The opinion
T.C. Memo. 2005-173
UNITED STATES TAX COURT
TRANSPORT LABOR CONTRACT/LEASING, INC. & SUBSIDIARIES, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 1188-01. Filed July 14, 2005.
Michael I. Saltzman, Kathleen Pakenham, and Todd C. Simmens,
for petitioner.
Jack Forsberg, Gary R. Shuler, Jr., and Eric Johnson, for
respondent.
SUPPLEMENTAL MEMORANDUM OPINION
CHIECHI, Judge: This case is before us on petitioner’s
*
This Supplemental Memorandum Opinion supplements our prior
Opinion in Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. 154 (2004).
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motion for reconsideration of the Court’s Opinion in this case
(petitioner’s motion for reconsideration) set forth in 123 T.C.
154 (2004) (Transport Labor I) and petitioner’s motion to vacate
or revise the Court’s decision in this case (petitioner’s motion
to vacate). The Court held in Transport Labor I that the limita-
tion imposed by section 274(n)(1)1 (section 274(n)(1) limitation)
applied to the amounts (per diem amounts) that petitioner’s
wholly owned subsidiary Transport Leasing/Contract, Inc. (TLC),
paid during each of the taxable years at issue to certain truck
drivers in order to cover the amounts that they spent for food
and beverages.2
Background
We incorporate herein by reference the findings of fact set
forth in Transport Labor I. We repeat here the facts helpful in
understanding the discussion that follows.
TLC was a driver-leasing company that leased one or more
truck drivers to small and mid-sized independent trucking compa-
nies which used such truck drivers to transport goods and mer-
1
All section references are to the Internal Revenue Code in
effect for the taxable years at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
2
We shall refer to such expenses as food and beverage ex-
penses. See Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. 154, 155 n.4 (2004).
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chandise.3 Prior to the times such trucking companies entered
into driver-leasing arrangements with TLC (described below), they
had generally made payments only to their respective over-the-
road4 truck drivers who worked for them that were intended to
cover the amounts that such truck drivers spent for food and
beverage expenses while traveling away from home.
During the years at issue, the number of trucking company
clients to which TLC leased driver-employees ranged from 100 to
300, with most such companies located in Minnesota, Montana, and
Pennsylvania.5 As of the time of trial in this case, TLC leased
a total of 5,563 driver-employees to a total of 453 trucking
company clients.
In soliciting business, TLC’s sales representatives ex-
plained to prospective trucking company clients the advantages
that they would realize from leasing driver-employees from TLC.
A principal advantage of leasing driver-employees from TLC
related to TLC’s ability to obtain cost-effective workers’
compensation insurance, especially in States where trucking
3
We shall refer to each trucking company that leased one or
more truck drivers from TLC as a trucking company client and to
each truck driver whom TLC leased to a trucking company client as
a driver-employee.
4
The term over-the-road means that the length of travel
required a truck driver to stay away from home overnight.
5
During the years at issue, the number of truck drivers that
each trucking company client leased from TLC ranged from 1 to 50.
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company clients were paying substantial amounts to obtain such
insurance. Generally, the premium rates for workers’ compensa-
tion insurance on truck drivers were significantly higher than
premium rates for most other occupations. As a result, workers’
compensation insurance was a major expense for trucking compa-
nies. In soliciting a trucking company’s business, TLC’s sales
representatives explained that TLC was able to obtain workers’
compensation insurance in the private market at comparatively low
premium rates because of the large number of driver-employees on
whom it obtained such insurance.
When TLC was successful in attracting a trucking company as
a client, TLC and that trucking company entered into a contract
entitled “TLC Exclusive Lease Agreement” (exclusive lease agree-
ment), which set forth the agreement between them with respect to
the leasing by such trucking company of driver-employees from
TLC.6 When each trucking company entered into an exclusive lease
agreement with TLC, such trucking company terminated the employ-
ment arrangement that it previously had with all of its truck
drivers.
6
Each exclusive lease agreement was a standard TLC form
contract. There were no agreements between TLC and any trucking
company client regarding TLC’s leasing driver-employees to such
trucking company client other than the agreement set forth in the
exclusive lease agreement. The material provisions of each
exclusive lease agreement remained unchanged throughout the
taxable years at issue except for the factor (discussed below)
used to compute the lease fee that each trucking company client
owed TLC.
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TLC retained the sole and absolute authority to hire each
driver-employee and to terminate each driver-employee’s employ-
ment with TLC. Each truck driver whom TLC hired as a driver-
employee played an integral role in TLC’s business of leasing
driver-employees to its trucking company clients.
Before TLC hired a truck driver as a driver-employee, such
truck driver had to pass TLC’s screening and approval process
that it used to determine whether to hire such truck driver. (We
shall refer to the screening and approval process that TLC used
to determine whether to hire a truck driver as TLC’s screening
and approval process.) TLC’s screening and approval process was
designed to determine a truck driver’s fitness to serve as a
driver-employee of TLC.
As required by each exclusive lease agreement, TLC used its
best efforts (e.g., by advertising) to, and did, recruit driver-
employees. TLC hired approximately 25 percent of its driver-
employees through its own recruitment efforts.
Each trucking company client also located and referred
prospective driver-employees to TLC. If a trucking company
client located a truck driver whom it wanted TLC to hire, the
trucking company client interviewed such truck driver, had him or
her complete an application provided by TLC, and forwarded that
completed application to TLC. TLC subjected any such truck
driver to TLC’s screening and approval process. TLC rejected 10
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to 15 percent of the truck drivers whom its trucking company
clients referred to it. TLC hired approximately 75 percent of
its driver-employees through referrals of trucking company
clients.
TLC had the right to, and did, direct and control the work
and conduct of each driver-employee. TLC exercised that right
through, inter alia, the driver-employee contract and the driver-
employee handbook (discussed below). TLC required each driver-
employee whom it hired to sign a document entitled “DRIVER
EMPLOYEE CONTRACT” (driver contract). Each driver contract
provided instructions for each driver-employee that required each
driver-employee, inter alia, to attend at least two safety
meetings per year, not to be under the influence of alcohol while
performing services for TLC, not to consume illegal drugs, to
complete any paperwork required by TLC or its affiliates, and not
to allow any personal, legal, or financial problems, including
attitude, to interfere with the performance of services for TLC.
If a driver-employee failed to comply with those instructions,
TLC could terminate such driver-employee’s employment.
When TLC hired each driver-employee, TLC gave such driver-
employee a truck driver handbook (TLC driver handbook). The TLC
driver handbook, which was incorporated into and made part of the
driver contract, contained TLC’s detailed instructions that it
required each driver-employee to follow with respect to, inter
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alia, fueling the trucks, starting the trucks’ engines, hooking
up the trucks to trailers, parking the trucks, driving the trucks
to achieve maximum fuel savings, braking the trucks, operating
trucks in cold weather, departure times of the trucks, and
loading the cargo on and unloading it off the trucks.7 Thus, TLC
had the right to, and did, direct and control each driver-em-
ployee as to the operation and the loading and unloading of the
truck of the trucking company client that leased such driver-
employee from TLC and as to the details and means by which that
operation and that loading and unloading were to be accomplished.
Both before and after entering into an exclusive lease
agreement with TLC, each trucking company client: (1) Owned or
leased the trucks, semitrailers, terminals, and other equipment
and facilities used in its trucking business; (2) obtained the
customers whose goods and merchandise it transported by truck;
(3) performed dispatching functions with respect to each driver-
employee by giving such driver-employee his or her route assign-
ments, directing each driver-employee as to the loads assigned to
him or her and as to the times by which such driver-employee had
to deliver those loads, and relaying any instructions of its
customers relating to such loads; (4) was responsible for the
payment of tolls, fuel, repairs, and scale fees incurred during
7
The TLC driver handbook consisted of approximately 50 pages
covering the various matters with respect to which TLC gave
detailed instructions to each driver-employee.
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the transport of such goods and merchandise; and (5) had the
authority to determine whether to permit a driver-employee whom
TLC leased to it to take any vacation days. TLC did not own any
interest in, had no rights in the profits of, and had no respon-
sibility for the losses of the business of any trucking company
client.
TLC sponsored certain employee benefits for its driver-
employees, including: (1) A section 401(k) plan; (2) a section
125 flexible benefit plan; (3) group or individual health insur-
ance; (4) a $5,000 group term life insurance policy; and (5) the
option of purchasing additional group term life insurance. TLC
paid the premiums and any administrative costs associated with
the $5,000 group term life insurance policy. TLC bore the
administrative costs but no other costs associated with the
various other employee benefits that it sponsored for its driver-
employees. Each driver-employee paid such other costs through
payroll deductions.8
Pursuant to each exclusive lease agreement, each trucking
company client had the right to decline using a particular
driver-employee whom TLC wanted to lease to it. While TLC was
8
Certain trucking company clients paid at least part of the
premiums associated with the health insurance plan that TLC
sponsored for the driver-employees whom TLC leased to them. In
such instances, TLC paid the trucking company client’s share of
such health insurance premiums and charged such premiums to the
trucking company client.
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leasing a driver-employee to a trucking company client, TLC had
the right to lease that driver-employee to another trucking
company client and thereby assign additional projects to such
driver-employee.
If a trucking company client no longer wanted or needed the
services of a particular driver-employee, TLC did not continue
leasing such driver-employee to that trucking company client. In
that event, TLC attempted to lease such driver-employee to
another trucking company client. TLC frequently was successful
in reassigning a driver-employee from one trucking company client
that no longer wished to use such driver-employee to another
trucking company client. TLC also reassigned to another trucking
company client any driver-employee who no longer wished to work
with a particular trucking company client to which TLC had
assigned such driver-employee. If a driver-employee refused such
reassignment, TLC treated him or her as having voluntarily
terminated his or her employment with TLC and contested any
unemployment claims that such driver-employee filed.9
Each of TLC’s driver-employees who was engaged in over-the-
road trucking paid for food and beverage expenses while traveling
away from home. TLC generally made payments of per diem amounts
to each such driver-employee that TLC intended to cover such food
9
Because of the large number of driver-employees and the low
rate of successful claims, TLC usually paid the minimum rate
imposed by the applicable State Unemployment Tax Act (SUTA).
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and beverage expenses. TLC did not pay any per diem amounts to a
driver-employee whom it leased to a trucking company client who
was not engaged in over-the-road trucking for that client.
At the end of each payroll period,10 each trucking company
client mailed or sent by facsimile to TLC a batch control form
(batch report) with respect to such period. For each payroll
period, the batch report that each trucking company client
submitted to TLC showed for each driver-employee whom TLC leased
to such trucking company client, inter alia, (1) a lump sum
amount (batch report lump sum amount) from which TLC was to
determine the gross wages11 and any per diem amounts to which
each driver-employee was entitled but which was not broken down
into such component parts;12 (2) the total amount of expenses for
10
Pursuant to the exclusive lease agreement, each trucking
company client had the right to select the payroll period for all
driver-employees whom TLC leased to such trucking company client.
11
We shall refer to the gross amount of wages to which a
driver-employee was entitled, prior to any reduction for such
driver-employee’s share of Federal and State employment taxes,
Federal and State income taxes withheld, and payroll deductions
for employee benefits (e.g., health insurance, a sec. 401(k)
plan, or a sec. 125 flexible benefit plan), as gross wages.
12
Pursuant to each exclusive lease agreement, each trucking
company client, and not TLC, selected the method used in calcu-
lating the batch report lump sum amount for each driver-employee
whom TLC leased to such trucking company client. Virtually all
of TLC’s trucking company clients selected a cents-per-mile or a
percentage-of-load-gross-revenue basis as the applicable method.
Neither the batch report nor any other document that a trucking
company client submitted to TLC showed the breakdown of the batch
report lump sum amount between gross wages and any per diem
(continued...)
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gas, tolls, repairs, and other road expenses for which such
trucking company client (a) made cash advances (advances)13
and/or (b) was obligated to make reimbursements to such driver-
employee (reimbursable expenses); (3) any miscellaneous credits
or deductions (e.g., for the costs of health insurance that such
trucking company client agreed to pay); (4) any vacation days
that such trucking company client permitted such driver-employee
to take;14 and (5) the number of days such driver-employee was
away from home.
TLC determined what portion of the batch report lump sum
amount constituted gross wages and what portion, if any, consti-
tuted per diem amounts to which each driver-employee was enti-
tled.15 In order to make that determination, TLC applied to each
batch report lump sum amount with respect to each driver-employee
a percentage (per diem percentage). In most cases, the per diem
percentage was 34 percent; in some cases, the per diem percentage
12
(...continued)
amounts.
13
Except for such advances, no trucking company client made
any payments to a driver-employee.
14
If the batch report indicated that the trucking company
client permitted a driver-employee whom TLC leased to it to take
any vacation days, TLC paid no per diem amounts to such driver-
employee for any such days.
15
The exclusive lease agreement was silent as to (1) any per
diem amounts that TLC was to pay to a driver-employee to cover
such driver-employee’s food and beverage expenses while traveling
away from home and (2) the limitation imposed by sec. 274(n)(1).
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ranged from zero to 33 percent.
Upon receipt of a batch report, TLC inputted the information
contained in that batch report into its computer system and,
based on that information and other information in its computer
system (e.g., the per diem percentage, applicable employment tax
rates, Federal and State income tax withholding), computed with
respect to each driver-employee gross wages, any per diem
amounts, Federal and State income taxes withheld, the driver-
employee share of employment taxes,16 payroll deductions for
employee benefits, and net wages.17 Per diem amounts are not
wages for purposes of computing employment taxes, Federal and
State income tax withholding, and workers’ compensation insurance
premiums. TLC determined each driver-employee’s gross wages by
reducing the batch report lump sum amount for such driver-em-
ployee by any per diem amounts that TLC determined for such
driver-employee.
With respect to each driver-employee, for each payroll
period TLC was obligated to, and did, pay such driver-employee
16
We shall refer to any tax liabilities imposed on either
the employer or the employee with respect to a driver-employee’s
gross wages under the Federal Insurance Contribution Act (FICA),
the Federal Unemployment Tax Act, or SUTA as employment taxes.
17
We shall refer to the net amount of wages to which a
driver-employee was entitled, after any reduction for such
driver-employee’s share of Federal and State employment taxes,
Federal and State income taxes withheld, and payroll deductions
for employee benefits (e.g., health insurance, a sec. 401(k)
plan, or a sec. 125 flexible benefit plan), as net wages.
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his or her net wages and any per diem amounts,18 regardless of
whether the trucking company client to which TLC leased such
driver-employee paid TLC the lease fee (discussed below). TLC
generally paid such net wages and any per diem amounts to each
driver-employee on the day after TLC received a batch report.
(We shall refer to TLC’s obligation with respect to each driver-
employee for each payroll period to pay to each such driver-
employee such aggregate amount of net wages and any per diem
amounts as well as its obligation to pay the employer’s share of
employment taxes, withhold and pay the driver-employee’s share of
employment taxes, withhold and pay Federal and State income
taxes, make daily electronic funds transfers of the appropriate
amounts of such taxes to the Internal Revenue Service (IRS) and
appropriate State agencies, and pay workers’ compensation insur-
ance premiums as TLC’s payroll obligation.)
Pursuant to each exclusive lease agreement, each payroll
period each trucking company client paid TLC a lease fee (lease
fee) that was not broken down into component parts.19 Each
18
The aggregate amount of each driver-employee’s net wages
and any per diem amounts that such driver-employee was entitled
to receive was increased by the amount of any reimbursable
expenses for which a trucking company client was obligated to
reimburse such driver-employee and decreased by the amount of any
advances that a trucking company client paid to such driver-
employee.
19
Pursuant to each exclusive lease agreement, the aggregate
amount of the batch report lump sum amount with respect to each
(continued...)
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exclusive lease agreement set forth a factor (factor)20 to which
TLC and each trucking company client agreed and which such client
was to multiply by the batch report lump sum amount in order to
calculate the lease fee that such client owed to TLC for each
driver-employee whom TLC leased to such client.
The factor to which TLC and each trucking company client
agreed was intended to produce a lease fee sufficient to cover:
(1) The batch report lump sum amount with respect to each driver-
employee whom TLC leased to such trucking company client; (2) the
employer’s share of employment taxes on the gross wages to which
each such driver-employee was entitled; (3) workers’ compensation
insurance premiums attributable to the gross wages earned by each
such driver-employee; (4) other expenses that TLC incurred as
costs of earning such lease fee, e.g., expenses for sales repre-
sentatives and managers, legal and accounting services, and other
19
(...continued)
driver-employee was multiplied by the applicable factor (dis-
cussed below) to calculate the lease fee that each trucking
company client owed TLC.
20
Pursuant to the exclusive lease agreement, TLC had the
right to modify the factor in the event Federal and State employ-
ment tax rates and/or workers’ compensation insurance rates
changed. From time to time, TLC modified the factor that it
charged each trucking company client in order to reflect changes
in TLC’s workers’ compensation insurance premiums. TLC and each
trucking company client also had the right to modify the factor
if, inter alia, the information that TLC collected from a truck-
ing company client in order to substantiate the per diem amounts
that TLC paid to the driver-employees whom it leased to such
client changed (e.g., if a trucking company client reduced its
over-the-road trucking business).
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overhead; and (5) TLC’s profit (profit).
The factor was a flat rate that ranged from 1.15 to 1.25.
The factor was not broken down into component parts. Conse-
quently, no trucking company client knew how much of the factor
to which TLC and such trucking company client agreed was intended
to cover each of the various expenses associated with TLC’s
driver-leasing business (e.g., gross wages, any per diem amounts,
the employer’s share of employment taxes, workers’ compensation
insurance, and compensation of persons who performed services for
TLC other than TLC’s driver-employees).
The batch report that each trucking company client submitted
to TLC each payroll period included each trucking company cli-
ent’s computation of the lease fee to which TLC was entitled
under the terms of the exclusive lease agreement. In order to
calculate the amount of such lease fee payable to TLC for each
payroll period, each trucking company client increased the amount
of the lease fee to which TLC was entitled by (1)(a) the total
amount of the reimbursable expenses due to each driver-employee
whom TLC leased to such trucking company client and (b) any
miscellaneous additions or carryover credits and reduced that sum
by (2)(a) the total amount of advances that such trucking company
client paid to each driver-employee whom TLC leased to it and
(b) any miscellaneous subtractions or debit balances. (We shall
refer to the amount of the lease fee payable each payroll period
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to TLC by each trucking company client after such additions and
subtractions as the payroll period net lease fee due.)
Each trucking company client generally paid TLC the payroll
period net lease fee due, as reflected in the batch report, on
the day on which TLC issued a check to each driver-employee for
such driver-employee’s net wages and any per diem amounts. Each
trucking company client paid such payroll period net lease fee
due by wire transfer or direct deposit into an account of TLC.
TLC did not maintain separate accounts for the funds received
from its respective trucking company clients. As discussed
above, for each payroll period TLC was obligated to, and did, pay
such driver-employee his or her net wages and any per diem
amounts, regardless of whether the trucking company client to
which TLC leased such driver-employee paid TLC the net lease fee
due.
For the calendar years 1993, 1994, 1995, and 1996, TLC sent
a form letter (per diem letter) to each trucking company client,
which set forth the total of all per diem amounts that TLC paid
to the driver-employees whom it leased to such trucking company
client during the preceding calendar year. The per diem letter
for calendar year 1993 (sent to each trucking company client
early in calender year 1994) stated in pertinent part:
Our billings to you include amounts paid, on your
behalf, to our drivers, for road expenses; often re-
ferred to as per diem. The amounts billed are of
course, reduced by the amounts you paid directly to the
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drivers in the form of “advances”, frequently an amount
approximating an allowable per diem.
As required by tax law and part of our service, we have
tabulated the per diems to be used in your tax return
preparation. As payer of these amounts, you must
afford them special treatment under the 20% reduction
provision of Internal Revenue Code Section 274(n). You
should take this into account when preparing your tax
returns for your business and may want to forward a
copy of this letter to your tax advisor.
The amount of per diem you paid to drivers, or which we
partially paid on your behalf during 1993, was * * *
[total of per diem amounts.21]
Petitioner filed consolidated Form 1120, U.S. Corporation
Income Tax Return (Form 1120), as the parent corporation of a
group of affiliated corporations for each of petitioner’s taxable
years 1993, 1994, 1995, and 1996. Schedule K, Other Information,
included as part of each of those Forms 1120 showed business
activity as “leasing” and product or service as “employees”.
Form 851, Affiliations Schedule, included as part of those Forms
1120 showed TLC’s business activity as “leasing”.
On October 27, 2000, respondent sent a notice of deficiency
21
The per diem letters for the calendar years 1994, 1995,
and 1996 were identical to the per diem letter for calendar year
1993 except that the reference to “20% reduction” was changed to
“50% percent reduction” in order to reflect changes made to sec.
274(n)(1) by the Omnibus Budget Reconciliation Act of 1993 (OBRA
1993), Pub. L. 103-66, sec. 13209(a), 107 Stat. 469. In this
connection, prior to its amendment by OBRA 1993, sec. 274(n)(1)
limited a deduction for food or beverages to 80 percent of the
amount otherwise allowable (80-percent limitation). For taxable
years that began after Dec. 31, 1993, sec. 274(n)(1) limits a
deduction for food or beverages to 50 percent of the amount
otherwise allowable (50-percent limitation).
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(notice) to petitioner. In that notice, respondent determined,
inter alia, that the section 274(n)(1) limitation applied to the
per diem amounts that TLC paid to its driver-employees.
Respondent sent a notice to each of the following trucking
company clients of TLC in which respondent determined that each
such trucking company client had a deficiency in Federal income
tax (tax) for one or more taxable years22 arising out of such
trucking company client’s failure to take into account the
section 274(n)(1) limitation23 and with respect to which each
such trucking company client commenced proceedings in the Court,
as follows:
Trucking Company Client Case at Docket No.
John and Kimberly Kohler 1026-01
(NBS Trucking)
Joseph and Barbara Hix 1062-01
(Joe Hix Trucking)
Blachowske Truck Line, Inc. 1107-01
Jones Brothers Trucking, Inc. 1149-01
Lake State Transport, Inc. 1286-01
Schak Trucking Inc. 1287-01
Donald Fiereck and Beverly 1346-01
Beumer-Fiereck (Parkway Auto
Transport)
Respondent conceded the above-referenced cases. The Court
22
The record did not disclose the taxable year(s) to which
the respective notices issued to certain of TLC’s trucking
company clients pertained.
23
In the instant case, the 80-percent limitation applies to
taxable years ended Aug. 31, 1993, and Aug. 31, 1994, and the 50-
percent limitation applies to taxable years ended on or after
Aug. 31, 1995.
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entered stipulated decisions in such cases, which reflected such
concessions.
Discussion
Petitioner’s Motion for Reconsideration
In support of petitioner’s position that the Court should
grant petitioner’s motion for reconsideration, petitioner ad-
vances the following arguments: (1) The Court erred in conclud-
ing that respondent impeached the testimony of Gary Ankerfelt
(Mr. Ankerfelt); (2)(a) the Court did not consider the
precedential effect of Beech Trucking Co. v. Commissioner, 118
T.C. 428 (2002) (Beech Trucking Co.), and (b) the factors used in
determining whether a person is an employer or an employee24 that
the Court applied in Transport Labor I were inconsistent with the
common-law employment factors applied by the Court in Beech
Trucking Co.; and (3)(a) in finding certain facts, the Court gave
improper weight to certain evidence, and (b) in determining
whether TLC was the employer25 of certain truck drivers whom it
leased to certain trucking companies, the Court gave improper
weight to certain facts that the Court found in Transport Labor
I. Respondent opposes petitioner’s motion for reconsideration.
24
For convenience, we shall refer to the factors used in
determining whether a person is an employer or an employee as the
common-law employment factors.
25
We accord the term “employer” the same meaning as the term
“common-law employer”. For convenience, we shall use only the
term “employer”.
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The granting of a motion for reconsideration rests within
the discretion of the Court. Estate of Quirk v. Commissioner,
928 F.2d 751, 759 (6th Cir. 1991), affg. in part and remanding in
part T.C. Memo. 1988-286; Klarkowski v. Commissioner, 385 F.2d
398, 401 (7th Cir. 1967), affg. T.C. Memo. 1965-328; see Con-
cordia Coll. Corp. v. W.R. Grace & Co., 999 F.2d 326, 330 (8th
Cir. 1993). A motion for reconsideration will be denied unless
unusual circumstances or substantial error is shown. Estate of
Quirk v. Commissioner, supra; Alexander v. Commissioner, 95 T.C.
467, 469 (1990), affd. without published opinion sub nom. Stell
v. Commissioner, 999 F.2d 544 (9th Cir. 1993); Vaughn v.
Commissioner, 87 T.C. 164, 167 (1986).
With respect to petitioner’s argument that the Court incor-
rectly concluded that respondent impeached the testimony of Mr.
Ankerfelt, petitioner asserts:
The Opinion incorrectly concluded that Gary
Ankerfelt’s credibility was impeached because the
affidavit he submitted in a workers’ compensation case
involving Hix Trucking, a TLC customer, was contrary to
his testimony at trial. A witness may be impeached
only by a prior inconsistent statement. Here, however,
Mr. Ankerfelt made no prior inconsistent statement; his
testimony was consistent with his prior statement.
* * * In any event, Mr. Ankerfelt’s testimony was
credible; his testimony on every point was corroborated
by other witnesses.
On the record before us, we reject petitioner’s argument.
At the trial in this case, Mr. Ankerfelt testified with
respect to TLC’s role in hiring, firing, and assigning projects
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to its driver-employees: (1) TLC exercised only an advisory role
in hiring each driver-employee; (2) without exception, the
trucking company client made the decision to terminate any
driver-employee whom TLC leased to it; and (3) while TLC was
leasing a driver-employee to a trucking company client, TLC had
no right to lease that driver-employee to another trucking
company client and thereby assign additional projects to such
driver-employee (collectively, Mr. Ankerfelt’s disputed trial
testimony). Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 185-186. Respondent introduced into
the record an affidavit (Mr. Ankerfelt’s affidavit) that Mr.
Ankerfelt made under oath in Hix v. Minn. Workers’ Comp. Assigned
Risk Plan, 520 N.W.2d 497 (Minn. Ct. App. 1994). In that affida-
vit, Mr. Ankerfelt swore under oath, inter alia:
TLC recruits, screens and hires the employee-drivers
that it leases to Joe Hix Trucking and other trucking
companies. TLC places advertisements to locate such
drivers and makes all hiring decisions. A lessee
[trucking company client] has no authority to require
TLC to hire a particular driver.
* * * TLC has sole authority to determine the
assignment of a driver.
* * * TLC retains the sole right to discharge and
fire any of its drivers-employees. When a lessee no
longer desires to lease a TLC driver-employee, the TLC
driver-employee returns to TLC for assignment to an-
other lessee.
The above-quoted statements from Mr. Ankerfelt’s affidavit
are inconsistent, or sufficiently inconsistent, with Mr.
- 22 -
Ankerfelt’s disputed trial testimony. Consequently, the Court in
Transport Labor I found that respondent impeached Mr. Ankerfelt’s
disputed trial testimony.26 Transp. Labor Contract/Leasing, Inc.
& Subs. v. Commissioner, supra at 186. In addition, the Court in
Transport Labor I found that “respondent also raised other
questions about the reliability of Mr. Ankerfelt’s testimony that
TLC exercised only an advisory role in hiring each
driver-employee.” Id. Respondent called as a witness Beverly
Fiereck (Ms. Fiereck), the president of Parkway Auto Transport
(Parkway), one of TLC’s trucking company clients.27 Id. Ms.
Fiereck, whom the Court found to be credible, id., testified that
TLC, and not Parkway, decided whether or not to hire a truck
driver whom Parkway referred to it. Id. As a result of the
foregoing, the Court did not rely on Mr. Ankerfelt’s testimony to
support petitioner’s position that TLC was not the employer of
26
Petitioner contends that, in order to use Mr. Ankerfelt’s
affidavit to impeach him, the Court must find Mr. Ankerfelt’s
affidavit to be credible. Petitioner’s contention is wrong. The
impeachment of Mr. Ankerfelt’s disputed trial testimony arises
from its inconsistency with Mr. Ankerfelt’s affidavit and does
not require that the Court find either Mr. Ankerfelt’s disputed
trial testimony or Mr. Ankerfelt’s affidavit to be credible.
See, e.g., Estate of Shafer v. Commissioner, 80 T.C. 1145, 1157
n.18 (1983), affd. on other grounds 749 F.2d 1216 (6th Cir.
1984).
27
The parties stipulated that the testimony of any person
representing Parkway is to be considered representative of the
testimony that would be given by any persons representing other
trucking company clients of TLC if they had been called to
testify at the trial in this case.
- 23 -
each driver-employee.28
With respect to petitioner’s argument that in Transport
Labor I the Court did not consider the precedential effect of
Beech Trucking Co., petitioner asserts:
The Court made a “manifest error of law” when it
failed to follow the binding precedent of Beech Truck-
ing Co. v. Commissioner, 118 T.C. 428 (2002), in accor-
dance with the Court’s ruling in Boyd v. Commissioner,
122 T.C. 305 (2004). * * *
In Boyd v. Commissioner, the Court described the
[sic] “the analysis and reasoning” in Beech Trucking
Co. as precedent binding on this Court under the doc-
trine of stare decisis. * * *
On the record before us, we reject petitioner’s assertion.
As the Court stated in Transport Labor I, the determination
of whether an individual is an employer is a fact-intensive
inquiry. Id. at 184. Application of the common-law employment
factors may produce different results in different cases that may
appear to be facially similar. For example, in Weber v.
Commissioner, 60 F.3d 1104 (4th Cir. 1995), affg. 103 T.C. 378
(1994), application of the common-law employment factors resulted
in a finding that a Methodist minister was the employee of the
United Methodist Church. In contrast, in Alford v. United
States, 116 F.3d 334 (8th Cir. 1997), and Shelley v.
28
To the extent other witnesses whom the Court found to be
credible and reliable testified regarding matters about which Mr.
Ankerfelt also testified, the Court based its findings upon the
testimony of such other witnesses, as well as on the parties’
stipulations of fact and documentary evidence in the record, and
not on Mr. Ankerfelt’s testimony.
- 24 -
Commissioner, T.C. Memo. 1994-432, application of the common-law
employment factors resulted in findings that an ordained minister
holding credentials in the Assemblies of God Church and a
minister of the International Pentecostal Holiness Church,
respectively, were not employees of their respective religious
organizations.
The facts of the instant case are materially distinguishable
from the facts in Beech Trucking Co. The Court in Beech Trucking
Co. v. Commissioner, 118 T.C. at 441, 442 n.16, concluded:
In the instant case, the evidentiary basis for
analyzing the relevant common law factors is relatively
sparse, owing largely to petitioner’s [Arthur Beech,
the tax matters person for Beech Trucking Company]
failure to introduce in evidence or otherwise establish
the precise terms of any lease agreement, employment
agreement, or contract between Beech Trucking and ATS
[driver-leasing company]. Nor does the record contain
the drivers’ employment contracts. Moreover, the
record does not always clearly distinguish the roles of
Beech Trucking and ATS with respect to the drivers’
activities. We infer that their roles were to some
degree blurred, especially taking into consideration
that [Ed] Harvey, who owned [alone] ATS, also owned 26
percent of Beech Trucking, and that petitioner, who was
president and 55-percent owner of Beech Trucking, was
an employee of ATS.
* * * * * * *
Most of the pertinent testimony regarding the
Beech Trucking drivers’ activities came from
petitioner. As previously noted, petitioner was both
president of Beech Trucking and an employee of ATS
* * * [and] his testimony often employed, ambiguously,
first-person plural pronouns. * * *
The Court also concluded in Beech Trucking Co. that the record
was “unclear as to the extent of any business ATS might have had
- 25 -
apart from the services it provided Beech Trucking.” Id. at 443.
In contrast to the record before the Court in Beech Trucking
Co., the Court in Transport Labor I had a complete, extensive,
and clear record upon which to base its findings and conclusions
and which included the exclusive lease agreement, the driver
contract, the TLC driver handbook, and the testimony of
representatives of various trucking company clients and TLC. In
addition, there was no evidence, and petitioner does not contend,
(1) that petitioner or TLC had any overlapping personnel with any
trucking company client, (2) that petitioner or TLC owned any
interest in any trucking company client, or (3) that any owner of
a trucking company client owned an interest in petitioner.29 Cf.
id. at 430-431. Moreover, in contrast to ATS, which insofar as
the record in Beech Trucking Co. revealed had only one trucking
company as a client, viz., Beech Trucking Company, id. at 443,
during the years at issue TLC had between 100 and 300 trucking
company clients, Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 156. It is mere speculation on the
part of petitioner to assume that if the facts in Beech Trucking
Co. had been virtually the same as the facts in the instant case,
which they are not, the Court in Beech Trucking Co. nevertheless
would have evaluated the common-law employment factors in the
29
TLC was a wholly owned subsidiary of petitioner. Transp.
Labor Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at
155.
- 26 -
same manner as it did, would not have considered any common-law
employment factors other than those that it considered, and would
have found that Beech Trucking Company was the employer of the
truck drivers whom it leased from ATS.
Beech Trucking Co. is materially distinguishable from the
instant case and not binding on the Court with respect to the
questions presented here. Petitioner is wrong in asserting that
Boyd v. Commissioner, 122 T.C. 305 (2004), holds to the contrary.
There was no dispute in Boyd v. Commissioner, supra, that the
trucking company there involved (Continental) was the employer of
the truck drivers who drove its trucks and that such trucking
company was subject to the section 274(n)(1) limitation. Id. at
307. The sole issue in Boyd was the validity and effect of Rev.
Procs. 94-77, 1994-2 C.B. 825, 96-28, 1996-1 C.B. 686, and 96-64,
1996-2 C.B. 427, that are not at issue in the instant case. In
determining the validity and effect of those revenue procedures
in Boyd, the Court indicated that it would apply “the analysis
and reasoning” that Beech Trucking Co. applied in determining the
validity and effect of those same revenue procedures. Id. at
311-312. In so stating, the Court in Boyd was not referring to
the Court’s discussion in Beech Trucking Co. with respect to the
common-law employment factors.
With respect to petitioner’s argument that the Court used
certain common-law employment factors in Transport Labor I that
- 27 -
were inconsistent with the common-law employment factors that the
Court used in Beech Trucking Co., petitioner asserts:
the Court did not apply some of the factors used in
Beech Trucking, restated factors used in Beech Trucking
in a materially different way, and added a factor
inapplicable to three-party transactions. The Court’s
Opinion also uses a different analysis of the factors
than the Court did in Beech Trucking. * * *
On the record before us, we reject petitioner’s assertion.
The list of common-law employment factors that the Court set
forth in Beech Trucking Co. was nonexhaustive. Schwieger v. Farm
Bureau Ins. Co., 207 F.3d 480, 484 (8th Cir. 2000); Beech
Trucking Co. v. Commissioner, 118 T.C. at 440. Petitioner does
not cite, and we have not found, any authority that precluded the
Court in Transport Labor I, in determining whether TLC was the
employer of each driver-employee whom it leased to each trucking
company client, from considering common-law employment factors in
addition to those on which the Court relied in Beech Trucking Co.
and from not giving the same weight to certain factors on which
the Court relied in Beech Trucking Co.
With respect to petitioner’s argument that the Court in
Transport Labor I “restated factors used in Beech Trucking in a
materially different way”, petitioner asserts that the Court in
Transport Labor I erred in considering the “sponsorship of * * *
employee benefits” rather than the “provision of employee
benefits”. Petitioner’s assertion erroneously assumes that the
Court intended a substantive difference when it used the phrase
- 28 -
“sponsorship of * * * employee benefits” in Transport Labor I,
and not the phrase “provision of employee benefits” that it used
in Beech Trucking Co.
In Transport Labor I, the Court found that TLC sponsored
certain employee benefits for its driver-employees, including:
(1) A section 401(k) plan; (2) a section 125 flexible benefit
plan; (3) group or individual health insurance; (4) a $5,000
group term life insurance policy; and (5) the option of
purchasing additional group term life insurance. Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 169.
The Court also found: (1) TLC paid the premiums and any
administrative costs associated with the $5,000 group term life
insurance policy; (2) TLC bore the administrative costs but no
other costs of the section 401(k) plan, the section 125 flexible
spending plan, and the group or individual health insurance; and
(3) each driver-employee paid such other costs through payroll
deductions.30 Id. Only benefit plans established by an employer
for the benefit of such employer’s employees qualify for certain
favorable tax treatment. See, e.g., secs. 401(a), (k), 125(a),
(d), 79(a). Regardless of whether the phrase “sponsorship * * *
of employee benefits” or “provision of employee benefits” was
used, the fact remains that TLC established certain benefit plans
for its driver-employees that could have qualified for such
30
See supra note 8.
- 29 -
favorable tax treatment only if TLC were the employer of such
driver-employees.
With respect to petitioner’s argument that the Court in
Transport Labor I “restated factors used in Beech Trucking in a
materially different way”, petitioner also asserts that in Beech
Trucking Co. the Court found that if a relationship31 between a
truck driver and a trucking company is “of indefinite duration”,
such trucking company is the employer of such truck driver. In
this connection, petitioner contends:
Here, substantial evidence proved that the
employment relationship between the trucking companies
and the drivers existed before TLC’s involvement with
the trucking companies. The Lease Agreement had no
effect on the duration of the drivers’ relationship
with the trucking companies because the drivers
continued to work in the business of the trucking
companies. * * *
On the record before us, we reject petitioner’s assertion.
31
As the Court indicated in Transport Labor I, petitioner
did not explain on brief, and does not explain in its motion for
reconsideration, what it means when it argues that the “relation-
ship” between a trucking company and its drivers was of indefi-
nite duration. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 195. We presume that petitioner means
that, after a trucking company entered into an exclusive lease
agreement with TLC, each driver who previously worked for such
trucking company continued to perform services for such company
pursuant to the employment arrangement with such company that
existed before it entered into such lease agreement with TLC. We
reject any such argument. The parties stipulated, and the Court
in Transport Labor I found, that, when each trucking company
entered into an exclusive lease agreement with TLC, such trucking
company terminated the employment arrangement that it had with
all of the truck drivers who previously worked for such trucking
company. Id. at 159.
- 30 -
The facts of the instant case do not support petitioner’s
assertion that the exclusive lease agreement “had no effect on
the duration of the drivers’ relationship” with a trucking
company where TLC leased such drivers as driver-employees of TLC
to such trucking company as TLC’s trucking company client. To
the contrary, the exclusive lease agreement had a dramatic effect
on such driver’s employment relationship. As discussed above, if
a truck driver had previously performed services for a trucking
company and if such trucking company became a client of TLC by
entering into an exclusive lease agreement with TLC, such truck
driver’s employment arrangement with such trucking company was
terminated. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, supra at 159. After a trucking company became a
client of TLC and terminated the employment arrangement with any
truck driver who had previously performed services for such
trucking company, TLC had the sole and absolute authority to
determine whether to hire such truck driver as a driver-employee.
Id. at 164. TLC exercised that authority by, inter alia,
requiring a truck driver, regardless of whether a trucking
company client referred such driver to TLC as an applicant for
the position of TLC’s driver-employee, to pass TLC’s screening
and approval process before TLC decided whether to hire such
truck driver as a driver-employee. Id.
If TLC decided to hire a truck driver who had previously
- 31 -
performed services for a trucking company client and if TLC
leased such truck driver to such trucking company client, two new
relationships involving such truck driver began: (1) A new
relationship between TLC and such truck driver as a driver-
employee of TLC; and (2) a new relationship between such trucking
company client of TLC and such truck driver as a driver-employee
of TLC whom TLC leased to such trucking company client. The
relationship between TLC and a truck driver as a driver-employee
was separate and distinct from the relationship between such
trucking company client of TLC and such truck driver as a driver-
employee of TLC whom TLC leased to such trucking company client.
In addition, both of those new relationships were separate and
distinct from any employment arrangement that a truck driver
might have had with a trucking company before such trucking
company became a trucking company client of TLC.
Petitioner did not persuade us at trial, and does not
persuade us in petitioner’s motion for reconsideration, that the
duration of any employment relationship that may have existed
between a truck driver and a trucking company before TLC decided
to hire such truck driver as a driver-employee and before such
trucking company became a client of TLC should be aggregated with
the duration of the relationship between such trucking company
client of TLC and such driver-employee where TLC leased such
driver-employee to such trucking company client. Any employment
- 32 -
arrangement that may have existed between such a truck driver and
such a trucking company was terminated when such trucking company
became a trucking company client of TLC. The duration of any
such employment relationship was not helpful to the Court in
determining whether TLC was the employer of such truck driver
where TLC decided to hire such truck driver as its driver-
employee and leased such driver-employee to such trucking company
client. That is why, on the facts presented in the instant case,
the Court found in Transp. Labor Contract/Leasing, Inc. & Subs.
v. Commissioner, 123 T.C. at 195:
In the instant case, it is the nature, and not the
duration, of the relationship between a driver-employee
and TLC and the relationship between a driver-employee
and a trucking company client that determines whether
TLC or such trucking company client is the employer of
such driver-employee. [Emphasis added.]
In contrast to the instant case, the Court in Beech Trucking
Co. did not have before it a situation where the employment
arrangement between a truck driver and Beech Trucking Company was
terminated when Beech Trucking Company decided to become a client
of ATS. In addition, insofar as the record in Beech Trucking Co.
revealed, the functions performed by ATS (the driver-leasing
company) and Beech Trucking Company with respect to the truck
drivers were to some degree blurred. Beech Trucking Co. v.
Commissioner, 118 T.C. at 441. As the Court in Beech Trucking
Co. understood the arrangement between Beech Trucking Company and
ATS, truck drivers hired to drive for Beech Trucking Company were
- 33 -
to drive, apparently for an indefinite period, equipment owned by
Beech Trucking Company, which had final authority to fire them.
Id. at 431. That is why the Court in Beech Trucking Co. stated
that “the relationship between the drivers and Beech Trucking was
apparently of indefinite duration.” Id. at 442.
With respect to petitioner’s argument that the Court in
Transport Labor I “added a factor inapplicable to three-party
transactions”, petitioner asserts that “In a three-party
arrangement it is expected that the leasing company will treat
the drivers as employees for purposes of employment taxes, such
as FUTA and FICA taxes.” On the record before us, we reject
petitioner’s assertion.
Petitioner’s assertion that in a “three-party arrangement it
is expected that the leasing company will treat drivers as
employees for purposes of employment taxes” is not supported by
the record in the instant case. The record in Transport Labor I
established facts relating to TLC, its trucking company clients,
and its driver-employees, but did not establish facts relating to
expectations in “three-party arrangements” generally.
In the instant case, if, as petitioner asserts, a trucking
company client expected TLC to treat each driver-employee as an
employee for employment taxes purposes, it was because such
trucking company client expected that TLC would be the employer
for all purposes. In that connection, the Court in Transp. Labor
- 34 -
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 193,
stated:
With respect to each driver-employee, for each payroll
period TLC was obligated to, and did, pay such driver-
employee his or her net wages and any per diem amounts
as well as the employer’s share of employment taxes,
withhold and pay the driver-employee’s share of
employment taxes, withhold and pay Federal and State
income taxes, make daily electronic funds transfers of
the appropriate amounts of such taxes to the IRS and
appropriate State agencies, and pay workers’
compensation insurance premiums.
The obligations to pay the employer’s share of employment
taxes, to withhold and to pay the employee’s share of employment
taxes, and to withhold and to pay Federal income tax with respect
to an employee’s wages are obligations generally imposed upon an
employer. Secs. 3102(a), 3111(a), 3301, 3402, 3403. TLC’s
undertaking and satisfying the obligations to withhold and to pay
FICA taxes,32 other employment taxes, and Federal income tax with
respect to each driver-employee’s wages evidenced that TLC was
the employer of each driver-employee. See Kirk v. Harter, 188
F.3d 1005, 1008 (8th Cir. 1999); Birchem v. Knights of Columbus,
116 F.3d 310, 313 (8th Cir. 1997); Wilde v. County of Kandiyohi,
15 F.3d 103, 105-106 (8th Cir. 1994).
In addition, with respect to petitioner’s assertion that TLC
was the employer of each driver-employee for all purposes except
the section 274(n)(1) limitation because TLC was what petitioner
32
See Levine v. Commissioner, T.C. Memo. 2005-86.
- 35 -
refers to as a so-called administrative employer of each driver-
employee, petitioner does not cite, and we have not found, any
authority that supports petitioner’s suggestion that an entity
may selectively be the employer for purposes of withholding
and/or paying employment and Federal income tax but not for other
purposes such as the section 274(n)(1) limitation.
With respect to petitioner’s argument that, in finding
certain facts, the Court in Transport Labor I gave improper
weight to certain evidence, petitioner asserts:
The Court’s reliance on the Lease Agreement,
Driver Handbook, and Driver’s Contract also is contrary
to Beech Trucking. As Beech Trucking noted, it is
well-established that “[a] contract purporting to
create an employer-employee relationship is not
controlling where application of the common law factors
to the facts and circumstances indicates the absence of
such a relationship.” * * *
Furthermore, the Court gave too much weight to the
Driver Handbook. The Handbook only described ordinary
activities carried out by truck drivers that were
either recitations of Department of Transportation
requirements, obvious to a licensed truck driver, or
merely advisory, not mandatory. While TLC may have had
written policies aimed at reducing workers’
compensation claims, there is no evidence that TLC
controlled the work of the drivers through those
policies. [Citations omitted.]
On the record before us, we reject petitioner’s assertion.
A contract purporting to create an employer-employee
relationship is not controlling where application of the common-
law employment factors to the facts and circumstances indicates
the absence of such a relationship. Profl. & Executive Leasing,
- 36 -
Inc. v. Commissioner, 89 T.C. 225, 233 (1987), affd. 862 F.2d 751
(9th Cir. 1988). Petitioner does not cite, and we have not
found, any authority which requires the Court to ignore a
contract that designates a person as the employer of certain
individuals where the totality of the facts and circumstances
surrounding such person, such individuals, and one or more third
persons who use the services of one or more of such individuals
is not inconsistent with such a contract. In Transport Labor I,
petitioner failed to show that the totality of the facts and
circumstances surrounding TLC, each driver-employee, and each
trucking company client was inconsistent with the exclusive lease
agreement under which each such trucking company client used the
services of one or more of such driver-employees.
As an illustration, the exclusive lease agreement provided
in pertinent part that TLC “shall in its absolute discretion,
hire * * * Lessor’s [TLC’s] employees”. Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 160.
The Court in Transport Labor I found that TLC retained the sole
and absolute authority to hire each driver-employee. Id. at 164.
The record in the instant case established: (1) Before TLC hired
a truck driver as a driver-employee, such truck driver had to
pass TLC’s screening and approval process, which was designed to
determine a truck driver’s fitness to serve as a driver-employee
of TLC; (2) TLC hired approximately 25 percent of its driver-
- 37 -
employees through its own recruitment efforts; and (3) TLC
rejected 10 to 15 percent of the truck drivers whom its trucking
company clients referred to it. Id. In Transport Labor I,
petitioner failed to show that the totality of the facts and
circumstances with respect to the hiring of each driver-employee
was inconsistent with the exclusive lease agreement.
As a further illustration, the exclusive lease agreement
provided in pertinent part that TLC shall “direct the work and
conduct” of each driver-employee. The Court in Transport Labor I
found that TLC had the right to, and did, direct and control each
driver-employee as to the operation and the loading and unloading
of the truck of the trucking company client that leased such
driver-employee from TLC and as to the details and means by which
that operation and that loading and unloading were to be
accomplished. Id. at 168. TLC exercised that right through,
inter alia, the driver contract that TLC required each driver-
employee to sign and the TLC driver handbook, which was
incorporated into and made part of that driver contract. In
Transport Labor I, petitioner failed to show that the totality of
the facts and circumstances with respect to the control exercised
over each driver-employee was inconsistent with the exclusive
lease agreement.
As a final illustration, the exclusive lease agreement
provided in pertinent part that TLC “shall in its absolute
- 38 -
discretion, * * * fire * * * Lessor’s [TLC’s] employees”. Id. at
160. The Court in Transport Labor I found that TLC retained the
sole and absolute authority to terminate each driver-employee’s
employment with TLC. Id. at 164. The record in the instant case
established: (1) If a trucking company client no longer wanted
or needed the services of a particular driver-employee, TLC did
not continue leasing such driver-employee to that trucking
company client but instead attempted to lease such
driver-employee to another trucking company client; and (2) TLC
also reassigned to another trucking company client any
driver-employee who no longer wished to work with a particular
trucking company client to which TLC had assigned such
driver-employee. Id. at 169-170. In Transport Labor I,
petitioner failed to show that the totality of the facts and
circumstances with respect to the termination of each driver-
employee’s employment was inconsistent with the exclusive lease
agreement.
With respect to petitioner’s assertion that the Court in
Transport Labor I “gave too much weight” to the TLC driver
handbook and the driver contract, not only does that assertion
ignore that the Court is “the trier of the facts, the judge of
the credibility of witnesses and of the weight of the evidence,
and the drawer of appropriate inferences”, Hamm v. Commissioner,
325 F.2d 934, 938 (8th Cir. 1963), affg. T.C. Memo. 1961-347, it
- 39 -
disregards that TLC had the right to, and did, direct and control
each driver-employee as to the operation and the loading and
unloading of the truck of the trucking company client that leased
such driver-employee from TLC and as to the details and means by
which that operation and that loading and unloading were to be
accomplished, Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 168. The TLC driver handbook, which
was incorporated into and made part of the driver contract,
contained TLC’s detailed instructions that it required each
driver-employee to follow with respect to, inter alia, fueling
the trucks, starting the trucks’ engines, hooking up the trucks
to trailers, parking the trucks, driving the trucks to achieve
maximum fuel savings, braking the trucks, operating trucks in
cold weather, departure times of the trucks, and loading the
cargo on and unloading it off the trucks.33 Id. Each driver
contract provided other instructions for each driver-employee.
Such instructions required that each driver-employee was, inter
alia, to attend at least two safety meetings per year, not to be
under the influence of alcohol while performing services for TLC,
not to consume illegal drugs, to complete any paperwork required
33
The record does not support petitioner’s assertion that
the TLC driver handbook contained only instructions that were
recitations of Department of Transportation requirements or that
were obvious to a licensed truck driver. Even if the record
supported petitioner’s assertion, TLC required its driver-employ-
ees to follow the instructions in the TLC driver handbook.
- 40 -
by TLC or its affiliates, and not to allow any personal, legal or
financial problems, including attitude, to interfere with the
performance of services for TLC. If a driver-employee failed to
comply with such instructions, TLC could terminate such driver-
employee’s employment. Id. at 165-166.
The Court in Transport Labor I found that the driver
contract and the TLC driver handbook, which was incorporated into
and made part of the driver contract, evidenced that TLC had the
right to, and did, control the work and conduct of each driver-
employee. Id. at 188. Consequently, the Court gave appropriate
weight to such evidence.
With respect to petitioner’s argument that, in finding
certain facts, the Court in Transport Labor I gave improper
weight to certain evidence, petitioner advances several
additional assertions with respect to certain common-law
employment factors, which we address below.
Right To Control Driver-Employee
Petitioner contends that the Court in Beech Trucking Co.
found that Beech Trucking Company controlled the truck drivers
whom ATS leased to it because Beech Trucking Company performed
certain dispatching functions with respect to such truck drivers.
Petitioner asserts that the Court in Transport Labor I should
have found that each trucking company client controlled each
driver-employee whom TLC leased to such trucking company client
- 41 -
because such trucking company client performed dispatching
functions with respect to such driver-employee similar to the
dispatching functions that Beech Trucking Company performed. On
the record before us, we reject petitioner’s assertion.
The Court in Transport Labor I found that during the taxable
years at issue each trucking company client performed dispatching
functions with respect to each driver-employee whom TLC leased to
such trucking company client by giving each driver-employee his
or her route assignments, directing each driver-employee as to
the loads assigned to him or her and as to the times by which
such driver-employee had to deliver those loads, and relaying any
instruction of its customers relating to such loads (sometimes
hereinafter referred to collectively as the trucking company
client dispatching functions). Id. at 167. The Court also found
that each trucking company client’s performing such dispatching
functions did not give such trucking company client control over
each driver-employee within the meaning of section
31.3121(d)-1(c)(2) of the Employment Tax Regulations. Id. at
188. The Court found in Transport Labor I that the dispatching
functions that each trucking company client performed were
necessary for the operation of such trucking company client’s
trucking business. Id. at 167. That is to say, in order for a
trucking company client to operate its trucking business
successfully, such trucking company client had to give each
- 42 -
driver-employee his or her route assignments, direct each driver-
employee as to the loads assigned to him or her and as to the
times by which such driver-employee had to deliver those loads,
and relay to each driver-employee any instruction of its
customers relating to such loads.
In contrast, in order for TLC to operate its driver-leasing
business successfully, TLC had to direct and control the work and
conduct of its driver-employees in order to, inter alia, minimize
workers’ compensation claims of such driver-employees. A
principal advantage for a trucking company of leasing driver-
employees from TLC, as opposed to employing truck drivers
directly, related to TLC’s ability to obtain cost-effective
workers’ compensation insurance for TLC’s driver-employees. Id.
at 158. In order to minimize workers’ compensation claims and
thereby enable TLC to maintain cost-effective workers’
compensation insurance, TLC had to, and did, control the work and
conduct of each driver-employee. If TLC had not controlled the
work and conduct of each driver-employee so as to minimize
workers’ compensation claims, its workers’ compensation insurance
expense would have increased substantially, thereby negating a
principal advantage for a trucking company in leasing driver-
employees from TLC, instead of employing truck drivers directly.
As discussed above, each exclusive lease agreement provided
in pertinent part that TLC had the right to, and did, exercise
- 43 -
control over the work and conduct of each driver-employee, id. at
168, and that TLC exercised that right through, inter alia, the
TLC driver handbook and the driver contract, id. at 188. The
Court in Beech Trucking Co. did not have evidence before it, such
as the exclusive lease agreement, the driver contract, and the
TLC driver handbook that was incorporated into and made part of
the driver contract, which would have enabled the Court in Beech
Trucking Co. to have found facts such as those the Court found in
Transport Labor I. It is mere speculation on the part of
petitioner to assume that if the facts in Beech Trucking Co. had
been virtually the same as the facts in the instant case, which
they are not, the Court in Beech Trucking Co. nevertheless would
have found that Beech Trucking Company controlled the work and
conduct of the truck drivers whom it leased from ATS because of
the dispatching functions that Beech Trucking Company performed
with respect to such truck drivers.
With respect to whether TLC controlled the work and conduct
of each driver-employee, petitioner asserts:
the Court overlooked the testimony of Ardell DeBerg,
TLC’s CEO and former sales representative. Mr. DeBerg
testified that in all important respects, the control
of the trucking company over the drivers was unchanged
by the Lease Agreement. In other words, the control of
the trucking companies over the drivers when the
drivers were indisputably employees of the trucking
companies did not change after TLC took over
administrative functions.
On the record before us, we reject petitioner’s assertion.
- 44 -
Ardell DeBerg (Mr. DeBerg), TLC’s chief executive officer at
the time of the trial in the instant case and TLC’s sales
representative during the years at issue, gave the testimony that
petitioner cites with respect to the statement that “TLC becomes
the employer.” That statement appeared in a form letter that Mr.
DeBerg, as TLC’s sales representative, sent to prospective
clients. Mr. DeBerg testified (Mr. DeBerg’s testimony):
TLC becomes the employer. What I used to explain was
an issue for the trucking company owner normally was
but they’re my employees. What are my employees going
to think if now you become the employer. That was
usually an issue for them.
I would explain to them that there’s really two
kinds of employers. There’s the administrative
employer, which that’s what we are. We take care of
all the tax deposits, the tax returns for the
employees, the work comp insurance, and then there’s
the physical employer, which you remain the physical
employer. You tell them -- well, the phrase we used to
use was, The worse thing that can happen is nothing
changes.
What I used to use quite often was: In order to
be an employer, you need to be an attorney, you need to
be an accountant, you need to be a priest and a shrink
sometimes. Lean on us to be the attorney and the
accountant, and we handle all that back room work for
you, but you’re still the boss. You handle the day-to-
day tasks, so the worst thing that can happen is
nothing changes. The employee doesn’t really -- we’re
pretty invisible. [Reproduced literally.]
Contrary to petitioner’s assertion, the Court in Transport
Labor I did not overlook the testimony of Mr. DeBerg. Petitioner
chooses to focus on the portion of Mr. Deberg’s testimony where
he stated: “You handle the day-to-day tasks, so the worst thing
- 45 -
that can happen is nothing changes. The employee doesn’t really
-- we’re pretty invisible.” The Court considered Mr. DeBerg’s
statement “the worst thing that can happen is nothing changes” to
be a sales pitch and, as such, gave it no weight.
The Court considered Mr. DeBerg’s testimony concerning each
trucking company client’s handling “the day-to-day tasks” to be a
reference to the dispatching functions that each trucking company
client performed. Such interpretation is shared by petitioner.
In petitioner’s memorandum in support of petitioner’s motion for
reconsideration, petitioner points to testimony by Ms. Fiereck
and George Erger, a former employee of Parkway, that Parkway
continued to perform trucking company client dispatching
functions after Parkway entered into the exclusive lease
agreement with TLC as corroborating Mr. DeBerg’s testimony that
each trucking company client continued to handle the “day-to-day
tasks”. As discussed above, the Court in Transport Labor I found
that each trucking company client’s performing the trucking
company client dispatching functions did not give such trucking
company client control over each driver-employee within the
meaning of section 31.3121(d)-1(c)(2) of the Employment Tax
Regulations. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 188.
- 46 -
Hiring of Each Driver-Employee
Petitioner asserts:
Ms. Schrupp also testified that TLC’s involvement in
hiring was limited to an advisory role; TLC did
administrative screening and performed a DOT-required
background check “so that [TLC could] advise the client
if this is a good prospect for them.” * * *
On the record before us, we reject petitioner’s assertion.
Ms. Schrupp’s testimony that TLC’s involvement in hiring was
limited to an advisory role (Ms. Schrupp’s testimony with respect
to hiring) was given with respect to a one-page marketing
brochure. During the taxable years at issue, Ms. Schrupp worked
in payroll and sales and marketing support. Ms. Schrupp would
not have been in the best position to observe TLC’s hiring
procedures. Ms. Schrupp’s testimony with respect to hiring was
inconsistent with: (1) The testimony of Ms. Fiereck, whom the
Court found to be credible, id. at 186, that “the relationship
that they [TLC] had was for the hiring and firing or termination
of that driver”;34 (2) TLC’s screening and approval process,
which each truck driver had to pass before TLC decided whether to
hire such truck driver as a driver-employee; (3) the parties’
stipulation that TLC hired approximately 25 percent of its
driver-employees through its own recruitment effort, thereby
rejecting petitioner’s assertion that TLC’s involvement in the
hiring of each driver-employee was limited to an advisory role;
34
See supra note 27.
- 47 -
(4) Ms. Fiereck’s testimony that 10 to 15 percent of truck
drivers referred to TLC were rejected by TLC, thereby rejecting
petitioner’s assertion that TLC’s involvement in the hiring of
each driver-employee was limited to an advisory role; and (5) the
exclusive lease agreement that TLC entered into with each
trucking company client, which provided in pertinent part that
TLC had the sole and absolute authority to hire each driver-
employee.35
The evidence supporting a finding that TLC had the sole and
absolute authority to hire each driver-employee substantially
outweighed Ms. Schrupp’s questionable testimony that TLC
exercised only an advisory role in the hiring of each driver-
employee. Consequently, the Court did not rely on such testimony
of Ms. Schrupp.
Right To Assign Additional Projects to Each Driver-Employee
Petitioner asserts:
There is no evidence that TLC reassigned drivers while
they were working for the trucking companies. In fact,
the parties agreed that “[i]n practice, TLC did not
reassign a Driver once the Driver was assigned to a
Trucking Company without permission from the Trucking
Company.” * * * Moreover, respondent presented no
evidence that drivers were ever reassigned. Again, the
Opinion elevates the form of the Lease Agreement over
the substance of the actual relationship.
35
As discussed above, petitioner failed to show in Transport
Labor I that the totality of the facts and circumstances sur-
rounding TLC, each driver-employee, and each trucking company
client was inconsistent with the exclusive lease agreement.
- 48 -
On the record before us, we reject petitioner’s assertion.
Petitioner’s assertion that “There is no evidence that TLC
reassigned drivers while they were working for the trucking
companies” is not supported by the record. The Court in
Transport Labor I found that TLC “reassigned to another trucking
company client any driver-employee who no longer wished to work
with a particular trucking company client to which TLC had
assigned such driver-employee.” Transp. Labor Contract/Leasing,
Inc. & Subs. v. Commissioner, 123 T.C. at 170. The record
contained batch reports that have a column titled “Reassign
Date”, and certain of those batch reports reflected the dates on
which certain driver-employees were reassigned from certain
trucking company clients. TLC’s practice of not reassigning a
driver-employee once such driver-employee was assigned to a
trucking company client which desired to lease such driver-
employee and for which such driver-employee wanted to work was
merely a sound business practice by TLC. Id. at 190. TLC, like
any business, was interested in accommodating, to the extent
feasible, the requests of its trucking company clients. Id.
Assuming arguendo that the record had established that TLC
never reassigned any driver-employee, petitioner is wrong in
asserting that TLC must have actually reassigned a driver-
employee in order for TLC to be the employer of such driver-
employee. It was the right to assign additional projects to each
- 49 -
driver-employee, and not the actual assignment of such projects,
that evidenced that TLC was the employer of such driver-employee.
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992);
Alford v. United States, 116 F.3d at 338; Beech Trucking Co. v.
Commissioner, 118 T.C. at 440. In Transport Labor I, the Court
found that while TLC was leasing a driver-employee to a trucking
company client, TLC had the right to lease that driver-employee
to another trucking company client and thereby assign additional
projects to such driver-employee. Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, supra at 169.
Employee Benefits for Each Driver-Employee
With respect to the sponsorship of employee benefits,
petitioner asserts that each trucking company client paid for
various benefits, including a section 401(k) plan, section 125
flexible benefit plan, group or individual health insurance, and
$5,000 group term life insurance policy (collectively, the
employee benefits) provided to each driver-employee and that that
alleged fact supports its position that each trucking company
client was the employer of each driver-employee whom TLC leased
to such trucking company client. In support of that assertion,
petitioner contends as follows:
The Opinion found that TLC sponsored 401(k), 125
flexible benefit, and group/individual health insurance
plans. The Opinion overlooked the testimony of Ms.
Schrupp, who testified:
Q: And when you say that TLC offers benefits
- 50 -
like 401(k) and health insurance, does TLC
actually bear the cost of those benefits?
A: No. It’s paid by the trucking company.
(Tr. 92:10-13(Schrupp)(emphasis added).)
Q: [D]oes TLC pay for any portion of those
benefits?
A: Not to my knowledge.
(Tr. 103:12-15(Schrupp).) [Reproduced literally.]
On the record before us, we reject petitioner’s assertion.
The Court did not overlook the above-quoted testimony of Ms.
Schrupp. The Court found that testimony, like Ms. Schrupp’s
testimony with respect to the hiring of driver-employees, to be
questionable. Indeed, Ms. Schrupp’s testimony that each trucking
company client paid for the costs of the employee benefits was
contradicted by her own testimony and by the parties’ stipulation
of facts. On cross-examination by respondent’s counsel, Ms.
Schrupp testified:
Q Now, Ms. Schrupp, TLC has a 401(k) plan.
Correct?
A Yes.
Q And not all the drivers participate in it, but
some do. Correct?
A Correct.
Q And the payments for the drivers who
participate in the 401(k) plan are paid for by the
drivers through payroll withholding. Correct?
A Correct.
- 51 -
Q TLC also has a flexible spending plan.
Correct?
A Yes.
Q And, again, some of the drivers participate and
some do not.
A Correct.
Q And the drivers who participate pay for that
themselves through payroll withholding. Correct?
A Correct.
Q And TLC also offers health insurance to the
drivers. Correct?
A Yes.
Q Now, in some instances, drivers pay for that
health insurance solely through payroll deductions.
Correct?
A I believe that the trucking company had a
participation level that they had to pay for.
Q So your understanding is that as to health
insurance, there was participation by the trucking
companies in all cases or just some?
A Some.
The parties’ stipulation of facts provided in pertinent
part:
The cost of the $5,000 group term life insurance policy
was paid for by TLC. TLC bore the cost of
administering the other * * * [employee benefits], but
these administrative costs did not contribute to the
direct costs of the benefits. In most cases, the
direct costs of the benefits were funded entirely by
the Drivers through payroll deductions. However, some
Trucking Companies did contribute to the cost of the
Drivers’ health insurance. * * *
- 52 -
Termination of the Employment of a Driver-Employee
Petitioner asserts:
In other words, even though drivers in Beech Trucking
may have been turned back to the leasing company for
reassignment, the Court [in Beech Trucking Co.] looked
to the termination of the relationship between the
driver and the trucking company, which in practice the
trucking company controlled.
Petitioner appears to be contending that, because a trucking
company client was able to decline continuing to lease a
particular driver-employee whom it no longer wished to use, such
trucking company client had the authority to terminate such
driver-employee’s employment with TLC. That is because,
according to petitioner, the Court in Beech Trucking Co. found
that Beech Trucking Company’s declining to continue leasing a
truck driver whom it no longer wished to use evidenced that Beech
Trucking company had the final authority to terminate such truck
driver’s employment with ATS. Beech Trucking Co. v.
Commissioner, 118 T.C. at 442. On the record before us, we
reject petitioner’s assertion.
In contrast to the instant case, the record in Beech
Trucking Co. did not establish that ATS (the driver-leasing
company) leased truck drivers to any entity other than Beech
Trucking Company.36 Id. at 443. Insofar as the record in Beech
36
Moreover, as discussed above, there was no evidence, and
petitioner does not contend, (1) that petitioner or TLC had any
overlapping personnel with any trucking company client, (2) that
(continued...)
- 53 -
Trucking Co. revealed, by declining to continue leasing a truck
driver whom it no longer wished to use, Beech Trucking Company,
in effect, assured such truck driver’s termination as an
employee.
In the instant case, during the years at issue TLC had
between 100 and 300 trucking company clients. Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 156.
As of the time of trial in this case, TLC leased a total of 5,563
driver-employees to a total of 453 trucking company clients. Id.
TLC frequently was successful in reassigning a driver-employee
from one trucking company client that no longer wished to use
such driver-employee to another trucking company client. Id. at
169-170. A trucking company client’s declining to continue
leasing a driver-employee whom it no longer wished to use did not
evidence that such driver-employee’s employment with TLC was
terminated. TLC also reassigned to another trucking company
client any driver-employee who no longer wished to work with a
particular trucking company client to which TLC had assigned such
driver-employee. Id. The Court in Transport Labor I found that
36
(...continued)
petitioner or TLC owned any interest in any trucking company
client, and (3) that any owner of a trucking company client owned
an interest in petitioner. Cf. Beech Trucking Co. v. Commis-
sioner, 118 T.C. 428, 430-431 (2002). The Court in Beech Truck-
ing Co. also found that the roles of ATS and Beech Trucking were
“to some degree blurred” with respect to the truck drivers’
activities. Id. at 441.
- 54 -
TLC had the “sole and absolute authority * * * to terminate each
driver-employee’s employment with TLC.” Id. at 164.
With respect to petitioner’s argument that, in determining
whether TLC was the employer of each driver-employee whom it
leased to one of its trucking company clients, the Court gave
improper weight to certain facts that it had found, petitioner
asserts:
The Court used the term “neutral” to describe
certain factors which the Court concluded were not
important in its decision * * *. This categorization
of certain factors was in error for at least two
reasons: (1) the Court was not free to disregard
certain factors; and (2) a factor should be considered
“neutral” only when there is evidence favoring both
sides, in other words, when the court is unable to
determine which party the factor favors.
On the record before us, we reject petitioner’s assertion.
As discussed above, the Court in Transport Labor I did not
disregard any common-law employment factors. With respect to
petitioner’s assertion that a common-law employment factor should
be considered neutral only when there is evidence favoring both
sides, that assertion ignores that the Court is “the trier of the
facts, the judge of the credibility of witnesses and of the
weight of the evidence, and the drawer of appropriate
inferences”, Hamm v. Commissioner, 325 F.2d at 938. The Court in
Transport Labor I was free to give evidence whatever weight it
considered to be appropriate. Moreover, the Court does not
consider a factor to be neutral only when there is evidence
- 55 -
favoring both parties’ positions. For example, with respect to
the factors used to determine whether a request for relief under
section 6015(f) should be granted, a factor may be neutral when
there is evidence that such factor is not applicable.37 In such
a case, any such neutral factor does not weigh in favor of or
against granting relief under section 6015(f).
The Court in Transport Labor I used the term “neutral” to
designate those common-law employment factors which, after
analysis based on the facts and circumstances in the instant
case, did not assist the Court in determining whether TLC or each
trucking company client was the employer of each driver-employee
whom TLC leased to such trucking company client. By way of
illustration, in Transport Labor I the Court found that “TLC’s
leasing a driver-employee to a trucking company client for which
such driver-employee had worked before such trucking company
client entered into an exclusive lease agreement with TLC is a
neutral factor in determining whether TLC was the employer of
such driver-employee.” Transp. Labor Contract/Leasing, Inc. &
Subs. v. Commissioner, 123 T.C. at 195. The Court found such
common-law employment factor to be neutral because, as discussed
above, the record established that, when a trucking company
became a client of TLC, such trucking company terminated whatever
employment arrangement existed between a truck driver and such
37
See, e.g., Lopez v. Commissioner, T.C. Memo. 2005-36.
- 56 -
trucking company. After analysis based on the facts and
circumstances in the instant case, evidence that TLC leased a
driver-employee to a trucking company client for which such
driver-employee had worked before such trucking company client
entered into an exclusive lease agreement with TLC did not assist
the Court in determining whether TLC or such trucking company
client was the employer of each driver-employee whom TLC leased
to such trucking company client.
With respect to petitioner’s argument that, in determining
whether TLC was the employer of each driver-employee whom it
leased to its trucking company clients, the Court gave improper
weight to certain facts, petitioner advances several additional
assertions with respect to certain common-law employment factors,
which we address below.
Hiring of Each Driver-Employee
Petitioner asserts:
The Court found on the hiring factor that TLC had
the sole and absolute authority to hire each driver-
employee. * * * This finding was based on the Lease
Agreement, which gave TLC the “sole and absolute right
to hire.”
Beech Trucking is to the contrary. The Court here
overlooked the conclusion in Beech Trucking that an
agreement of the parties would not control if the
parties’ conduct showed otherwise. Here the parties’
Stipulation was that when a trucking company entered a
Lease Agreement with TLC, “the Trucking Company would
terminate all of its existing drivers’ employment. TLC
would then generally hire all of the drivers who passed
its approval process and assigned them [back] to the
Trucking Company.” * * *
- 57 -
Also, while TLC advertised for and attempted to
recruit new drivers, the parties stipulated that “the
Trucking Companies located most new Drivers and then
referred them to TLC for approval and hiring” by TLC
for assignment to the trucking company that had located
the driver for employment. * * * The trucking companies
located about 75 percent of the new drivers, and TLC
only located about 25 percent of the new drivers. * * *
The Court’s analysis here is contrary to Beech
Trucking in another respect. In Beech Trucking, the
Court found that the leasing company hired the drivers
and provided the drivers with some orientation. * * *
Although the leasing company hired the drivers, the
Court in Beech Trucking accurately described the
leasing company’s role as a “driver procurement and
payroll service.” * * * On nearly identical facts in
this case, the Court inexplicably reached the opposite
result. [Reproduced literally.]
On the record before us, we reject petitioner’s argument.
As discussed above, the facts presented in Beech Trucking
Co. are materially distinguishable from the facts in the instant
case. In Beech Trucking Co., ATS (the driver-leasing company)
procured truck drivers for Beech Trucking Company but, as
discussed above, the record was “unclear as to the extent of any
business ATS might have had apart from the services it provided
Beech Trucking”. Beech Trucking Co. v. Commissioner, 118 T.C.
at 443. Thus, insofar as the record in Beech Trucking Co.
revealed, any truck drivers whom ATS procured were procured only
for Beech Trucking Company’s use. Indeed, Beech Trucking Company
reimbursed ATS for any expenses related to ATS’s truck driver
procurement. Id. at 442.
In the instant case, TLC had the sole and absolute authority
- 58 -
to hire each driver-employee. Transp. Labor Contract/Leasing,
Inc. & Subs. v. Commissioner, 123 T.C. at 164. Before TLC
decided whether to hire a truck driver as a driver-employee, such
truck driver had to pass TLC’s screening and approval process.
Id. TLC hired approximately 75 percent of its driver-employees
through referrals of trucking company clients, but TLC also hired
approximately 25 percent of its driver-employees through its own
recruitment efforts.38 TLC rejected 10 to 15 percent of truck
drivers whom its trucking company clients referred to it. Id.
In addition, petitioner does not contend, and there is no
evidence, that any trucking company client reimbursed TLC for
TLC’s expenses relating to TLC’s recruitment of any driver-
employee.
Petitioner does not explain how the parties’ stipulation on
which it relies39 is inconsistent with the Court’s finding in
38
Petitioner does not explain how the referral by trucking
company clients of approximately 75 percent of the driver-employ-
ees TLC hired supports its argument that TLC provided only
“driver procurement” services. That the trucking company clients
referred to TLC approximately 75 percent of the driver-employees
whom TLC hired suggests that such trucking company clients, and
not TLC, were providing driver procurement services for TLC. In
addition, TLC hired a substantial number of its driver-employees,
i.e., 25 percent, without referral from any trucking company
client. Transp. Labor Contract/Leasing, Inc. & Subs. v. Commis-
sioner, 123 T.C. at 164.
39
The stipulation in question states:
When a Trucking Company entered into a Lease Agreement
with TLC, the Trucking Company would terminate all of
(continued...)
- 59 -
Transport Labor I that TLC had the sole and absolute authority to
hire a truck driver as one of its driver-employees. Id. Indeed,
the parties’ stipulation supports the Court’s finding. When each
trucking company client entered into an exclusive lease agreement
with TLC, it ended whatever employment arrangement it had with
the truck drivers who were then working for it and relied on TLC
to provide through the exclusive lease agreement the services of
one or more of TLC’s driver-employees.40 Id. at 159.
39
(...continued)
its existing drivers’ employment. TLC would then
generally hire all of the drivers who passed its ap-
proval process and assigned them to the Trucking Com-
pany.
40
Section one of the exclusive lease agreement provided:
Lessor [TLC] hereby leases to Lessee [trucking
company client] those drivers in the employment of
Lessor during the term of the Agreement. Lessee hereby
leases Lessor’s drivers on an exclusive basis and from
and after the date of this Agreement, Lessee shall not
employ, directly or indirectly, any drivers for its
trucking operation except those agreed to be furnished
by Lessor under this Lease Agreement or as otherwise
provided herein.
Section nine of the exclusive lease agreement provided in
pertinent part:
For purposes of this Agreement, Lessee warrants
and represents to Lessor as follows:
* * * * * * *
* * * That during the term of this Agreement, Lessee
shall not hire, lease, or utilize any drivers other than
drivers to be furnished by Lessor hereunder except only in
emergency situations duly disclosed to Lessor or upon
(continued...)
- 60 -
Source of Instrumentalities and Tools
Petitioner asserts:
The parties stipulated in this case that the trucking
companies were the source of the instrumentalities and
tools of the drivers * * *, just as was the case with
the trucking company in Beech Trucking. Because the
facts clearly favored TLC, this factor must be
considered to be an indication that the trucking
companies were the common law employers.
On the record before us, we reject petitioner’s assertion.
The Court in Beech Trucking Co. based its findings and
conclusions upon the record before it. As discussed above, the
record in Beech Trucking Co. was “relatively sparse”. It did not
contain evidence such as an exclusive lease agreement, a driver
contract, or a driver handbook. Beech Trucking Co. v.
Commissioner, 118 T.C. at 441. In addition, there was no
evidence, and petitioner does not contend, (1) that petitioner or
TLC had any overlapping personnel with any trucking company
client, (2) that petitioner or TLC owned any interest in any
trucking company client, or (3) that any owner of a trucking
company client owned an interest in petitioner. Cf. id. at 430-
431.
In Transport Labor I, the Court found that, both before and
after entering into an exclusive lease agreement with TLC, each
trucking company client owned or leased the trucks, semitrailers,
40
(...continued)
Lessor’s prior written consent.
- 61 -
terminals, and other equipment and facilities used in its
trucking business (collectively, the trucking business
instrumentalities and tools). Transp. Labor Contract/Leasing,
Inc. & Subs. v. Commissioner, 123 T.C. at 167. The Court also
found in Transport Labor I that “TLC was a driver-leasing company
that leased one or more truck drivers to small and mid-sized
independent trucking companies which used such truck drivers to
transport goods and merchandise.” Id. at 156. TLC was in the
business of leasing driver-employees, and not in the trucking
business, and each trucking company client was in the trucking
business.
Each trucking company client’s owning or leasing the
trucking business instrumentalities and tools for such client’s
trucking business did not evidence that such trucking company
client was the employer of each driver-employee TLC leased to
such trucking company client. Such trucking company client
needed to own or lease the trucking business instrumentalities
and tools in order to conduct its trucking business, but could
have procured the services of truck drivers to use in that
business through other arrangements, e.g., by leasing them from a
person engaged in the driver-leasing business. Id. at 190, 194.
In contrast, TLC’s failure to provide the trucking business
instrumentalities and tools did not evidence that the driver-
employees were not its employees because such instrumentalities
- 62 -
and tools were not the instrumentalities and tools of TLC’s
business, viz., leasing driver-employees. After analysis based
on the facts and circumstances in the instant case, evidence that
each trucking company client, and not TLC, provided the trucking
business instrumentalities and tools did not assist the Court in
determining whether TLC or each trucking company client was the
employer of each driver-employee whom TLC leased to such trucking
company client. That is why the Court in Transport Labor I
found on the record presented to it that each trucking company
client’s owning or leasing the trucking business instrumen-
talities and tools used by each driver-employee whom it leased
from TLC was a neutral factor in determining whether TLC was the
employer of each driver-employee. Id. at 190. It is mere
speculation on the part of petitioner to assume that if the facts
in Beech Trucking Co. had been virtually the same as the facts in
the instant case, which they are not, the Court in Beech Trucking
Co. nevertheless would have found that Beech Trucking Company was
the employer of the truck drivers whom it leased from ATS because
Beech Trucking Company supplied the instrumentalities and tools
to those truck drivers.
Method of Payment
Petitioner asserts:
In addition, the Court here overlooked the
uncontradicted testimony of Kristi Schrupp, who
testified that the trucking company determined drivers’
salaries and that there was no time when TLC would make
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this decision. * * * Ms. Fiereck, respondent’s witness,
corroborated this testimony when she testified that the
trucking company determined how much a particular
driver was paid, and that TLC had no role in this
determination. * * *
* * * * * * *
The Opinion found the factor of the source of
funds used to pay payroll to be a “neutral” factor. On
the other hand, the Opinion also found that TLC’s
preparing of the paychecks to be a factor evidencing
TLC as the employer. The Court overlooked the fact
that these conclusions are inconsistent, and elevated
the substance of the transaction (the source of the
funds) over the form of the transaction (the
ministerial act of check processing).
The Court also disregarded the most important
aspects of payroll. The trucking companies determined
whether and how much the drivers would be paid. * * *
The trucking companies also determined how drivers
would be paid, i.e., by direct deposit, checks sent
directly to the drivers, or checks sent to the trucking
companies for distribution to drivers. * * * The Court
should have concluded that this factor favored a
finding that the trucking companies were the employers.
* * * * * * *
* * * In Beech Trucking, the Court on facts nearly
identical to those here did not find method of payment
to be a negative factor. Yet, the Court in this case
inexplicably reached the opposite result. In Beech
Trucking, the Court found that “although [the leasing
company] issued the drivers’ weekly paychecks, paid
workers compensation [insurance premiums], and
maintained a section 401(k) plan for the drivers, [the
trucking company] reimbursed [the leasing company]
weekly for its expenditures, plus a service charge.”
* * *
The facts here are even more compelling -- TLC did
not advance funds and seek reimbursement from the
trucking companies. Rather, TLC required payment
before issuing payroll. Mr. DeBerg, Ms. Schrupp, and
Ms. Fiereck all testified that the trucking company
transferred funds to TLC, usually by wire transfer,
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before TLC would issue checks. * * * [Reproduced
literally.]
On the record before us, we reject petitioner’s assertion.
Petitioner’s assertion that the facts in Beech Trucking Co.
are “nearly identical to those” in the instant case is wrong. As
discussed above, the facts in Beech Trucking Co. are materially
distinguishable from the facts in the instant case, including the
facts relating to the “method of payment”. In Beech Trucking Co.
v. Commissioner, 118 T.C. at 442, the Court found that ATS, the
driver-leasing company, issued the drivers’ weekly paychecks,
paid workers’ compensation, and maintained a section 401(k) plan
for the drivers and that Beech Trucking Company reimbursed ATS
weekly for its expenditures and paid ATS a separate service
charge for the services ATS rendered to Beech Trucking Company.
In Transport Labor I, with respect to the “method of payment”,41
the Court found that each payroll period each trucking company
client paid TLC a lease fee that was not broken down into
component parts, which TLC used (1) to cover its costs, including
the respective net wages and per diem amounts, if any, that TLC
determined to pay its driver-employees, and (2) to generate a
profit. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 173-174. With the exception of certain
41
By “method of payment”, we mean the method by which, for
each payroll period, each trucking company client paid TLC the
lease fee that it owed to TLC and TLC prepared and disbursed each
driver-employee’s paycheck.
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trucking company clients that reimbursed TLC for certain premiums
with respect to health insurance for certain driver-employees,42
no trucking company client reimbursed TLC for any of TLC’s
expenses, and no trucking company client paid TLC a separate
service charge.
Petitioner’s assertion that the Court found in Transport
Labor I that TLC’s preparation of each driver-employee’s paycheck
was a factor evidencing that TLC was the employer of each driver-
employee is wrong. Contrary to petitioner’s assertion, the Court
found in Transport Labor I, “that TLC’s payment of each driver-
employee’s net wages and any per diem amounts is a factor
evidencing that TLC was the employer of each driver-employee.”
Id. at 193. That was because it is the employer who pays the
wages and any per diem due to his or her employees.43
Petitioner’s assertion that the Court found in Transport
Labor I that the factor relating to the source of the funds used
to pay TLC’s payroll obligation was a neutral factor is wrong.
Contrary to petitioner’s assertion, the Court found in Transport
Labor I that “the method by which each trucking company client
42
See supra note 8.
43
Petitioner fails to mention that the Court in Transport
Labor I found that TLC’s limited opportunity for profit and
limited risk of loss in its driver-leasing business were factors
“evidencing that each trucking company client, and not TLC, was
the employer of each driver-employee.” Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 198.
- 66 -
paid TLC a lease fee to compensate TLC for leasing driver-
employees to such trucking company client is a neutral factor in
determining whether TLC is the employer of each driver-employee.”
Id. at 192-193. That TLC may have paid TLC’s payroll obligation
with moneys that it received from its trucking company clients
did not evidence to the Court in Transport Labor I that TLC was
or was not the employer of each driver-employee. Id. at 192. It
is common business practice for a business to use moneys received
from its clients or customers as payments for services or goods
in order to cover its expenses. Id. Even if, as petitioner
contends, TLC required payment of the payroll period net lease
fee due from each trucking company client prior to paying TLC’s
payroll obligation, that fact would not evidence that TLC was or
was not the employer of each driver-employee. A business may
require payment at the time of, or even prior to, providing
services or goods to its customers.44
Petitioner asserts that the Court in Transport Labor I
44
In the instant case, TLC’s obligation to pay TLC’s payroll
obligation with respect to each driver-employee whom it leased to
a trucking company client accrued as such driver-employee per-
formed services for TLC by driving a truck of such trucking
company client that leased such driver-employee from TLC. TLC
was obligated to pay TLC’s payroll obligation with respect to
each driver-employee whether or not the trucking company client
to which TLC leased such driver-employee paid TLC the lease fee.
TLC required payment of the lease fee after it provided the
services of its driver-employees to its trucking company clients.
Transp. Labor Contract/Leasing, Inc. & Subs. v. Commissioner,
supra at 172.
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ignored that each trucking company client “determined whether and
how much the drivers * * * [and] how [such] drivers would be
paid.” As we understand petitioner’s assertion, petitioner
contends that each trucking company client determined unilat-
erally without the agreement of TLC whether, how much, and how
each driver-employee was to be paid. Such a contention is
contrary to the findings that the Court in Transport Labor I made
based upon an examination of the entire record before it.
With respect to petitioner’s assertion that each trucking
company client determined how much each driver-employee was to be
paid, the Court found in Transport Labor I that TLC and each
trucking company client agreed in the exclusive lease agreement
that such trucking company client was to submit for each payroll
period a batch report to TLC which showed certain information
that TLC needed in order to determine, inter alia, the amount of
gross wages and per diem amounts, if any, to which each driver-
employee was entitled, the amount of the lease fee to which TLC
was entitled,45 and the amount that TLC had to withhold in order
to pay Federal and State income taxes and employment taxes with
respect to each driver-employee. Transp. Labor Contract/Leasing,
45
For each payroll period, the batch report that each truck-
ing company client submitted to TLC showed, inter alia, such
trucking company client’s calculation of the lease fee for such
payroll period. TLC used the information submitted by each
trucking company client in each batch report to determine the
lease fee that such trucking company client owed TLC for each
payroll period.
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Inc. & Subs. v. Commissioner, 123 T.C. at 161. Included in the
information shown in the batch report that each trucking company
client submitted to TLC was the batch report lump sum amount with
respect to each driver-employee whom TLC leased to such trucking
company client.46 Id. at 170. TLC and each trucking company
client agreed in the exclusive lease agreement to the method by
which the batch report lump sum amount was to be calculated.47
Id. at 173 n.28. Pursuant to sections five and fifteen of the
exclusive lease agreement, in order to change that method that
agreement would have had to be modified, which would have
required the agreement of both TLC and the trucking company
client. Id. at 161. In Transport Labor I, the Court did not
find that the foregoing facts evidenced that each trucking
company client, and not TLC, was the employer of each driver-
employee.
With respect to petitioner’s assertion that each trucking
46
Neither the batch report nor any other document that a
trucking company client submitted to TLC showed the breakdown of
the batch report lump sum amount between gross wages and any per
diem amounts. It was TLC that determined what portion of the
batch report lump sum amount with respect to each driver-employee
constituted gross wages and what portion, if any, constituted per
diem amounts.
47
Pursuant to each exclusive lease agreement, each trucking
company client was to select the method which was to be used in
calculating the batch report lump sum amount for each driver-
employee whom TLC leased to such trucking company client and to
which TLC agreed in that lease agreement. Virtually all of TLC’s
trucking company clients selected a cents-per-mile or a
percentage-of-load-gross-revenue basis as the applicable method.
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company client determined whether each driver-employee was to be
paid, the Court in Transport Labor I was unable to find on the
record presented that, once a trucking company client calculated
the batch report lump sum amount with respect to each driver-
employee whom it leased from TLC, such trucking company client
determined whether TLC paid such driver-employee his or her net
wages and any per diem amounts. The Court in Transport Labor I
found that for each payroll period TLC was obligated to, and did,
pay each driver-employee his or her net wages and any per diem
amounts, regardless of whether the trucking company client to
which TLC leased such driver-employee paid TLC the lease fee.
Id. at 172. In Transport Labor I, the Court did not find that
the foregoing facts evidenced that each trucking company client,
and not TLC, was the employer of each driver-employee.
With respect to petitioner’s assertion that each trucking
company client determined “how drivers would be paid, i.e., by
direct deposit, checks sent directly to the drivers, or checks
sent to the trucking companies for distribution to drivers”,
petitioner relies on the following testimony of Ms. Schrupp on
direct examination by petitioner’s counsel:
Q And how were the drivers paid?
A The checks may have been sent back to the
client, or they may have been mailed directly to the
driver.
Q So they either went to the trucking company
directly, or they went to the driver directly.
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A Correct.
Q And who decided whether it would be directly to
the driver or directly to the trucking company?
A The trucking company.
Like Ms. Schrupp’s testimony that TLC’s involvement in
hiring driver-employees was limited to an advisory role and her
testimony that all of the employee benefits that TLC sponsored
for the driver-employees were paid for by TLC’s respective
trucking company clients who leased such driver-employees from
TLC, we found the above-quoted testimony of Ms. Schrupp to be
questionable. Decisions as to how an employee is to be paid
(e.g., by direct deposit, by check sent directly to the employee
or by check sent directly to a person for whom such employee is
performing services pursuant to a contract between such person
and another person) are decisions generally made only by such
employee. Thus, we did not understand Ms. Schrupp’s testimony to
mean that each trucking company client decided unilaterally how
each driver-employee whom it leased from TLC was to be paid.48
We understood such testimony to mean that each driver-employee
whom a trucking company client leased from TLC gave instructions
to such trucking company client as to how such driver-employee
wanted to be paid and that such trucking company client informed
48
If Ms. Schrupp literally meant what she said regarding who
decided how each driver-employee was to be paid, we reject such
testimony as questionable and unreliable.
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TLC as to what those instructions were. In Transport Labor I,
the Court did not find that the above-quoted testimony of Ms.
Schrupp evidenced that TLC was or was not the employer of each
driver-employee.
Work of Driver-Employee as Part of Regular Business of TLC
Petitioner asserts:
The business of a trucking company is to move
cargo by truck. TLC’s business was to enter into
contracts to lease personnel. TLC’s business would be
the same whether it leased truck drivers or some other
type of personnel. By contrast, a trucking company
cannot exist without drivers. The drivers worked from
the trucking companies’ places of business and operated
the trucking companies’ equipment.
The Court’s conclusion in this case again was
contrary to Beech Trucking because the Court did not
find that “clearly, the drivers’ work was part of the
regular business” of the trucking companies. Indeed,
we are not aware of a single case in which a leased
employee was found to be “part of the business” of a
leasing company.
On the record before us, we reject petitioner’s assertion.
In Transport Labor I, the Court found that each truck driver
whom TLC hired as a driver-employee played an integral role in
TLC’s business of leasing driver-employees to its trucking
company clients. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 164. TLC could not have conducted its
business of leasing truck drivers without the driver-employees
whom it leased to its trucking company clients. Id. at 194.
Petitioner has not explained how TLC could have conducted its
business of leasing each driver-employee without employing such
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driver-employee. In contrast, each trucking company client could
have conducted its trucking business by procuring the services of
truck drivers to use in that business by hiring them directly
and/or by leasing them from a person engaged in the driver-
leasing business. Id.
Per Diem Letters
In Transport Labor I, the Court found that, for each of the
calendar years 1993, 1994, 1995, and 1996, TLC sent a per diem
letter to each trucking company client, which set forth the total
of all per diem amounts that TLC paid to the driver-employees
whom it leased to such trucking company client during the
preceding calendar year. Id. at 176. With respect to such per
diem letters, petitioner asserts:
The Court overlooked important evidence proving
that far from being “self serving” and an attempt to
bolster TLC’s return position, the letters were part of
the regular business practice of TLC long before the
Section 274(n) issue arose to insure that the trucking
companies that paid per diem were responsible for the
Section 274(n) limitation to trucking companies. TLC
began the business practice of sending the letters
following the close of the 1993 calendar tax year, over
10 years ago. At the time that TLC began sending out
the letters there was no need to “bolster” its return
reporting position. * * *
It was TLC’s practice and intention that the
trucking companies would be responsible for the Section
274(n) limitation on per diem, and it adopted
procedures to inform the trucking companies that they
were responsible for the deduction limitation at every
step in the relationship. Mr. DeBerg testified that
the trucking companies were informed during the sales
process that they would be subject to the per diem
deduction limitation. [Fn. ref. omitted.]
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On the record before us, we reject petitioner’s assertion.
Petitioner’s asserts that “At the time that TLC began
sending out the [per diem] letters there was no need to ‘bolster’
its return reporting position” with respect to the section
274(n)(1) limitation. We find that assertion to be disingenuous.
That the IRS may not have been examining petitioner’s
consolidated returns for the years at issue at the time TLC sent
out the per diem letters does not mean that petitioner and TLC
were unaware of the tax issues under section 274(n) that the IRS
might raise on audit of such returns. In this connection, in
Transport Labor I the Court found the per diem letters to be a
self-serving attempt to bolster petitioner’s position (viz., that
the section 274(n)(1) limitation did not apply to the per diem
amounts that TLC paid to its driver-employees) in the respective
consolidated Forms 1120 which petitioner filed for the taxable
years at issue. Id. at 198-199. Each per diem letter was a
self-serving declaration sent by TLC to each trucking company
client, which set forth TLC’s position that each trucking company
client was subject to the section 274(n) limitation with respect
to the per diem amounts that TLC paid to each driver-employee.
At least certain of TLC’s trucking company clients disagreed with
that self-serving position of TLC. Id. at 177.
Petitioner asserts that “It was TLC’s practice and intention
that the trucking companies would be responsible for the Section
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274(n) limitation”. Regardless of what TLC’s practice and
intention with respect to the section 274(n)(1) limitation might
have been, that practice and that intention were not made part of
the exclusive lease agreement between TLC and each trucking
company client. Indeed, the Court in Transport Labor I found
(1) that there were no agreements between TLC and any trucking
company client other than the agreement set forth in the
exclusive lease agreement and (2) that the exclusive lease
agreement was silent as to the section 274(n)(1) limitation. Id.
at 159 n.9, 171 n.20. If there had been an agreement that each
trucking company client was to be subject to the section
274(n)(1) limitation, such agreement would have been reflected in
the exclusive lease agreement that TLC entered into with each
trucking company client or some other written document signed by
each such trucking company client.49
Petitioner asserts that the Court disregarded Mr. DeBerg’s
49
Sec. fifteen of each exclusive lease agreement provides:
No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained
shall be valid unless in writing and duly executed by
the party to be charged therewith, and no evidence of
any waiver or modification shall be offered or received
in evidence of any proceeding, arbitration or litiga-
tion between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations
of the parties, hereunder unless such waiver or modifi-
cation is in writing, duly executed as aforesaid, and
the parties further agree that the provisions of this
Section may not be waived except as herein set forth.
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testimony that “the trucking companies were informed during the
sales process that they would be subject to the per diem
deduction limitation.” Petitioner is correct that the Court did
not rely on such testimony of Mr. DeBerg. That is because such
testimony was uncorroborated, served the interests of his
employer TLC, and was inconsistent with section fourteen of the
exclusive lease agreement.50
Based upon our examination of the entire record before us,
we find that petitioner has failed to carry its burden of
demonstrating unusual circumstances or substantial error in
Transport Labor I. On that record, we shall deny petitioner’s
motion for reconsideration.
Petitioner’s Motion To Vacate
In support of petitioner’s position that the Court’s
50
Sec. fourteen of each exclusive lease agreement provides:
This Agreement contains the complete agreement
concerning the lease arrangement between the parties
and shall, as of the effective date hereof, supercede
[sic] all other agreements between the parties. The
parties stipulate that neither of them has made any
representations with respect to the subject matter of
this Agreement or any representations * * * except such
representations as are specifically set forth herein
and each of the parties hereto acknowledges that he or
they have relied on their own judgement in entering
into this Agreement. The parties hereto further ac-
knowledge that any payments or representations that may
have heretofore been made by either of them to the
other are of no effect and that neither of them has
relied thereon in connection with his or their dealings
with the other. [Emphasis added.]
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decision in Transport Labor I should be vacated or revised,
petitioner incorporates by reference the arguments in
petitioner’s motion for reconsideration and advances the
following additional arguments: (1) The Court’s decision in
Transport Labor I did not allow the parties an opportunity to
submit computations under Rule 155 to show the correct amount of
the respective deficiencies for the taxable years at issue;
(2) the Court’s decision failed to reduce the amounts subject to
the section 274(n)(1) limitation pursuant to section 274(e)(3)
(petitioner’s section 274(e)(3) argument); and (3) the Court’s
decision did not reduce the respective deficiencies in
petitioner’s tax for the years at issue by certain amounts of tax
allegedly paid by certain trucking company clients for those
years (petitioner’s tax duplication argument). Respondent
disagrees with petitioner’s position.
A motion to vacate or revise a decision pursuant to Rule 162
is granted at the Court’s discretion. We have rejected
petitioner’s arguments in support of petitioner’s motion for
reconsideration. We also reject those arguments in support of
petitioner’s motion to vacate. Our discussion of petitioner’s
motion to vacate will address only the additional arguments that
petitioner advances in that motion.
A motion to vacate or revise a decision pursuant to Rule 162
is usually denied in a case where the moving party attempts to
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reopen a case for the purpose of presenting theories or grounds,
and evidence in support thereof, that could have been advanced
and supported at the trial in that case.51 See Concordia Coll.
Corp. v. W.R. Grace & Co., 999 F.2d 326, 330 (8th Cir. 1993);
Chiquita Mining Co. v. Commissioner, 148 F.2d 306, 310 (9th Cir.
1945), affg. a Memorandum Opinion of this Court dated Jan. 5,
1943; Standard Knitting Mills, Inc. v. Commissioner, 141 F.2d
195, 198-199 (6th Cir. 1944), affg. 47 B.T.A. 295 (1942).
Generally, new issues may not be raised in a Rule 155
computation. Harris v. Commissioner, 99 T.C. 121, 123 (1992),
affd. 16 F.3d 75 (5th Cir. 1994). “Issues considered in a Rule
155 proceeding are limited to ‘purely mathematically generated
computational items’.” Id. at 124.
In support of petitioner’s argument that the Court should
vacate its decision in Transport Labor I because the Court did
not allow the parties an opportunity to submit computations under
Rule 155 to show the correct amount of the deficiency for each of
the taxable years at issue, petitioner asserts that the parties
stipulated that a Rule 155 computation was necessary in the
instant case. Petitioner further asserts:
The Court’s Rule 155 contemplates two phases of a
deficiency case: the first phase in which the
petitioner has the burden of proving that the
Commissioner’s determination is invalid; and the second
phase for the purpose of computing the amount of the
51
Taylor v. Commissioner, T.C. Memo. 1987-403.
- 78 -
deficiency. A taxpayer, such as TLC, had the burden of
proving that the Commissioner’s deficiency
determination was invalid, but it did not also have the
burden of showing the amount of tax, if any, that TLC
owed. To impose such a burden on TLC, as respondent
would have the Court do, “would not be consonant with
the great remedial purposes of the legislation
creating” the U.S. Tax Court. Helvering v. Taylor, 293
U.S. 507, 516 (1935).
* * * * * * *
In many, but not all cases, evidence adequate to
overthrow the Commissioner’s findings is also adequate
to show the correct amount that is due. Id. [Helvering
v. Taylor, 293 U.S. 507 (1935)] at 515. For cases in
which evidence is not adequate to show the correct
amount due, Rule 155 permits the parties to submit
computations to the Court based on the Court’s opinion.
* * *
On the record before us, we reject petitioner’s assertion.
Petitioner’s assertion that the parties stipulated that a
Rule 155 computation was necessary is wrong. The parties
stipulated:
On May 17, 1998, Petitioner filed a Corporation
Application for Tentative Refund (“Form 1139”)
[petitioner’s Form 1139] seeking tentative refunds for
the tax years 1994, 1995, and 1996 of $460,999,
$473,305, and $286,223, respectively. These tentative
refund claims were based on the carryback of a
$3,589,781 claimed net operating loss from the tax year
1997.
* * * Pursuant to I.R.C. § 6511(b), on or about
May 27, 1998, Respondent issued Petitioner tentative
refunds for the tax years 1994, 1995, and 1996, of
$460,999, $473,305, and $286,223, respectively, based
on the Form 1139. If there is a decision on the per
diem issue, a computation will have to take into
account this refund for years in issue.
Tentative refunds, like the tentative refunds that
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respondent issued to petitioner for its taxable years 1994, 1995,
and 1996 (collectively, petitioner’s tentative refunds), are
rebates within the meaning of section 6211(b)(2).52 Baldwin v.
Commissioner, 97 T.C. 704, 707-708 (1991). Pursuant to section
52
Sec. 6211 provides in pertinent part:
SEC. 6211. DEFINITION OF A DEFICIENCY.
(a) In General.--For purposes of this title in the
case of income, estate, and gift taxes imposed by
subtitles A and B * * * the term “deficiency” means the
amount by which the tax imposed by subtitle A or B
* * * exceeds the excess of--
(1) the sum of
(A) the amount shown as the tax by the
taxpayer upon his return, if a return was
made by the taxpayer and an amount was shown
as the tax by the taxpayer thereon, plus
(B) the amounts previously assessed (or
collected without assessment) as a
deficiency, over--
(2) the amount of rebates, as defined in
subsection (b)(2), made.
* * * * * * *
(b) Rules for Application of Subsection (a).--For
purposes of this section--
* * * * * * *
(2) The term “rebate” means so much of an
abatement, credit, refund, or other payment, as
was made on the ground that the tax imposed by
subtitle A or B * * * was less than the excess of
the amount specified in subsection (a)(1) over the
rebates previously made.
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6211(a), the amount of a deficiency for a taxable year is
increased by the amount of any rebates for such taxable year.
In an amendment to answer, respondent asserted increased
deficiencies in tax for petitioner’s taxable years 1994, 1995,
and 1996 on the ground that petitioner was not entitled to
petitioner’s tentative refunds. The Court stated in Transp.
Labor Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at
155 n.2:
Our resolution of the issue remaining for decision
will resolve the issues that respondent raised in the
amendment to answer relating to the disallowance of an
NOL carryback that petitioner claimed from its taxable
year 1997.
Having held in Transport Labor I that the section 274(n)(1)
limitation applied to the per diem amounts that TLC paid to its
driver-employees, it was necessary, in order to calculate the
correct amounts of the deficiencies for petitioner’s taxable
years 1994, 1995, and 1996, respectively, to add the amount of
the tentative refund for each such taxable year to the amount of
the deficiency that respondent had determined in the notice for
each such year. Sec. 6211(a) and (b). That was the computation
to which the Court understood the parties to be referring in the
parties’ stipulation of facts. That computation, which the Court
made, was a straightforward calculation under section 6211(a) and
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(b).53
As for petitioner’s reliance on Helvering v. Taylor, 293
U.S. 507 (1935), that case is materially distinguishable from the
instant case, and petitioner’s reliance on it is misplaced. In
Helvering v. Taylor, supra, the taxpayer carried its burden of
proving that the determination of the Commissioner of Internal
Revenue as to the amount of the taxpayer’s deficiency was
erroneous. However, the taxpayer did not develop a record upon
which the trial court could have determined the correct amount,
if any, of the deficiency. Id. at 511-512. Thus, it was
appropriate in Helvering v. Taylor, supra, for the trial court to
have conducted further proceedings to establish a record from
which the trial court could have determined the appropriate
amount, if any, of the deficiency. See Hamm v. Commissioner, 325
F.2d at 940. In this connection, the Court of Appeals for the
Ninth Circuit stated in Cohen v. Commissioner, 266 F.2d 5, 11
(9th Cir. 1959), remanding T.C. Memo. 1957-172:
When the Commissioner’s determination has been
shown to be invalid, the Tax Court must redetermine the
deficiency. The presumption as to the correctness of
the Commissioner’s determination is then out of the
case. The Commissioner and not the taxpayer then has
the burden of proving whether any deficiency exists and
if so the amount. It is not incumbent upon the
taxpayer under these circumstances to prove that he
owed no tax or the amount of the tax which he did owe.
[Citations and fn. refs. omitted.]
In contrast to Helvering v. Taylor, supra, in Transport
53
Petitioner does not contend that the Court made a mathe-
matical error in making that calculation.
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Labor I petitioner did not carry its burden of proving error in
respondent’s determination in the notice that petitioner was
subject to the section 274(n)(1) limitation with respect to the
per diem amounts that TLC paid to each driver-employee. Thus,
the Court’s holding that TLC was subject to that section
274(n)(1) limitation resulted in the Court’s sustaining
respondent’s determination in the notice with respect to that
limitation. No further proceedings were, or are, appropriate in
the instant case. See Hamm v. Commissioner, supra at 940.
With respect to petitioner’s section 274(e)(3) argument,
petitioner asserts:
The computation of the allowable deduction for
food and beverage expenses is complex, but there is no
dispute about the applicable law. Section 274(a)
completely disallows deductions for certain expenses.
Section 274(n) ameliorates the total disallowance of
274(a) by allowing a 50 percent deduction for food and
beverage expenses. Section 274(e)(3) in turn provides
that “the employer” is not subject to the limitations
of Section 274, where the employee incurs the expense
in the course of performing services for another
person, such as here where the truck drivers incur
expenses while performing services for the trucking
companies. * * * The Section 274(e)(3) exception
applies only where taxpayer “accounts” for the
expenses, as required by Section 274(d). * * *
Petitioner further asserts that uncontradicted evidence
demonstrated that TLC accounted to the trucking company clients
for the per diem amounts that it paid to its driver-employees.
On the record before us, we reject petitioner’s assertion.
Petitioner first raised petitioner’s section 274(e)(3)
argument in its amended petition. However, petitioner did not
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argue, or even mention, petitioner’s section 274(e)(3) argument
in its trial memorandum, at trial, or on brief. Consequently, we
concluded that petitioner had abandoned that argument. See
Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); Rybak v.
Commissioner, 91 T.C. 524, 566 n.19 (1988). It was only after
the Court ruled against petitioner in Transport Labor I that
petitioner decided to resurrect petitioner’s section 274(e)(3)
argument in petitioner’s motion to vacate. By doing so,
petitioner is trying to advance in the context of a Rule 155
computation theories or grounds with respect to a position which
it abandoned before the trial in this case and with respect to
which petitioner wants the Court to hold a second trial at which
petitioner would introduce new evidence in support of that
position.
With respect to petitioner’s tax duplication argument,
petitioner asserts:
As a result of the Court’s Opinion in this case
and without a Rule 155 proceeding, respondent will be
in a windfall position — it will have collected tax on
the same transaction twice. Congress has explicitly
recognized that only one taxpayer should be subject to
the tax. H. Rept. 1447, 87th Cong., 2d Sess. (1962),
1962-3 C.B. 405, 429; see also Treas. Reg. § 1.274-
2(f)(2)(iv)(a). Respondent’s computations in the
Notices of Deficiency fail to take that double payment
of tax into account.
At the time of the audit of TLC’s returns for the
years at issue, the examining agent also was reviewing
information related to TLC’s customers to determine
whether the customers had applied the deduction
limitation. The agent informed TLC during the
examination that a significant number of TLC’s
customers applied the Section 274(n) deduction
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limitation.[54]
Accordingly, the actions and return positions of
the other trucking companies must be reviewed to
determine whether the deficiencies computed by
respondent are correct. We respectfully request,
therefore, that the Court vacate its Order [sic] of
August 16 and order the parties to submit computations
pursuant to Rule 155. This will permit the parties the
opportunity to determine whether TLC’s liability should
be reduced by the amounts already paid by parties to
the transaction.
On the record before us, we reject petitioner’s assertion.
Petitioner did not advance petitioner’s tax duplication
argument in its petition, in its trial memorandum, at trial, or
on brief. It was only after the Court ruled against petitioner
in Transport Labor I that petitioner decided to advance
petitioner’s tax duplication argument in petitioner’s motion to
vacate. By doing so, petitioner is trying to advance in the
context of a Rule 155 computation a new argument that it is
raising for the first time in petitioner’s motion to vacate.55
54
There was no evidence in the record in this case estab-
lishing: (1) That the examining agent who audited the consoli-
dated return that petitioner filed for each of the years at issue
also conducted an audit of any of TLC’s trucking company clients
and (2) that any such examining agent made any statements to
petitioner’s officers, directors, or employees that a significant
number of TLC’s customers applied the sec. 274(n)(1) limitation
to any amounts that they paid to TLC.
55
Even if we were to allow petitioner to advance
petitioner’s tax duplication argument, petitioner would not be
entitled to the remedy it seeks. If, as petitioner asserts,
certain trucking company clients applied the sec. 274(n)(1)
limitation to certain amounts that they paid to TLC as a lease
fee, our findings and conclusions in Transport Labor I may have
resulted in such trucking company clients’ having overpayments of
tax. The appropriate remedy in any such situation would be for
any such trucking company client to seek a refund of any such
(continued...)
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Generally, new issues may not be raised in a Rule 155
computation. Harris v. Commissioner, 99 T.C. at 123.
Based upon our examination of the entire record before us,
we reject petitioner’s argument that the parties stipulated that
a computation under Rule 155 is necessary in order to determine
the effect on the respective deficiencies for the years at issue
of the tentative refunds that respondent erroneously issued to
petitioner for such years. Based on that examination, we further
find that petitioner’s motion to vacate advances theories or
grounds with respect to positions which petitioner raised for the
first time in petitioner’s motion to vacate or which petitioner
abandoned before the trial in this case and with respect to which
petitioner wants the Court to hold a second trial at which
petitioner would introduce new evidence in support of those
positions.
For the foregoing reasons and the reasons discussed above in
connection with the Court’s denial of petitioner’s motion for
reconsideration, we shall deny petitioner’s motion to vacate.
We have considered all of the contentions and arguments of
petitioner and respondent that are not discussed herein, and we
find them to be without merit, irrelevant, and/or moot.
55
(...continued)
overpayment.
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To reflect the foregoing,
An order will be issued
denying petitioner’s motion for
reconsideration and petitioner’s
motion to vacate.