Court Opinion

ID: 4472414
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:25:03.994447+00
Date Added: 2024-06-11T14:50:20.499772
License: Public Domain

Laro, J., dissenting: The majority clings tightly to the principles underlying the “team-sports doctrine” developed in Sargent v. Commissioner, 93 T.C. 572 (1989), revd. 929 F.2d 1252 (8th Cir. 1991).1 With this adherence, I cannot agree and must respectfully dissent. The judicially created team-sports doctrine is an unprecedented alternative test first applied in Sargent v. Commissioner, supra. This doctrine negated the first prong of the traditional two-prong control test which had evolved from the assignment of income rule enunciated in Lucas v. Earl, 281 U.S. 111, 115 (1930).2 The majority claims a disavowal of the team-sports doctrine, but espouses a chameleonic “manner and means” test under which a team athlete will be precluded from incorporating his or her services. Although the majority acknowledges that “the mere use of the word ‘team’ to describe the organization that is the recipient of personal services is not determinative of employer status”, majority op. p. 152, I am unable to envision a situation when a member of a “team” could incorporate his or her services under the majority’s manner and means test.3 The manner and means test is merely the Sargent team-sports doctrine reintroduced and redesigned under yet another name. I ask myself “What’s in a name?” and I conclude “that which we call a rose By any other name would smell as sweet”. Shakespeare, Romeo and Juliet, act II, sc. ii, 43. The typical personal service corporation (PSC) scenario involves three players: A PSC, its shareholder/service provider, and a service recipient. As explained below, the focus of the traditional assignment of income methodology is on the relationships between the service provider and his or her PSC, on the one hand, and the PSC and the service recipient, on the other.4 The team-sports doctrine changes this focus. The team-sports doctrine concentrates primarily on the relationship between the service provider and the service recipient. The manner and means test does likewise. Indeed, the manner and means test forces the Court to examine meticulously the relationship between a service recipient and service provider, and determine whether the service recipient “controls” the service provider notwithstanding a bona fide employment contract that was executed between the service provider and his or her PSC. In the case of a member of a team sport, such as petitioner, he or she will never meet the majority’s manner and means test due to, for example: (1) The perceived control that a coach has over the team’s members, (2) the need for team members to blend their talents and perform as a team in order to win, and (3) the inherent impossibility for each member of the team to schedule independently when, where, and how he or she will furnish his or her services to the team. The Court developed the team-sports doctrine in Sargent v. Commissioner, supra at 580, based on the Court’s belief that the nature of team sports “involves a high level of control over player activity by coaches and managers”. Id. at 580. The majority opinion states that it is not applying this doctrine to the facts at hand. Instead, the majority pronounces, a service provider (and not his or her PSC) is the earner of income if the facts and circumstances show that “the service recipient has the right to control the manner and means by which the services are performed.” Majority op. pp. 149, 154-155. In making its pronouncement, the majority appears to recognize that it is inappropriate to deny the right to incorporate to an individual merely because he or she is a member of a team. At the same time, however, the majority adopts a manner and means test that leads to the same result. The majority’s attempt to dignify its result by utilizing this facts and circumstances test is not persuasive. The rules that apply to assignment of income cases involving a PSC and its sole shareholder/service provider have been firmly embedded in our jurisprudence throughout the last 65 years. In Justice Oliver Wendell Holmes’ seminal opinion in Lucas v. Earl, 281 U.S. Ill (1930), the Supreme Court enunciated the bedrock principle that income is taxed to him or her who earns it. Assignments of income, “however skillfully devised”, cannot escape Federal income taxation by anticipatory arrangements. Id. at 115; see also United States v. Basye, 410 U.S. 441, 449-451 (1973); Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949). Pursuant to the Court’s directive, courts continue to dissect skillfully devised arrangements to determine the true earner of income. The instant case, involving a professional basketball player and his wholly owned personal service corporation, requires this Court to do just that. In so doing, we must: (1) Consider Justice Holmes’ opinion in Lucas v. Earl, supra, and its progeny, and (2) reconsider the core of our opinion in Sargent v. Commissioner, supra. In Lucas v. Earl, supra, a husband and wife agreed to be joint tenants of all the property acquired by them during their marriage. The husband later earned salary and fees from personal service contracts to which his wife was not a party. The husband allocated 50 percent of this income to his wife pursuant to their agreement. Respondent disregarded their agreement and determined that the husband was taxable on 100 percent of his personal service income. Id. at 113-114. In upholding respondent’s determination, the Supreme Court stated: There is no doubt that * * * [a predecessor to section 61] could tax salaries to those who earned them and provide that the tax could not be escaped by anticipatory arrangements and contracts however skillfully devised to prevent the salary when paid from vesting even for a second in the man who earned it. That seems to us the import of the statute before us and we think that no distinction can be taken according to the motives leading to the arrangement by which the fruits are attributed to a different tree from that on which they grew. [Lucas v. Earl, supra at 114-115.] This assignment of income doctrine, however, does not exist in a vacuum. The doctrine coexists with other, equally well-settled rules of tax law. For example, in Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 438-439 (1943), the Supreme Court stated that a wholly owned corporation is a separate taxable entity that can operate only through its employees, and an individual can minimize his or her taxes through a corporate form of business. As long as the corporation is involved in a legitimate business activity, the Court stated, any tax advantages properly flowing from incorporation are free from attack by the Government.5 As the Court stated: The doctrine of corporate entity fills a useful purpose in business life. Whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator’s personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity. * * * [Moline Properties, Inc. v. Commissioner, supra at 438-439; fn. refs, omitted.] With the tension between Lucas v. Earl, supra, and Moline Properties, Inc. v. Commissioner, supra, in mind, this Court pronounced: “The policy favoring the recognition of corporations as entities independent of their shareholders requires that we not ignore the corporate form so long as the corporation actually conducts business.”6 Keller v. Commissioner, 77 T.C. 1014, 1031 (1981), affd. 723 F.2d 58 (10th Cir. 1983). The majority disregards this pronouncement. Indeed, the taxpayer today is similar to the taxpayer in Keller v. Commissioner, supra. In Keller v. Commissioner, supra, respondent challenged a wholly owned professional corporation formed by a pathologist to hold his partnership interest in a medical partnership. Contemporaneously with forming this corporation, the pathologist agreed to render his services to the corporation in exchange for the corporation’s paying him certain annual compensation. Id. at 1016-1017. Respondent argued then, as she similarly argues today, that the pathologist was taxable on 100 percent of the income received by the professional corporation under the doctrines of lack of business purpose and substance over form, and because the pathologist was the “true earner” of the income. Respondent argued that the pathologist’s formation of the professional corporation accompanied by his execution of the employment contract constituted an anticipatory assignment of income to the corporation. Id. at 1030. This Court rejected respondent’s arguments. The Court recognized the existence of the pathologist’s professional corporation and refused to reallocate the income from the corporation to the service-provider/pathologist under the assignment of income doctrine. The Court observed that an employer/employee relationship existed in the case, stating that “We find that an employment relationship was created in this case by the employment agreement and that it was maintained by the parties to the agreement after the execution”.7 Id. at 1032. Our approach in Keller v. Commissioner, supra with respect to the assignment of income issue was followed in Haag v. Commissioner, 88 T.C. 604, 610-614 (1987), affd. without published opinion 855 F.2d 855 (8th Cir. 1988); Bagley v. Commissioner, 85 T.C. 663, 674-676 (1985), affd. 806 F.2d 169 (8th Cir. 1986); Johnson v. Commissioner, 78 T.C. 882, 889-892 (1982), affd. without published opinion 734 F.2d 20 (9th Cir. 1984); Pacella v. Commissioner, 78 T.C. 604, 622 (1982); and Pflug v. Commissioner, T.C. Memo. 1989-615. In each of these cases, the Court held that income was not reallocable from a PSC to the service-provider under the assignment of income doctrine if the service-provider met both prongs of a two-prong control test evolving from case law beginning with Lucas v. Earl, 281 U.S. at 115.8 Johnson v. Commissioner, supra at 891; see also sec. 31.3121(d)-1(c)(2), Employment Tax Regs. Under this two-prong test, a PSC controls the service-provider, and, hence, earns the income, if: (1) The service-provider is an employee of the PSC, and the PSC has the right to direct and control him or her in a meaningful sense,9 see, e.g., Vnuk v. Commissioner, 621 F.2d 1318, 1320-1321 (8th Cir. 1980), affg. T.C. Memo. 1979-164; Bagley v. Commissioner, supra at 675-676; and (2) the PSC and the service-recipient have a contract or similar indicium recognizing the controlling position of the PSC, see, e.g., Pacella v. Commissioner, supra at 622; see also Haag v. Commissioner, supra at 612-614 (second prong met despite absence of written or formal contract between PSC and service-recipient; employment agreement existed between PSC and service-provider, and the service-recipient recognized the PSC as the entity through which the service-provider performed his services); Johnson v. Commissioner, supra at 893 (PSC was not the controller of the service-provider; as stated by the Court: “Crucial is the fact that there was no contract or agreement between the * * * [service-recipient] and * * * [the PSC]”). In connection with this two-prong test, Professors Bittker and Eustice have stated that Although the contours of this bifurcated control over the income test remain to be developed by the courts, a contract between a personal service corporation and its shareholder-employee should ordinarily be effective unless it (1) fails to supersede a prior contract between the shareholder-employee and the customers to whom the services are rendered, (2) is disregarded in practice, or (3) is ineffective under local law because the corporation cannot legally practice in the area. [Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders, par 2.07[2], at 2-26 (5th ed. 1987); fn. ref. omitted.] As she did in Sargent v. Commissioner, 93 T.C. 572 (1989), revd. 929 F.2d 1252 (8th Cir. 1991), respondent urges us to reject this two-prong test and apply the team-sports doctrine that she advocated in Sargent.10 Currently viewing this issue in the light of a different record, and with the benefit of the opinion of the Court of Appeals for the Eighth Circuit, we should decline respondent’s invitation to abandon the traditional assignment of income analysis. Instead, we should decide the Sargent v. Commissioner, supra, issue according to the traditional analysis, generally developed by the Supreme Court and this Court, and the contract theory enunciated by the Court of Appeals for the Eighth Circuit in Sargent v. Commissioner, 929 F.2d 1252 (8th Cir. 1991). We should not depart from this analysis because: (1) Lucas v. Earl, supra, and its progeny, provides a solid framework on which to decide the issue herein, (2) contrary tests, such as the team-sports doctrine and the manner and means test, are not adequate barometers for resolving a claim of an assignment of income because they disregard any valid contractual relationship existing between the employer and employee, and (3) it is inconsistent to apply a contrary method to an athlete merely because he or she is a member of a judicially defined team. In Sargent v. Commissioner, supra, each taxpayer was a professional hockey player who formed a wholly owned PSC to negotiate with his professional hockey team, the club.11 Each taxpayer entered into an employment agreement with his PSC whereby the taxpayer agreed that he would exclusively perform services for the PSC as a professional hockey player and consultant. On the same day, each PSC entered into an agreement with the club whereby the PSC primarily agreed to furnish to the club the services of its employee/taxpayer as a hockey player and consultant; in return, the club agreed to pay the PSC specified remuneration. Each taxpayer, his PSC, and the club also entered into an agreement whereby: (1) The PSC represented to the club that the PSC had the right to cause its employee to perform services on its behalf, and (2) the PSC would cause the employee to perform the agreed-upon services to the club in order to fulfill the PSC’s obligations under the agreement.12  Following the execution of these agreements, each taxpayer played hockey for the club pursuant to his exclusive agreement with his PSC, and the club remitted payments for each taxpayer’s services directly to his PSC. Each PSC, in turn, paid a portion of the payments to the taxpayer and contributed another portion of the payments to the PSC’s pension plan. Each PSC withheld Federal income taxes and withheld and paid employment taxes in connection with the payments that it made to its employee/taxpayer. Sargent v. Commissioner, 93 T.C. at 573-577. The Court held that each taxpayer was taxable on the entire amount paid to his PSC by the club. In so holding, the Court stated that the facts presented “a classic situation for the application of the assignment of income doctrine articulated in Lucas v. Earl, 281 U.S. 111 (1930), and its progeny,” and turned aside our traditional analysis for deciding assignment of income cases, reasoning that “the nature of team sports is a critical element which must be taken into account in determining the existence of an employer/employee relationship in accordance with common law principles”13 Sargent v. Commissioner, 93 T.C. at 579-581, 583. Based on this “critical element”, the Court proceeded to hold that each taxpayer was controlled by his team, the club, rather than his PSC. The Court held that each taxpayer was an employee of the club, rather than his PSC, and was taxable on the amounts paid by the club to his PSC for his services. Id. at 583. The Court of Appeals for the Eighth Circuit disagreed. The appellate court firmly rejected the team-sports doctrine and focused on the contractual relationship between each taxpayer and his PSC. Sargent v. Commissioner, 929 F.2d at 1258. In holding that the amounts were taxable to the psc’s, the appellate court determined that section 31.3121(d)-1(c)(2), Employment Tax Regs., and this Court’s prior opinions, directed that the psc’s (and not the club) were the employers of the taxpayers because both prongs of the two-prong test were met; namely: (1) Each taxpayer was an employee of his PSC whom the PSC had the right to direct or control in some meaningful way; and (2) a contract or similar indicium recognizing the psc’s controlling position existed between each PSC and the club. Respondent contends that the Court of Appeals for the Eighth Circuit erroneously reversed our decision in Sargent v. Commissioner, supra. Respondent argues in her brief that “the Eighth Circuit employed a superficial form over substance analysis relying on the mere existence of the taxpayers’ contracts with their respective * * * [psc’s], rather than the control imposed directly on the taxpayers by the team’s coaching staff and management.” (Emphasis added.) The majority agrees. Majority op. p. 154. Both are mistaken. The PSC’s right to control its employee/taxpayer in Sargent v. Commissioner, supra, was evidenced by more than the “mere existence” of the employment contract. The contractual relationships at issue there met the two-prong control test mentioned above.14 The majority’s holding to the contrary fails to appreciate the well-settled principle that a wholly owned corporation is an entity separate and apart from its shareholder. See, e.g., Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943). The majority’s disregard for this well-settled principle is clearly seen from its following statement: “we believe that Judge Arnold’s dissent in Sargent captured the essence of that case when he wrote: ‘The idea that the coach issued orders to Sargent and Christoff in their capacity as corporate officers, which orders they then relayed to themselves as corporate employees, is fanciful.’” Majority op. p. 155. As a point of fact, this “fanciful” scenario is present (and, with the exception of today, respected) in any solely owned corporation setting where the sole shareholder is also an officer and employee of the corporation. The fact that an individual shareholder may serve simultaneously in the role of officer and employee of his or her wholly owned corporation is indisputable and flows naturally from the fact that he or she may form such a corporation. The majority states that “the most important factor” for deciding the issue at hand is the “right to control the manner and means by which the individual service provider renders the services for which compensation is being paid.” Majority op. p. 155. I disagree. The fact that the majority is mistaken is seen from our opinions outside of Sargent v. Commissioner, supra. For example, the facts of the instant case are similar to the facts of Johnson v. Commissioner, 78 T.C. 882 (1982), affd. without published opinion 734 F.2d 20 (9th Cir. 1984). In Johnson the taxpayer (Johnson) was a basketball player with the San Francisco Warriors (Warriors) of the National Basketball Association (NBA). In 1974, Johnson signed a contract with an unrelated corporation (pmsa) that: (1) Gave PMSA the right to Johnson’s services in professional sports for 6 years starting on August 16, 1974, (2) gave PMSA the right to control Johnson’s services in professional sports, and (3) obligated PMSA to pay Johnson $1,500 a month. Johnson also signed a Uniform Player Contract with the Warriors that obligated him to play basketball for the Warriors for the 1974-75 and 1975-76 basketball seasons. Id. at 884. In the following year, 1975, Johnson assigned his rights under the 1974 Uniform Player Contract to a second unrelated corporation (EST). The Warriors remitted the contract payments for Johnson’s services directly to EST following that assignment. In deciding the assignment of income issue there, the Court did not discuss the majority’s means and methods test. The Court simply applied the two-prong test. With respect to the first prong, the Court looked solely to the contracts to determine whether it was met: we accept arguendo that the * * * [PMSA-Johnson] agreement was a valid contract which required the payments with respect to * * * [Johnson’s] performance as a basketball player ultimately to be made to PMSA or EST. * * * We also accept arguendo that the * * * [PMSA-Johnson] agreement gave PMSA a right of control over * * * [Johnson’s] services * * *. Thus, the first element is satisfied. * * * [Johnson v. Commissioner, supra at 891-892.15] Likewise, in Pflug v. Commissioner, T.C. Memo. 1989-615, a case involving a taxpayer/actress, the Court passed on whether the taxpayer was an employee of a PSC or an independent contractor.16 As we had done in Johnson v. Commissioner, supra, the Court looked exclusively to the two-prong control test and concluded that the taxpayer was the PSC’s employee. The Court relied solely on the contract between the taxpayer and the PSC and held that the PSC had the right to control the taxpayer by virtue of its employment contract with her. As later observed by the Court of Appeals for the Eighth Circuit in Sargent v. Commissioner, 929 F.2d at 1257: of producing a successful TV series. More importantly, just as a hockey player has a generalized set of plays tailored to fit his talents and the talents of his teammates, so, too, Ms. Pflug’s “plays” included movements carefully choreographed to mesh with other cast members, a script prepared for her to follow, cue cards to insure that little or no deviation from the designed “play” occurred, and numerous retakes to guarantee that ultimate control vested in the hands of the studio, not Ms. Pflug’s PSC. Nevertheless, the Tax Court concluded that Ms. Pflug was an employee of her PSC. This Court is perplexed to find that those same contractual arrangements which were dispositive of the issue of “control” in Pflug were summarily discarded in the case before us. By the same token, those same “team” factors which were dispositive of the ijssue of control in the case before us were not even discussed in Pflug. Was not Joanne Pflug a part of a team every bit as “controlled” as Sargent and Christoff? Like a hockey team in which different players assume different roles to insure success, the members of Pflug’s team included the cast, writers, directors, and producers all working toward the common goal There can be little question that Ms. Pflug was part of a team under more stringent production controls than those placed on either Sargent or Christoff by the Club. But, as the Tax Court concluded, “ * * * by virtue of the contract [Pflug] entered with Charwool [the PSC], Charwool had the requisite right to control [Pflug].” * * * Appellants’ contractual arrangements, which were every bit as bona fide as those entered into by Ms. Pflug, should and do provide the requisite control for Appellants to be considered employees of their respective PSCs. [Fn. ref. and citation omitted.] Accordingly, reverting to the traditional approach and applying the two-prong control test to the case at hand, I would hold that both prongs were met. With regard to the first prong, petitioner was corporation’s employee, and corporation had the right to (and in fact did) control him in a meaningful sense. Corporation was a valid corporation formed under the laws of Texas for legitimate business purposes; i.e., to serve as petitioner’s employer for his basketball services, personal appearances, and endorsement opportunities.17 Corporation also continuously operated in a businesslike manner, e.g., corporation followed corporate formalities, had its own checking account, filed tax returns, incurred liabilities, had a payroll, and entered into contracts. Although petitioner may have formed corporation, in part, with an eye towards minimizing taxation, “one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), affd. 293 U.S. 465 (1934). With regard to petitioner’s relationship with corporation, petitioner was corporation’s employee. Petitioner agreed to provide his exclusive basketball services to third parties in his capacity as an employee of corporation, and corporation had the right to “sell” petitioner’s services to any team during the time period specified in the 1984 Uniform Player Contract. Corporation also had the right to designate the professional basketball team for which petitioner would play basketball and had the right to dictate the time and place of petitioner’s personal appearances and endorsement opportunities. Although petitioner did not introduce into evidence a written employment contract between himself and corporation, I, as the trier of fact, found the trial witness’ testimony on the existence of such an employment agreement to be credible and undisputed by respondent. The following facts also exemplify the existence of an employment agreement between corporation and petitioner: (1) Corporation was specifically formed to serve as petitioner’s employer for his basketball services, personal appearances, and endorsement opportunities; (2) Mr. Luchnick negotiated the 1984 Uniformed Player Contract, and did so in his capacity as one of corporation’s officers; (3) Mr. Patterson signed the 1984 Uniform Player Contract on behalf of the Rockets, and did so with the understanding that the Rockets were obtaining petitioner’s basketball services in his capacity as an employee of corporation; (4) the Rockets dealt with corporation and respected both its corporate form and its employer/ employee relationship with petitioner; (5) corporation issued petitioner a 1985 Form W-2 to inform him that it had paid him wages during the 1985 calendar year (corporation would have issued petitioner a 1985 Form 1099-MISC if corporation had wanted to inform petitioner that it had paid him nonemployee compensation during that year); and (6) petitioner reported his compensation from corporation as wage income. That petitioner was an employee of corporation is further seen from the NBA and the Rockets’ recognition of corporation as petitioner’s employer. The record is barren of any suggestion or implication that petitioner, corporation, or the Rockets ignored the employment agreement under which corporation employed petitioner. When a taxpayer, such as petitioner, has exercised considerable bargaining power in arm’s-length negotiations over the manner in which he or she will provide his or her services to a recipient, the Court should weigh heavily the parties’ belief in the type of employment relationship that they created. Penn v. Howe-Baker Engrs., Inc., 898 F.2d 1096, 1103 n.9 (5th Cir. 1990) (parties’ intent is a “significant factor” when weighing the common law factors that distinguish an employee from an independent contractor).18 The majority has not done so.19  In connection with the second prong of the two-part test, the PSC (corporation) and the service-recipient (Rockets) had a contract or similar indicium recognizing the controlling position of corporation. The 1984 Uniform Player Contract evidenced the relationship between corporation and the Rockets and was reached following arm’s-length negotiations between Mr. Patterson and Mr. Luchnick. In negotiating the 1984 Uniform Player Contract, Mr. Patterson was acting as an officer of the Rockets, and Mr. Luchnick was acting as an officer of corporation. By virtue of the 1984 Uniform Player Contract, the Rockets recognized and appreciated that petitioner was an employee of corporation, and respected the employer/employee relationship existing between corporation and petitioner. The Rockets also issued corporation a 1985 Form 1099-misc, reporting the amount of compensation that the Rockets paid to corporation during the 1985 calendar year, and did not pay or withhold payroll or income taxes on this compensation. Corporation, in turn, issued petitioner a 1985 Form W-2 reporting the amount of compensation that it had paid to him during that calendar year. In conclusion, I would hold that the $204,333 is not includable in petitioner’s gross income because both prongs of the two-prong control test were met. Because the majority chooses to reach a contrary result by adopting and applying a result-oriented manner and means test, I respectfully dissent. Hamblen, Jacobs, and Wells, JJ., agree with this dissent.  I use the term “team-sports doctrine” to refer to the rationale of Sargent v. Commissioner, 93 T.C. 572 (1989), revd. 929 F.2d 1252 (8th Cir. 1991), that effectively precludes a “team member” from incorporating his or her personal services. Although the majority opinion states that “Nowhere in Sargent did we state or imply that the mere description of the service recipient as a ‘team’ would be determinative”, majority op. p. 153, the practical effect of this Court’s majority opinion in Sargent v. Commissioner, supra is that the personal services furnished by a team-sports member to his or her personal service corporation will not be recognized for Federal income tax purposes.    As stated in the majority opinion: ^Sargent was the first case involving a personal service corporation in which * * * [the Court] applied the assignment of income doctrine by reference to the common law test for determining whether an employer-employee relationship existed between the service recipient and the individual service provider.” Majority op. p 150; but see infra note 12. Although the majority opinion purports to reapply this common law test to the facts at bar, it does not explain the need to abandon the traditional analysis for assignment of income cases. By failing to do so, the majority opinion does not justify its need to depart from the traditional methodology. Moreover, the majority opinion fails to address adequately a critical part of the reasoning of the Court of Appeals in Sargent v. Commissioner, supra, finding error in the fact that this Court did not apply such a common law test to the “team member” in Pflug v. Commissioner, T.C. Memo. 1989-615. The majority opinion chooses to refute the Court of Appeals’ reasoning concerning our inconsistent application in Pflug v. Commissioner, supra, in a brief footnote. See majority op. p. 154 note 14.    The majority has also not listed such an example.    The Congress responded to a perceived abuse in this area by enacting sec. 269A. Sec. 269A generally allows the Commissioner to allocate items between a PSC and its employee/shareholders in order to reflect clearly the income of the employee/shareholders or the PSC, if the “principal purpose” for the PSC is the avoidance or evasion of Federal income tax. Respondent did not determine or argue that sec. 269A applies to the instant case. In fact, she has disavowed its application by making the following stipulations: 22. The corporation, Allen Leavell, Inc., was formed for the primary purpose of creating flexibility for Allen Leavell to act as a free agent or claim the benefits of free agency in the event the Houston Rockets failed to release him from obligations imposed by the Uniform Player Contract. 23. Although certain tax benefits may’ have- resulted from the incorporation of Allen Leavell, Inc. by Allen Leavell, the corporation was not formed for the principal purpose of evading or avoiding federal income taxes by securing the benefits of deductions, credits, or other allowances which would not otherwise be available. 24. Accordingly, based upon the facts of this case, the parties agree and Respondent concedes that no allocation of income, deductions, or credits is to be made under the specific authority of I.R.C. section 269A. [Emphasis added.] Given that respondent has, in effect, stipulated that the tool Congress has given to the Government to deal with perceived abuses by PSC’s is not applicable and that the income in question is not to be reallocated under that section, the majority opinion’s use of the “manner and means” test is nothing more than a solution in search of a problem.    The Supreme Court observed, however, that there are recognized exceptions to treating a corporation as a separate taxable entity. For example, the Court stated: “the corporate form may be disregarded where it is a sham or unreal. In such situations the form is a bald and mischievous fiction.” Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 439 (1943). As documented by the facts at hand, the instant case is not one that warrants disregard for the corporate form.    In the instant case, respondent is asking the Court to ignore corporation to the extent that it marketed petitioner’s professional basketball services.   The Congress responded to the fact pattern of Keller v. Commissioner, 77 T.C. 1014, 1031 (1981), affd. 723 F.2d 58 (10th Cir. 1983), by enacting sec. 269A, applicable to taxable years beginning after Dec. 31, 1982. See supra note 4. According to the legislative history, “The conferees intend that the provisions * * * [of sec. 269A] overturn the results reached in cases like Keller v. Commissioner, 77 T.C. 1014 (1981), where the corporation served no meaningful business purpose other than to secure tax benefits which would not otherwise be available.” H. Kept. 97 — 760, at 633-634 (1982), 1982-2 C.B. 600, 679-680. Because respondent conceded that no allocation is to be made under sec. 269A, the Court should apply the analysis that we applied in Keller v. Commissioner, supra and reach a result that is consistent thereto. The majority, however, does not. It develops a new analysis to apply to the fact pattern of Keller v. Commissioner, supra, and reaches a result that is contrary to our opinion there. In so doing, the majority has obviated the need for respondent to utilize the precise tool that the Congress gave her to deal with fact patterns similar to Keller v. Commissioner, supra, such as the facts at hand.    While recognizing that the assignment of income doctrine may apply in the corporate context, the Court has observed that this control test is better than the true earner test articulated in Lucas v. Earl, 281 U.S. 111, 115 (1930), because a corporation is an inanimate person that can earn service income only through the performance of its employees and agents. See, e.g., Bagley v. Commissioner, 85 T.C. 663, 675 (1985), affd. 806 F.2d 169 (8th Cir. 1986); Haag v. Commissioner, 88 T.C. 604, 610-611 (1987), affd. without published opinion 855 F.2d 855 (8th Cir. 1988); see also Vercio v. Commissioner, 73 T.C. 1246, 1254-1255 (1980). The control test generally asks the question: “Who controls the earning of the income, the individual or his or her corporation?” Johnson v. Commissioner, 78 T.C. 882, 891 (1982), affd. without published opinion 734 F.2d 20 (9th Cir. 1984); Bagley v. Commissioner, supra at 675. The majority does not ask or answer this question. By failing to do so, the majority ignores the importance of the following precedent in Schneer v. Commissioner, 97 T.C. 643, 659-660 (1991) (quoting Johnson v. Commissioner, supra at 890): “Recognition must be given to corporations as taxable entities which, to a great extent, rely upon the personal services of their employees to produce corporate income. When a corporate employee performs labors which give rise to income, it solves little merely to identify the actual laborer.” * :!' *! an employee of a personal service corporation * * * is outside the holding of Lucas v. Earl, supra, to some degree because of the “entity concept.” The business entity is cast as the earner of the income, obviating the need to analyze whether there has been an assignment of income.    The right to control an employee is usually evidenced by an employment contract between the PSC and the service-provider. See, e.g., Haag v. Commissioner, supra at 612 (employment agreement gave the PSC control over the service-provider’s medical practice although the service-provider could unilaterally rescind, modify, or ignore the agreement), affd. without published opinion 855 F.2d 855 (8th Cir. 1988). As observed by the Court of Appeals for the Eighth Circuit, there exists “ample Tax Court precedent which upholds the sanctity of contractual relations between taxpayers and their respective personal service corporations.” Sargent v. Commissioner, 929 F.2d 1252, 1258 (8th Cir. 1991), revg. 93 T.C. 572 (1989).    Respondent had announced the team-sports doctrine as her litigating position in G.C.M. 39553 (Sept. 3, 1986).   Prior to the Tax Reform Act of 1986 (TRA), Pub. L. 99-514, 100 Stat. 2085, the Code provided numerous incentives for a professional to incorporate his or her services. For example, a service-provider could take modest salaries from his PSC and, in effect, divert income from his or her personal services to his or her PSC; before the TRA, the maximum marginal rate of tax for corporations was lower than the maximum marginal rate of tax for individuals. Similarly, the individual could adopt a fiscal year for the PSC which ended on the last day of the first month of his or her individual taxable year. With proper tax planning, the individual could then defer the recognition of the personal service income earned in one year until the next year by drawing the majority of his or her salary in the first month after the end of his or her taxable year. The TRA minimized many of these incentives. See, e.g., secs. 1, 11 (maximum corporate rate of tax higher than maximum individual rate of tax); sec. 441(i) (taxable year of a PSC generally must be the calendar year); see also sec. 11(b)(2) (certain PSC’s are taxed at a flat rate of 35 percent, rather than at the graduated rates of tax in sec. 11(a) that are otherwise applicable to corporations); supra note 6.   As is true in the case at hand, each taxpayer also personally guaranteed his PSC’s obligations to the service-recipient. Sargent v. Commissioner, 93 T.C. 572 (1989). The Court in Sargent v. Commissioner, supra, found no relevance in this personal guarantee. The majority does. In my mind, the majority places too much emphasis on this fact. The personal guarantee of a 100-percent shareholder is commonly required in the business world. In this regard, the majority does not indicate how their analysis would apply to this everyday occurrence.    In abandoning our traditional analysis, the Court stated that the Court had never addressed whether an employer/employee relationship existed in any of our prior assignment of income opinions. Sargent v. Commissioner, 93 T.C. at 582. As subsequently noted by the Court of Appeals for the Eighth Circuit, however, “Each time the legitimacy of the employee’s relationship with the *' * * [PSC] was raised [in our prior assignment of income cases], the Tax Court pointed to the existence of a contractual relationship between the !i: * * [PSC] and the employee/ service-provider as the rationale for upholding the legal significance of the PSC.” Sargent v. Commissioner, 929 F.2d at 1258.   I do not mean to suggest that the “mere existence” of an employment contract may or may not be enough to satisfy the two-prong control test. The Court need not resolve that issue today. The record in Sargent v. Commissioner, supra, as well as the record at bar, evidences an employer/employee relationship between the PSC and the service-provider through more than an employment contract. With respect to Sargent v. Commissioner, 93 T.C. at 573-577, I note: (1) Following the receipt of legal advice, each taxpayer formed his PSC for a legitimate business purpose that involved “selling” his services to the club as an employee of the PSC, (2) the club entered into an agreement whereby each PSC represented to the club that the PSC had the right to cause its employee to perform services on its behalf, (3) the club remitted payments for each taxpayer’s services directly to their PSC’s, (4) each PSC withheld Federal income taxes, and withheld and paid employment taxes, in connection with the payment of service income to the taxpayers, (5) the PSC’s filed the necessary employer/employee payroll tax returns with the Commissioner, and (6) the club recognized and respected the employment contracts between each taxpayer and his PSC.    The Court ultimately held against Johnson because the Warriors did not have an agreement with either PMSA or EST that addressed the taxpayer’s basketball services. Accord Johnson v. United States, 698 F.2d 372 (9th Cir. 1982). In the instant case, by contrast, petitioner’s basketball services were discussed in both his contract with corporation and the Rockets’ contract with corporation.    In Pflug v. Commissioner, T.C. Memo. 1989-615, the taxpayer contracted with her husband’s wholly owned PSC to perform her acting services exclusively as its employee. Subsequently, the taxpayer and her husband separated, and, in June 1982, the taxpayer severed her relationship with the PSC. From 1975 until June 1982, all contracts for the taxpayer’s acting services were executed between the PSC, as the taxpayer’s employer, and the service-recipients (producers). The producers paid the PSC all amounts for the taxpayer’s services and did not pay or withhold any employment taxes with regard to these amounts; the PSC, in turn, paid a salary to the taxpayer and paid employment taxes with respect to the salary. The PSC included on its Federal income tax returns the amounts paid to it by the producers and deducted its payments to the taxpayer as wage expense.    Respondent has not disputed corporation’s viability to the extent that corporation was petitioner’s employer for purposes other than to market his basketball services. In this regard, the record does not indicate that corporation controlled petitioner’s personal services with regard to his basketball services in any less of a significant manner than it controlled his personal services with regard to his personal appearances and endorsements. Concluding that corporation is not a viable entity with respect to petitioner’s basketball services, but not with respect to his personal appearances and endorsements, is a distinction without a difference and is arbitrary.    The majority holds that petitioner is a “professional” as that term is used in Professional & Executive Leasing Co. v. Commissioner, 862 F.2d 751 (9th Cir. 1988), affg. 89 T.C. 225 (1987). The majority, therefore, concludes that petitioner is subject to a lower standard in determining whether he should be considered an employee of the Rockets. Notwithstanding my disagreement with the majority’s test in the first place, I believe that the majority has misapplied the term “professional” as it was used in Professional & Executive Leasing Co. v. Commissioner, supra. The term “professional” as used in Professional & Executive Leasing Co. applied to individuals who were engaged in a licensed profession, such as doctors and attorneys. In our case, petitioner is a basketball player who is called a professional in order to distinguish him from an amateur.    With respect to petitioner’s arrangement as an employee of corporation, the legitimacy of such an arrangement in the taxable year in issue is also discerned from the fact that the NBA prohibited corporate employers of NBA players after that year. Such a prohibition by the NBA would have been unnecessary had the NBA considered these corporate employers to be shams.