Court Opinion

ID: 4334018
Source: CourtListenerOpinion
Date Created: 2018-11-14 01:28:20.796373+00
Date Added: 2024-06-11T14:47:37.192826
License: Public Domain

119 T.C. No. 5

                UNITED STATES TAX COURT

JOSEPH M. GREY PUBLIC ACCOUNTANT, P.C., Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4789-00.            Filed September 16, 2002.

     This is an action for redetermination of employment
status. G is the president and sole shareholder of P, an
S corporation. P failed to treat G as an employee. R
determined that G was an employee of P’s for purposes of
Federal employment taxes.
     1. Held: P is subject to Federal employment taxes
since G, an officer, is an employee within the meaning of
secs. 3121(d)(1) and 3306(i), I.R.C.
     2. Held, further, P had no reasonable basis for not
treating G as an employee and therefore is not entitled to
relief pursuant to sec. 530 of the Revenue Act of 1978,
Pub. L. 95-600, 92 Stat. 2763, 2885, as amended.
     3. Held, further, alternatively, P is not entitled to
relief under sec. 530 of the Revenue Act of 1978,
because such provision is limited to worker classification
issues arising under the common law.
                                 - 2 -

     Joseph M. Grey (an officer), for petitioner.

     Linda P. Azmon, for respondent.

                                OPINION

     HALPERN, Judge:   This is an action for redetermination of

employment status.   On February 23, 2000, respondent mailed to

petitioner a Notice of Determination Concerning Worker

Classification under Section 7436 (the notice).   By the notice,

respondent informed petitioner that he had determined that

Joseph M. Grey is classified as an employee of petitioner’s for

purposes of the Federal employment taxes imposed by subtitle C of

the Internal Revenue Code and that petitioner is not entitled to

relief from that classification under section 530 of the Revenue

Act of 1978, Pub. L. 95-600, 92 Stat. 2885, as amended (section

530).   Attached to the notice is a schedule (the schedule)

setting forth petitioner’s liabilities for (1) Federal Insurance

Contribution Act (FICA) taxes and (2) Federal Unemployment Tax

Act (FUTA) taxes, as follows:

           Tax       Quarter or Year          Amount
           FICA           1/1995              $1,430
           FICA           2/1995               1,430
           FICA           3/1995               1,430
           FICA           4/1995               1,430
           FICA           1/1996               1,448
           FICA           2/1996               1,448
           FICA           3/1996               1,448
           FICA           4/1996               1,448
           FUTA             1995                 434
           FUTA             1996                 434
                                - 3 -

     On May 1, 2000, petitioner filed a timely petition for

review of respondent’s determinations, and, on July 24, 2000,

petitioner filed an amended petition for such review.    The

parties agree that if, for Federal employment tax purposes,

Mr. Grey was petitioner’s employee during the periods in

question, and section 530 relief is not available, then the

schedule accurately sets forth petitioner’s liabilities for

Federal employment taxes for those periods.    The issues for

decision are whether Mr. Grey was petitioner’s employee for these

purposes and, if so, whether petitioner is entitled to relief

under section 530.1

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the taxable periods at

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.   For convenience, dollar amounts have

been rounded to the nearest dollar.     Petitioner bears the burden

of proof.   See Rule 142(a).2

     1
        In its amended petition, petitioner disclaimed reliance
on sec. 530. When this case was called for trial, petitioner
moved to amend its amended petition to raise sec. 530.
Petitioner agreed to rely solely on the stipulation of facts to
support its claim for relief under sec. 530. On that basis,
respondent had no objection to petitioner’s motion, and the Court
granted it.
     2
        Sec. 530(e)(4) places the burden of proof on the
Secretary with respect to certain aspects of sec. 530.
Sec. 530(e)(4) applies to disputes involving periods after
December 31, 1996, and therefore does not apply to this case.
Small Business Job Protection Act of 1996, Pub. L. 104-188, sec.
                                                   (continued...)
                                 - 4 -

                              Background

     This case was submitted fully stipulated under Rule 122.

The facts stipulated by the parties are so found.    The

stipulation of facts, with accompanying exhibits, is incorporated

herein by this reference.   The following is a summary of the

facts necessary for our discussion.

Principal Place of Business

     At the time the petition was filed, petitioner’s principal

place of business was in Philadelphia, Pennsylvania.

History

     On April 11, 1991, petitioner was organized as a

Pennsylvania professional corporation.     Since its organization,

petitioner has operated as a public accounting, bookkeeping, and

tax preparation firm.    That is petitioner’s only business and its

only source of income.   Petitioner is an S corporation within the

meaning of section 1361(a)(1).

Joseph M. Grey

     Since petitioner’s organization, Mr. Grey has been

petitioner’s sole shareholder and its president.    Petitioner

rents part of Mr. Grey’s personal residence for use as an office

     2
      (...continued)
1122(b)(3), 110 Stat. 1766 (1996 Act). Sec. 7491, which shifts
the burden of proof to the Secretary in certain other
circumstances, does not apply to employment tax disputes. Sec.
7491(a)(1).
                               - 5 -

at a monthly rental of $500.   During 1995 and 1996, Mr. Grey

performed the following services for petitioner:

      1.   Solicited business on behalf of petitioner;
      2.   Ordered petitioner’s supplies;
      3.   Entered into verbal and/or written agreements on
           behalf of petitioner;
      4.   Oversaw the finances of petitioner;
      5.   Collected monies owed petitioner;
      6.   Managed petitioner;
      7.   Purchased petitioner’s supplies;
      8.   Obtained clients for petitioner;
      9.   Maintained customer satisfaction;
     10.   Performed all bookkeeping services for petitioner;
     11.   Performed all accounting, bookkeeping, and tax
           preparation services for petitioner on behalf of
           petitioner’s clients.

     During 1995 and 1996, all receivables collected by

petitioner were deposited into its checking account.    Mr. Grey

was the only person with signature authority over that account.

     During 1995 and 1996, petitioner did not make regular

payments at fixed times to Mr. Grey for his services.    Rather,

Mr. Grey would take money from petitioner’s account to pay for

his needs as they arose.

     Petitioner did not distribute any dividend to any

shareholder during 1995 or 1996, and petitioner did not classify

any payment made to Mr. Grey as a dividend in 1995 or 1996.

Petitioner’s Returns

     For each of 1995 and 1996, petitioner made its return

of income on a Form 1120S, U.S. Income Tax Return for an

S Corporation (the Forms 1120S).   Petitioner reported ordinary

income from business of $33,196 and $24,990 for 1995 and 1996,
                                - 6 -

respectively.   In calculating those amounts of ordinary income,

petitioner claimed no deductions for either compensation of

officers or salaries and wages.    Petitioner did claim deductions

for independent contractor fees in the amounts of $6,000 and

$7,200 for 1995 and 1996, respectively, and deductions for rent

in the amounts of $193 and $7,040, respectively, for those years.

Both the 1995 and the 1996 Form 1120S are signed by Mr. Grey, as

president of petitioner, and are dated January 18, 1996, and

December 26, 1997, respectively.

     For both 1995 and 1996, petitioner issued Mr. Grey a

Form 1099-MISC (the Forms 1099-MISC), reporting nonemployee

compensation of $6,000 and $7,200, respectively.   For both years,

petitioner transmitted copies of such forms to the Internal

Revenue Service by filing a Form 1096, Annual Summary and

Transmittal of U.S. Information Returns (the Forms 1096).    Both

the 1995 and the 1996 Form 1096 are signed by Mr. Grey, as

president of petitioner, and are dated January 12, 1996, and

March 18, 1997, respectively.   Petitioner also issued Mr. Grey

Schedules K-1, Shareholder’s Share of Income, Credits,

Deductions, Etc. (the Schedules K-1), showing that, for 1995 and

1996, his share of petitioner’s ordinary income from business was

$33,196 and $24,990, respectively.
                                   - 7 -

Mr. Grey’s Returns

       For each of 1995 and 1996, Mr. Grey made his return of

income on Form 1040, U.S. Individual Income Tax Return.       He

reported income from petitioner in the amounts shown on the

Schedules K-1; i.e., $33,196 and $24,990, for 1995 and 1996,

respectively.     For 1995, on Schedule C, Profit or Loss From

Business (Schedule C), he reported $6,000 classified as

“Management and Storage Rental of Office Space for Corporation,

and Management and Accounting Services:       1099-MISC received”.

For 1996, on Schedule C, he reported $7,200, without any

identification; on Form 4831, Rental Income, he reported $6,000

as rental income attributable to his personal residence.

                                 Discussion

I.   Statutory and Regulatory Background

       A.   Internal Revenue Code and Employment Tax Regulations

       Sections 3111 and 3301 impose employment taxes upon

employers under FICA and FUTA, respectively, based on wages paid

to employees.     Section 3121(d) defines the term “employee” for

purposes of the FICA tax.     With certain modifications not

relevant here, this definition applies for purposes of the FUTA

tax as well.     Sec. 3306(i).

       Under section 3121(d)(2), the term “employee” includes any

individual who has the status of an employee under the common

law.    Paragraphs (1), (3), and (4) of section 3121(d) describe
                                - 8 -

other individuals who are considered employees regardless of

their status under the common law.      Individuals described in

those paragraphs are commonly referred to as “statutory”

employees.   One such category of statutory employees consists of

officers of corporations.   Sec. 3121(d)(1).     Section 31.3121(d)-

1(b), Employment Tax Regs., limits that category as follows:

           (b) Corporate officers.–-Generally, an officer of
     a corporation is an employee of the corporation.
     However, an officer of a corporation who as such does
     not perform any services or performs only minor
     services and who neither receives nor is entitled to
     receive, directly or indirectly, any remuneration is
     considered not to be an employee of the corporation.
     * * *

Section 31.3306(i)-1(e), Employment Tax Regs., contains a like

limitation specifically applicable to the FUTA tax.

     B.    Section 530 of the Revenue Act of 1978

     Section 530 provides in relevant part as follows:

     SEC. 530. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS
               ARE EMPLOYEES FOR PURPOSES OF THE EMPLOYMENT
               TAXES.

     (a)   Termination of certain employment tax liability--

           (1) In general.–-If–-

                (A) for purposes of employment taxes, the
           taxpayer did not treat an individual as an
           employee for any period, and

                (B) in the case of periods after December 31,
           1978, all Federal tax returns (including
           information returns) required to be filed by the
           taxpayer with respect to such individual for such
           period are filed on a basis consistent with the
           taxpayer’s treatment of such individual as not
           being an employee,
                         - 9 -

then, for purposes of applying such taxes for such
period with respect to the taxpayer, the individual
shall be deemed not to be an employee unless the
taxpayer had no reasonable basis for not treating such
individual as an employee.

     (2) Statutory standards providing one method of
satisfying the requirements of paragraph (1).-–For
purposes of paragraph (1), a taxpayer shall in any case
be treated as having a reasonable basis for not
treating an individual as an employee for a period if
the taxpayer’s treatment of such individual for such
period was in reasonable reliance on any of the
following:

          (A) judicial precedent, published
     rulings, technical advice with respect to the
     taxpayer, or a letter ruling to the taxpayer;

          (B) a past Internal Revenue Service audit of
     the taxpayer in which there was no assessment
     attributable to the treatment (for employment tax
     purposes) of the individuals holding positions
     substantially similar to the position held by this
     individual; or

          (C) long-standing recognized practice of a
     significant segment of the industry in which such
     individual was engaged.

               *    *    *       *   *   *   *

     (b) Prohibition against regulations and ruling on
employment status.-– No regulation or Revenue Ruling
shall be published on or after the date of the
enactment of this Act * * * and before the effective
date of any law hereafter enacted clarifying the
employment status of individuals for purposes of the
employment taxes by the Department of the Treasury
(including the Internal Revenue Service) with respect
to the employment status of any individual for purposes
of the employment taxes.

(c) Definitions.-–For purposes of this section--

               *    *    *       *   *   *   *
                                - 10 -

            (2) Employment status.-–The term “employment
       status” means the status of an individual, under the
       usual common law rules applicable in determining the
       employer-employee relationship, as an employee or as an
       independent contractor (or other individual who is not
       an employee).

                  *    *    *    *    *    *      *

       (e)   Special rules for application of section.--

            (1) Notice of availability of section.--An
       officer or employee of the Internal Revenue Service
       shall, before or at the commencement of any audit
       inquiry relating to the employment status of one or
       more individuals who perform services for the taxpayer,
       provide the taxpayer with a written notice of the
       provisions of this section.

II.    Mr. Grey’s Status as an Employee for Employment Tax Purposes

       A.    Petitioner’s S Corporation Theory

       As a preliminary matter, we summarily reject petitioner’s

argument that, because it is an S corporation that has passed its

net income through to Mr. Grey as its sole shareholder pursuant

to section 1366, there can be no employer-employee relationship

between it and Mr. Grey.     That argument is similar to the

argument made by the taxpayer in Veterinary Surgical Consultants,

P.C. v. Commissioner, 117 T.C. 141, 145 (2001), a case in which,

it appears, the taxpayer was advised by Mr. Grey, who was the

source of the taxpayer’s argument there.       See id. at 143-144.    We

shall not here repeat our refutation of that argument, which can

be found in Veterinary Surgical Consultants, P.C.       Id. at 145-

146.
                                  - 11 -

       B.      Petitioner’s Reliance on the Common Law

       Petitioner further asserts that, notwithstanding section

3121(d)(1), a corporate officer is not an employee for employment

tax purposes unless he or she is an employee under the common

law.       Petitioner bases that argument on the following language

from Tex. Carbonate Co. v. Phinney, 307 F.2d 289, 291-292 (5th

Cir. 1962):

            The statutory definition of “employees” as
       including officers of a corporation will not be so
       construed as to mean that an officer is an employee per
       se. * * * in determining whether an officer is an
       employee within the meaning of the statutes the usual
       employer-employee tests are to be applied. * * *

Petitioner then argues that Mr. Grey was not an employee at

common law because petitioner never exercised control over

Mr. Grey in the performance of his services.3

       Even if the common law control factor were relevant to our

analysis,4 petitioner has failed to prove that it did not

       3
        We note that petitioner ignores the following additional
language from Tex. Carbonate Co. v. Phinney, 307 F.2d 289, 292
(5th Cir. 1962):

       Even though an absence of control is shown, and this as
       we have noted has not been done, the force of the
       factor is diminished to near de minimis by the fact
       that * * * [the service provider] himself was a member
       of the Board of Directors, a Vice President, and the
       executive of the Company in charge of its sales and the
       development of its markets. * * *
       4
        Secs. 31.3121(d)-1(b) and 31.3306(i)-1(e), Employment Tax
Regs., discussed in part I.A., supra, were promulgated after the
years at issue in Tex. Carbonate Co. v. Phinney, supra.
                                                   (continued...)
                              - 12 -

exercise control over Mr. Grey in the performance of his

services.   In that regard, we note that Mr. Grey chose to do

business in corporate form through petitioner.   His assertion

before this Court (on behalf of petitioner) that petitioner

logically cannot exercise control over him in the performance of

his services (presumably owing to his dual role as service

provider to, and sole shareholder of, petitioner) amounts to a

request that we disregard the corporate form in deciding the

issue before us.   That we shall not do.   See Moline Props. Inc.

v. Commissioner, 319 U.S. 436 (1943).5

     4
      (...continued)
Moreover, the FUTA definition of “employee” in effect for such
years, while stating the general rule that such term includes
corporate officers, appears to have contemplated that a corporate
officer could be an independent contractor under the common law,
in which case the officer would not be treated as an employee for
FUTA purposes. See, e.g., sec. 1607(i), I.R.C. 1939. In light
of the regulatory and statutory developments that occurred after
the years at issue in Tex. Carbonate Co. v. Phinney, 307 F.2d at
291-292, the Court of Appeals’ conclusion therein that “the usual
employer-employee tests are to be applied” in determining the
status of a corporate officer for employment tax purposes may no
longer be relevant. See C.D. Ulrich, Ltd. v. United States, 692
F. Supp. 1053, 1055 (D. Minn. 1988) (“Under both the weight of
the case law and under the treasury regulations, a corporate
officer is to be treated as an employee if he renders more than
minor services.”).
     5
        Petitioner also cites Automated Typesetting, Inc. v.
United States, 527 F. Supp. 515 (E.D. Wis. 1981) in support of
its position that common law factors should control in
determining whether a corporate officer is an employee for
employment tax purposes. The court in Automated Typesetting,
Inc., however, did not eschew the statutory mandate regarding
classification of corporate officers; rather, it simply found
that the individuals in question were employees under a common
                                                   (continued...)
                                - 13 -

     C.      Employee Status Under Section 3121(d)(1)

     Having disposed of petitioner’s principal arguments, we turn

next to the rather straightforward application of section

3121(d)(1).     The parties have stipulated that Mr. Grey was an

officer of petitioner’s (president) and that he performed

numerous services for petitioner.     As a practical matter, those

stipulations tend to establish Mr. Grey’s status as an employee

under section 3121(d)(1) and section 31.3121(d)-1(b), Employment

Tax Regs.     However, it is conceivable that Mr. Grey was not

acting in his capacity as president when he performed such

services.6    For the sake of completeness, we now address that

possibility.

     The parties did not stipulate whether Mr. Grey performed the

services in question as petitioner’s president or in some other

capacity (i.e., as an independent contractor).     However, we think

it a fair inference that Mr. Grey performed such services as

petitioner’s president.     We know that he was president and that

he performed numerous services, and there is no convincing

evidence, such as a service agreement, that petitioner engaged

     5
      (...continued)
law analysis as well. Petitioner’s focus on the court’s
discussion of common law factors is therefore misplaced.
     6
        See Rev. Rul. 82-83, 1982-1 C.B. 151, 152 (“It is a
question of fact in all cases whether officers of a corporation
are performing services within the scope of their duties as
officers or whether they are performing services as independent
contractors.”).
                                    - 14 -

him to perform such services as an independent contractor rather

than as president.7         The only evidence that Mr. Grey may have

provided services to petitioner in a capacity other than as

president is the Forms 1099-MISC reporting nonemployee

compensation of $6,000 and $7,200 for 1995 and 1996,

respectively.       Since those forms were prepared only for tax

purposes and are uncorroborated, we give them no weight.

       D.      Conclusion

       We find that Mr. Grey performed numerous services for

petitioner in his capacity as petitioner’s president and that he

was therefore an employee of petitioner’s for employment tax

purposes as provided in section 3121(d)(1).

III.       Availability of Section 530 Relief

       A.     In General

       Section 530(a)(1) provides that an individual will be deemed

not to be an employee of the taxpayer’s for employment tax

purposes, notwithstanding the actual relationship between the

taxpayer and the individual, if the taxpayer satisfies three

requirements.       First, the taxpayer must not have treated the

individual as an employee for any period.         Second, the taxpayer

must have consistently treated the individual as not being an

       7
        See also Van Camp & Bennion v. United States, 251 F.3d
862, 866 (9th Cir. 2001) (“fundamental decisions regarding the
operation of the corporation * * * are customarily made by
corporate officers or other employees”).
                              - 15 -

employee on all tax returns for periods after December 31, 1978.

Third, the taxpayer must have had a reasonable basis for not

treating the individual as an employee.   To qualify for relief

under section 530(a)(1), a taxpayer must satisfy all three

requirements.

     Respondent concedes that petitioner meets the first

requirement and does not argue that petitioner fails to meet the

second requirement.   Rather, respondent asserts that petitioner

fails to meet the third requirement; i.e., respondent asserts

that petitioner had no reasonable basis for not treating Mr. Grey

as an employee.

     B.   Reasonable Basis

     Section 530(a)(2) provides a safe harbor for satisfying the

reasonable basis requirement of section 530(a)(1).   Under that

safe harbor, a taxpayer will be treated as having a reasonable

basis for not treating an individual as an employee if it can

establish that, in so treating the individual, it reasonably

relied on the existence of any of the circumstances listed in

subparagraphs (A), (B), and (C) of section 530(a)(2).8   The

parties did not stipulate whether petitioner relied on any of the

     8
        Sec. 530(e)(4) provides that, if a taxpayer makes a prima
facie case that it meets the requirements of the sec. 530(a)(2)
safe harbor, then the Secretary bears the burden of proving
otherwise. Sec. 530(e)(4) does not apply to the periods here at
issue, see supra note 2, and, in any event, petitioner has not
made such a prima facie case.
                              - 16 -

circumstances set forth in section 530(a)(2), and nothing else in

the record establishes what, if anything, petitioner relied on

during the periods at issue in not treating Mr. Grey as an

employee.   Accordingly, petitioner must establish the

reasonableness of its treatment of Mr. Grey without the aid of

section 530(a)(2).

     Petitioner cites Tex. Carbonate Co. v. Phinney, 307 F.2d 289

(5th Cir. 1962), and Automated Typesetting, Inc. v. United

States, 527 F. Supp. 515 (E.D. Wis. 1981), in support of its

assertion that it had a reasonable basis for not treating

Mr. Grey as an employee.   We have already discounted petitioner’s

reliance on those cases in our rejection of petitioner’s argument

that the determination of whether a corporate officer is an

employee for employment tax purposes is based on the application

of common law factors.   For the reasons discussed in part II.B.,

supra, and in light of section 3121(d)(1) and section 31.3121(d)-

1(b), Employment Tax Regs., we conclude that those cases do not

provide petitioner a reasonable basis for not treating Mr. Grey

as an employee.   Indeed, one might fairly question whether it is

ever reasonable for a taxpayer to treat a statutory employee as a

nonemployee for employment tax purposes; i.e., whether a service

provider’s status as a statutory employee precludes the

application of section 530.   So far as we are aware, no court has

ever squarely addressed this issue.    As discussed below, our own
                               - 17 -

analysis of the statute and its history leads us to the

conclusion that section 530 is limited to controversies involving

the employment tax status of service providers under the common

law (i.e., controversies involving persons who are not statutory

employees).    This conclusion provides an alternative ground for

denying petitioner relief under section 530.

     C.    Analysis of the Scope of Section 530

     Although subsection (a) of section 530 by its terms is not

limited to situations involving worker classification under the

common law, the same cannot be said of subsections (b)

(moratorium on further guidance) and (e)(1) (notice requirement)

of section 530.    See sec. 530(c)(2), defining the term

“employment status”, which appears in subsections (b) and (e)(1),

in terms of “the usual common law rules applicable in determining

the employer-employee relationship”.    While it can be argued that

the restricted scope of the moratorium in subsection (b) is not

necessarily inconsistent with a broad interpretation of the

relief provision of subsection (a), such an argument is more

problematic as applied to the notice requirement of subsection

(e)(1).9   That is, under a broad interpretation of subsection

(a), some taxpayers who are eligible for relief under that

     9
        Sec. 530(e)(1) applies to audits commencing after
Dec. 31, 1996. 1996 Act sec. 1122(b)(2). Because we refer to
sec. 530(e)(1) solely in conjunction with our interpretation of
sec. 530(a), we need not determine (and the parties have not
established) whether sec. 530(e)(1) itself applies to this case.
                               - 18 -

subsection would be entitled to notice of the existence of such

relief in accordance with subsection (e)(1), while other

potentially eligible taxpayers would not be entitled to such

notice.   It is difficult to conceive that Congress intended such

a bifurcated notice provision.

     The history of the enactment of section 530 confirms that

Congress did not intend section 530(a) to apply in the case of a

statutory employee.   H. Rept. 95-1748 (1978), 1978-3 C.B. (Vol.

1) 629, is the report of the Committee on Ways and Means (the

committee) that accompanied H.R. 14159, 95th Cong., 2d Sess.

(1978), the text of which was generally followed by the

conference committee in formulating the conference agreement that

was enacted as section 530 of the Revenue Act of 1978, Pub. L.

95-600, 93 Stat. 2885.    See H. Conf. Rept. 95-1800 (1978), 1978-3

C.B. (Vol. 1) 521, 605.   In H. Rept. 95-1748 at 3 (1978), supra,

1978-3 C.B. at 631, the committee reports:   “With certain limited

statutory exceptions, the classification of particular workers or

classes of workers as employees or independent contractors (self-

employed persons) for purposes of Federal employment taxes must

be made under common law rules.”    The committee states as

reasons for a change in the law (1) increased enforcement by the

Internal Revenue Service (IRS) of the employment tax laws and

     (2) complaints by taxpayers that proposed reclassifications

by the IRS involve a change of position by the IRS in
                              - 19 -

interpreting how the common law rules apply to their workers or

industry.   Id. at 3-4, 1978-3 C.B. (Vol. 1) at 631-632.    The

committee describes H.R. 14159, supra, as follows:

          The bill provides an interim solution for
     controversies between the Internal Revenue Service and
     taxpayers involving whether certain individuals are
     employees under interpretations of the common law by –-

          (1) terminating certain employment tax liabilities
     for periods ending before January 1, 1979,

          (2) allowing taxpayers, who had a reasonable basis
     for not treating workers as employees in the past, to
     continue such treatment without incurring employment
     tax liabilities for periods ending before January 1,
     1980, while the committee works on a comprehensive
     solution, and

          (3) prohibiting the issuance of Treasury
     regulations and Revenue Rulings on common law status
     before 1980.

Id. at 4, 1978-3 C.B. (Vol. 1) at 632.

     As evidenced by   H. Rept. 95-1748 (1978), supra, the purpose

of H.R. 14159, supra, was to provide an interim solution to

controversies over common law employment status by, in part,

allowing taxpayers who had a reasonable basis for not treating

workers as employees under the traditional common law tests to

continue to do so, while Congress worked on a comprehensive

solution to the common law classification problem.   There is no

suggestion in H. Rept. 95-1748, supra, of any controversy

concerning the classification of workers as statutory employees

that required any solution (interim or comprehensive) by

Congress.   It is, therefore, a fair inference that the reasonable
                                - 20 -

basis provision was intended only as an interim solution to

disputes over common law employment status.

       The subsequent history of section 530 is consistent with the

history described above.    By amendments to section 530, the

interim solution encompassed in H.R. 14159, supra, has been

extended indefinitely.     There is no indication in the legislative

history of these amendments that Congress sought to solve any

problem with respect to the classification of statutory

employees.    Most recently, Congress amended section 530 by adding

subsection (e) thereto pursuant to section 1122 of the Small

Business Job Protection Act of 1996, Pub. L. 104-188, 110 Stat.

1766 (1996 Act).    H. Conf. Rept. 104-737 (1996), 1996-3 C.B. 741,

is the conference committee report that accompanied H.R. 3448,

104th Cong., 2d Sess. (1996), which, as enacted, became the 1996

Act.    H. Conf. Rept. 104-737, at 199 (1996), 1996-3 C.B. 741,

939, makes clear the conferees’ view: “[Section 530] generally

allows a taxpayer to treat a worker as not being an employee for

employment tax purposes * * *, regardless of the individual’s

actual status under the common-law test, unless the taxpayer has

no reasonable basis for such treatment.”

       D.   Conclusion

       We find that petitioner is not entitled to relief under

section 530 on the alternative grounds that (1) petitioner had no

reasonable basis for not treating Mr. Grey as an employee, and
                              - 21 -

(2) relief under section 530 is not available with respect to

statutory employees.

IV.   Summary

      We have found that Mr. Grey was an employee of petitioner’s

within the meaning of section 3121(d)(1) and that petitioner is

not entitled to relief under section 530.     Therefore, petitioner

is liable for Federal employment taxes for the periods at issue

as set forth in respondent’s notice.

      To reflect the foregoing,

                                       Decision will be entered for

                                  respondent and in accordance with

                                  the parties’ stipulations as to

                                  amounts.