes that determination, respon-
    dent’s concession has no bearing upon our jurisdic-
    tion. Cf. LTV Corp. v. Commissioner, 64 T.C. 589,
    1975 WL 3091 (1975) (respondent’s concession of
    no deficiency in a year did not deprive the Court of
    jurisdiction over the subject matter of that year).

    Our conclusion is further supported by an analogy to
    the applicable law underlying the issuance of a
    notice of deficiency. The Court may acquire jurisdic-
    tion in such a setting only when the Commissioner
    has determined that there is a deficiency. Secs.
    6212(a), 6213(a); see also Richards v. Commis-
    sioner, T.C. Memo. 1997-149, affd. without pub-
    lished opinion 165 F.3d 917 (9th Cir. 1998). It is the
    determination of a deficiency, rather than the exis-
    tence of a deficiency, that is dispositive as to our
    jurisdiction. Hannan v. Commissioner, 52 T.C. 787,
    791, 1969 WL 1549 (1969). Thus, even when a tax-
    payer has made a showing that casts doubt on the
    validity of a determination in a notice of deficiency,
    the notice is generally not rendered void, but remains
    sufficient to vest the Court with jurisdiction. Suarez
    v. Commissioner, 58 T.C. 792, 814, 1972 WL 2560
    (1972).

121 T.C. 102-04.
13958             CHARLOTTE’S OFFICE BOUTIQUE v. CIR
   We have previously held that the Tax Court has jurisdiction
to consider its own jurisdiction. Billingsley v. Comm’r, 868
F.2d 1081, 1085 (9th Cir. 1988). We conclude that the Tax
Court’s reasoning in this case is consistent with, and rein-
forces, our determination that the Tax Court retained jurisdic-
tion over all four tax years covered by the Notice of
Determination.

   [5] In advancing his position, the Commissioner does not
suggest why his approach furthers the purpose of § 7436.5 The
congressional intent behind the enactment of § 7436 — to
provide taxpayers with an alternate forum — could be frus-
trated if the Commissioner could unilaterally deprive the Tax
Court of jurisdiction, after having directed the taxpayer to the
Tax Court by issuing a Notice of Determination. In the
absence of compelling authority in support of the Commis-
sioner’s approach, it appears that the intent behind § 7436
supports the Tax Court’s retention of jurisdiction over all four
tax years covered by the Notice of Determination.

   The Commissioner’s arguments concerning the Tax Court’s
jurisdiction offer no compelling authority. The Commissioner
argues that his interpretation is necessary to protect the I.R.S.
from a “potential for a statute of limitations whipsaw.”6 How-
  5
     As appellant reported that it paid Mrs. Odell a salary of $400 a month
in tax years 1996 through 1998, the Commissioner knew of appellant’s
treatment of Mrs. Odell as an employee before it filed its Notice of Deter-
mination.
   6
     In its brief, the CIR states:
      If the IRS erroneously makes an assessment of employment taxes
      attributable to worker classification or Section 530 issues without
      first issuing a notice of determination (or obtaining a waiver of
      restrictions on assessment from taxpayer), the taxpayer is entitled
      to an automatic abatement of the assessment, which may not hap-
      pen until after the limitations period for issuing a notice of deter-
      mination has expired. Conversely, if the IRS erroneously issues
      a notice of determination (for example, where an employment tax
      shortfall did not involve a worker classification or Section 530
      issue), the limitations period for assessing the liability may have
      expired before the IRS discovers its error.
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR            13959
ever real this dilemma, the Commissioner fails to explain why
the preferred solution for protecting the Commissioner from
making one of two erroneous decisions should be a limitation
on the Tax Court’s jurisdiction. At oral argument, the Com-
missioner’s counsel suggested that because of the different
periods of time for making an assessment and issuing a notice
of determination, the time for making an assessment might
run while the propriety of a notice of determination is being
litigated in the Tax Court. This may be true, but it does not
follow that restricting the Tax Court’s jurisdiction would nec-
essarily resolve that dilemma. The proposed limitation on the
Tax Court’s jurisdiction would provide the Commissioner a
remedy only if the admission of employee status occurs
before the expiration of the time for making an assessment.

  One academic commentary describes a similar situation,
noting:

    The statute of limitations problem arises because of
    current law on tolling. The IRS must mail a statutory
    notice within the limitations period for assessment of
    taxes, generally three years. Normally, the issuance
    of a statutory notice tolls the statute of limitations on
    assessment until the prohibited period ends, plus
    sixty days. . . . However, the Tax Court’s determina-
    tion that the notice was invalid means that the notice
    was not sufficient to allow an assessment based upon
    it, or even to toll the statute of limitations. There is
    some dispute over whether the language of Code
    section 6503 means that a Tax Court petition is suffi-
    cient to toll the statute, despite an invalid notice. The
    majority of cases hold that it is not. Since the statute
    is not tolled by a petition in response to an invalid
    notice, the limitations period may have run while the
    Tax Court considered the motion to dismiss.

Leandra Lederman, “Civil”izing Tax Procedure: Applying
General Federal Learning to Statutory Notices of Deficiency,
13960           CHARLOTTE’S OFFICE BOUTIQUE v. CIR
30 U.C. Davis L. Rev. 183, 209-11 (1996). Although the
described situation appears to parallel the concerns expressed
by the Commissioner in this case, he has never suggested that
the Notice of Determination in this case was invalid. As the
statute of limitations problem set forth in the commentary
only arises where a notice is determined to be invalid, and
thus does not properly invoke the Tax Court’s jurisdiction in
the first instance, see Scar, 814 F.2d at 1370, there does not
appear to be a similar statute of limitations issue in this case.

   In addition, the Commissioner has failed to explain why his
concerns cannot be addressed through means other than
restricting the Tax Court’s jurisdiction. For example, he fails
to address such options as withdrawing a notice of deficiency
and, if necessary, issuing an assessment.

   Finally, we note that there is no question as to the existence
of an actual case or controversy.7 The Tax Court, cognizant of
its limited jurisdiction, restricted its decision to determining
the taxes and penalties that the parties disputed, and continue
to dispute. The court explained:

      Respondent also argues that there was no actual con-
      troversy as to the status of Mrs. Odell as an
      employee of petitioner and that such a controversy is
      a prerequisite to our jurisdiction. While there is no
      actual controversy as to whether Mrs. Odell was an
      employee of petitioner with respect to the amounts
      of $400 per month which she received as wages,
      there is a dispute as to whether she received the dis-
      puted amounts as additional wages in her capacity as
      petitioner’s employee.

121 T.C. 104. The existence of a live controversy is further
  7
   See Feirstein, supra, note 4, at 197-98 (noting that limitations imposed
upon Article III courts, such as the existence of an actual case or contro-
versy, have been presumptively applied to the Tax Court).
             CHARLOTTE’S OFFICE BOUTIQUE v. CIR          13961
demonstrated by the fact that following the Tax Court’s 2003
decision, appellant continued to litigate whether the Tax
Court had jurisdiction to redetermine the proper amount of
employment taxes and additions thereto. Charlotte’s Office
Boutique, 87 T.C.M. at 998.

   [6] In sum, we affirm the Tax Court’s determination that it
did not lose jurisdiction when the Commissioner conceded
that Mrs. Odell was appellant’s employee during the years
1996 through 1998 because (1) 26 U.S.C. § 7436(a), as
amended in 2000, authorizes the Tax Court to determine both
whether a person is an employee and “the proper amount of
employment tax under such determination;” (2) the Commis-
sioner’s position is contrary to the prevalent approach to
determining federal court jurisdiction and our prior decisions;
(3) the Commissioner’s approach does not further the purpose
of § 7436, which is to provide taxpayers with an alternate
forum; (4) the Commissioner has failed to show that the pro-
posed restriction on the Tax Court’s jurisdiction would
resolve his alleged dilemma, or that he does not have other
means for resolving the dilemma; and (5) the Tax Court’s
determination of the taxes and additions to taxes addressed an
actual controversy.

                              III

   In addition to challenging the Tax Court’s jurisdiction,
appellant argues that the Tax Court: (1) failed to appreciate
that a person can receive payment both as an employee and
in another capacity; (2) denied it due process of law; and (3)
erred in affirming the Commissioner’s levy of tax penalties.

   “We review decisions of the United States Tax Court on the
same basis as decisions of a district court in a civil bench
trial.” Estate of Cartwright v. Comm’r, 183 F.3d 1034, 1036
(9th Cir. 1999). The Tax Court’s findings of fact are reviewed
for clear error and its legal conclusions are reviewed de novo.
See id.; Pahl v. Comm’r, 150 F.3d 1124, 1127 (9th Cir. 1998).
13962        CHARLOTTE’S OFFICE BOUTIQUE v. CIR
   [7] Appellant, citing our opinion in Idaho Ambucare Cen-
ter, Inc. v. United States, 57 F.3d 752, 756 (9th Cir. 1995),
and Revenue Ruling 58-505, 1958-2 C.B. 728, alleges that a
person can receive payments both as an employee and in
another capacity. The Tax Court recognized the dual-capacity
doctrine, but found that in this case, the disputed amounts
were paid to Mrs. Odell as wages. Charlotte’s Office Bou-
tique, 121 T.C. 108. The record shows that Mrs. Odell only
undertook a few discrete acts as president, such as signing
certain documents, and that she overwhelmingly engaged in
business activities that were designed to assist appellant in
generating sales of office supplies. Accordingly, the Tax
Court reasonably determined that the royalty payments were
wages.

   Appellant next argues that it was denied due process
because the Tax Court (a) failed to rule on its motion in
limine, (b) improperly questioned Mrs. Odell, (c) ordered
Mrs. Odell not to discuss the case with anyone during a
recess, and (d) generally displayed bias toward appellant.

   We find no merit to these contentions. The Tax Court
determined that the record was sufficient for it “to decide this
case on its merits based on a preponderance of the evidence.”
Id. at 101. The record does not disclose any substantive harm
to appellant from the Tax Court’s failure to grant its motion
in limine to compel the Commissioner to initially present evi-
dence in the Tax Court. Our review of the record reveals that
the Tax Court questioned Mrs. Odell in a routine and courte-
ous manner, and that counsel offered no contemporaneous
objections. The Tax Court properly cautioned Mrs. Odell
against discussing this case with others during a short recess
during her testimony. See Perry v. Leeke, 488 U.S. 272, 282
(1989) (“[I]t is simply an empirical predicate of our system of
adversary rather than inquisitorial justice that cross-
examination of a witness who is uncounseled between direct
examination and cross-examination is more likely to lead to
the discovery of truth than is cross-examination of a witness
                CHARLOTTE’S OFFICE BOUTIQUE v. CIR                    13963
who is given time to pause and consult with his attorney.”).
Moreover, our review of the record fails to disclose any bias
on the part of the Tax Court against appellant.

   Appellant’s challenge to the imposition of penalties is also
without merit. Appellant has not shown either that the Tax
Court was without jurisdiction to redetermine the additions to
taxes, Charlotte’s Office Boutique, 87 T.C.M. at 998, or that
the Tax Court erred in holding that Form 941 is not an infor-
mation return, but a tax return, and accordingly that appel-
lant’s failure to properly file these forms gave rise to
employment taxes and certain additions. Id. Appellant also
failed to support its claim to an exception from penalties
based on reasonable reliance on professional advice.8 Appel-
lant failed to present sufficient evidence as to what informa-
tion Mrs. Odell gave to the appellant’s tax advisor or what
specific advice the accountant gave her.9 Thus, the Tax Court
did not err in determining that appellant had not shown that
it reasonably relied on the accountant’s advice.

                                     IV

   We conclude that the Tax Court properly upheld the Com-
missioner’s determinations that appellant’s royalty payments
to Mrs. Odell constituted wages and the resulting taxes and
penalties. We further hold, as did the Tax Court, that the
  8
     See Neonatology Assocs., P.A. v. Comm’r, 115 T.C. 43, 99 (2000)
(“[F]or a taxpayer to rely reasonably upon advice so as possibly to negate
a section 6662(a) accuracy-related penalty determined by the Commis-
sioner, the taxpayer must prove by a preponderance of the evidence that
the taxpayer meets each requirement of the following three-prong test: (1)
the adviser was a competent professional who had sufficient expertise to
justify reliance, (2) the taxpayer provided necessary and accurate informa-
tion to the adviser, and (3) the taxpayer actually relied in good faith on the
adviser’s judgment.”).
   9
     On the one specific issue that Mrs. Odell remembered, she testified that
she did not understand why her salary was set at $400 a month, and that
she thought her services were worth more.
13964        CHARLOTTE’S OFFICE BOUTIQUE v. CIR
Commissioner’s admission during the Tax Court proceedings
that appellant treated Mrs. Odell as an employee for three of
the four tax years at issue did not deprive the Tax Court of
jurisdiction to review the Commissioner’s determination of
taxes and penalties for those years. Accordingly, the Tax
Court’s judgment is

  AFFIRMED.