Kraatz & Craig Surveying Inc. v. Commissioner

KRAATZ & CRAIG SURVEYING INC., PETITIONER v.

COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT

Docket No. 26152–08. Filed April 13, 2010.

P’s only activity is land surveying in Tennessee. P does not

employ any licensed engineers, is not associated with any firm

that employs licensed engineers, and does not provide any

services that State law requires to be performed only by a

licensed engineer. Pursuant to sec. 1.448–1T(e)(4)(i), Tem-

porary Income Tax Regs., 52 Fed. Reg. 22768 (June 16, 1987)

(the temporary regulation), engineering includes surveying

and mapping. R determined that P’s land surveying con-

stitutes the performance of services in the field of engineering

pursuant to the temporary regulation and that, therefore, P is

a qualified personal service corporation as defined in sec.

167

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168 134 UNITED STATES TAX COURT REPORTS (167)

448(d)(2), I.R.C., subject to a flat 35-percent income tax rate

under sec. 11(b)(2), I.R.C. P asserts that the temporary regu-

lation is invalid or, if valid, means that surveying and map-

ping services, if performed by an engineer, would qualify as

services in the qualifying field of engineering and does not

apply in P’s situation. P asserts, citing Grutman-Mazler Engg.

Inc. v. Commissioner, T.C. Memo. 2008–140, and Alron

Engg. & Testing Corp. v. Commissioner, T.C. Memo. 2000–

335, that the Court should look to State law to decide whether

surveying is in the field of engineering. P contends that land

surveying in Tennessee can be performed only by a licensed

land surveyor and that P is not licensed to perform any

activity which State law requires to be performed by a

licensed engineer.

1. Held: Whether a service is performed in a qualifying field

under sec. 448(d)(2), I.R.C., is to be decided by examining all

relevant indicia and is not controlled by State licensing laws.

See Rainbow Tax Serv., Inc. v. Commissioner, 128 T.C. 42,

46–47 (2007).

2. Held, further, the temporary regulation is supported by

the legislative history, by the ordinary meaning of the term

‘‘civil engineering’’, which encompasses surveying, Webster’s

Third New International Dictionary 413 (2002), and by other

indicia that surveying is regarded as within the field of

engineering; it is valid under Natl. Muffler Dealers Associa-

tion v. United States, 440 U.S. 472 (1979) (it implements the

congressional mandate in a reasonable manner), and under

Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467

U.S. 837, 842–843 (1984) (it is not arbitrary, capricious, or

manifestly contrary to the statute).

3. Held, further, P’s land surveying is a service performed

in the field of engineering under sec. 448(d)(2), I.R.C., and P

is subject to the flat 35-percent income tax rate under sec.

11(b)(2), I.R.C.

Maurice W. Gerard, for petitioner.

Caroline R. Krivacka, for respondent.

OPINION

DAWSON, Judge: Respondent determined a deficiency of

$9,762 in petitioner’s Federal income tax for its tax year

ending December 31, 2005. In the notice of deficiency,

respondent determined that petitioner is a qualified personal

service corporation under section 448 subject to a flat 35-per-

cent income tax rate under section 11(b)(2). 1 Whether peti-

1 Unless otherwise indicated, section references are to the Internal Revenue Code in effect for

2005, and Rule references are to the Tax Court Rules of Practice and Procedure.

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 169

tioner is a qualified personal service corporation depends

upon whether petitioner’s sole activity of land surveying con-

stitutes the performance of services in the field of

engineering for purposes of section 448.

Background

This case was submitted fully stipulated under Rule 122,

and the stipulated facts are incorporated as our findings by

this reference. 2

Petitioner was incorporated under the laws of the State of

Tennessee. Its principal place of business is Seymour, Ten-

nessee. Petitioner timely filed Form 1120, U.S. Corporation

Income Tax Return, for 2005, reporting taxable income of

$48,808 and tax of $7,321.

Petitioner is in the business of surveying land, and land

surveying is the only service petitioner provides. Petitioner

does not have any employees who are licensed engineers, is

not associated with any firm that employs licensed engineers,

and does not provide any services that State law requires to

be performed only by a licensed engineer.

Discussion

I. Applicable Sections of the Internal Revenue Code and

Regulations

Section 11(a) imposes a tax on the taxable income of every

corporation. Although for Federal income tax purposes cor-

porations generally are taxed at graduated income tax rates

under section 11(b)(1), qualified personal service corporations

as defined in section 448(d)(2) are taxed at a flat 35-percent

income tax rate. Sec. 11(b)(2).

A qualified personal service corporation is any corporation

that satisfies a function test and an ownership test. Sec.

448(d)(2). Petitioner argues that it is not a qualified personal

service corporation because it does not meet the function

test. 3

2 Respondent previously filed a motion for summary judgment pursuant to Rule 121. The par-

ties’ submission of the case fully stipulated renders that motion moot.

3 Petitioner has not asserted that it does not satisfy the ownership test and is deemed, there-

fore, to have conceded that the ownership test is satisfied if its land surveying is in the field

of engineering.

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170 134 UNITED STATES TAX COURT REPORTS (167)

The function test requires that substantially all of the cor-

poration’s activities involve the performance of services in

the fields of ‘‘health, law, engineering, architecture,

accounting, actuarial science, performing arts, or consulting’’

(qualifying field). Sec. 448(d)(2)(A). Section 1.448–1T(e)(4)(i),

Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June 16,

1987) (sometimes the temporary regulation), provides:

(4) Function test.—(i) In general.—A corporation meets the function test

if substantially all the corporation’s activities for a taxable year involve the

performance of services in one or more of the following fields—

(A) Health,

(B) Law,

(C) Engineering (including surveying and mapping),

(D) Architecture,

(E) Accounting,

(F) Actuarial science,

(G) Performing arts, or

(H) Consulting.

Substantially all of the activities of a corporation are involved in the

performance of services in any field described in the preceding sentence (a

qualifying field), only if 95 percent or more of the time spent by employees

of the corporation, serving in their capacity as such, is devoted to the

performance of services in a qualifying field. For purposes of determining

whether this 95 percent test is satisfied, the performance of any activity

incident to the actual performance of services in a qualifying field is

considered the performance of services in that field. Activities incident to

the performance of services in a qualifying field include the supervision of

employees engaged in directly providing services to clients, and the

performance of administrative and support services incident to such activi-

ties.

II. Positions of the Parties

Respondent determined that petitioner’s land surveying

constitutes the performance of services in the field of

engineering pursuant to section 1.448–1T(e)(4)(i), Temporary

Income Tax Regs., supra. Respondent asserts that the regula-

tion is supported by the legislative history and reflects the

congressional intent.

Petitioner asserts that the temporary regulation as inter-

preted and applied by respondent is invalid in that it

expands the meaning of engineering beyond the ordinary

meaning and brings into the definition of engineering the

entirely separate profession of land surveying. Citing

Grutman-Mazler Engg. Inc. v. Commissioner, T.C. Memo.

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 171

2008–140, and Alron Engg. & Testing Corp. v. Commissioner,

T.C. Memo. 2000–335, petitioner asserts that the Court

should look to State law to determine whether an activity is

the performance of a service ‘‘in the field of engineering’’.

Petitioner asserts that its land surveying is not performed in

the field of engineering because the activities of engineering

and land surveying are separately licensed and administered

under Tennessee law. For completeness, we briefly summa-

rize the relevant State law provisions.

III. Tennessee Registration Requirements for Engineers and

Land Surveyors

It is unlawful for any person to practice either land sur-

veying or engineering in Tennessee unless the person has

been duly registered or is exempted from registration under

Tennessee law. Tenn. Code Ann. secs. 62–18–101(b), 62–2–

101 (2009). Land surveying and engineering require separate

registration and are governed by separate boards and stat-

utes.

The practice of land surveying is governed by Tenn. Code

Ann. secs. 62–18–101 to 62–18–127 (2009) and regulated by

the State Board of Examiners for Land Surveyors. The prac-

tice of engineering is governed by the applicable provisions

of Tenn. Code Ann. secs. 62–2–101 to 62–2–406, 62–2–601,

and 62–2–602 (2009) and regulated by the State Board of

Examiners for Architects and Engineers.

A person who has not practiced surveying for at least 10

years and who wishes to practice land surveying in Ten-

nessee must pass the fundamentals of land surveying exam-

ination prepared by the National Council of Examiners for

Engineering and Surveying (NCEES). Tenn. Code Ann. sec.

62–18–109. A person wishing to practice engineering in Ten-

nessee must pass two examinations prepared by NCEES—the

fundamentals of engineering examination (not required with

undergraduate engineering degree and 12 or more years of

progressive engineering experience) and the principles and

practice of engineering examination. 4 Id. secs. 62–2–401, 62–

2–402, 62–2–405.

4 The NCEES prepares separate fundamentals of engineering exams for the seven major engi-

neering disciplines (chemical, civil, electrical, environmental, industrial, mechanical, and other

disciplines); two-thirds of the questions cover all disciplines (breadth part) and one-third covers

Continued

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172 134 UNITED STATES TAX COURT REPORTS (167)

Tennessee statutes and regulations do not define the prac-

tice of engineering. However, Tenn. Code Ann. sec. 62–18–

102(3) defines the ‘‘Practice of land surveying’’ as follows:

‘‘Practice of land surveying’’ means any service of work, the adequate

performance of which involves the application of special knowledge of the

principles of mathematics, the related physical and applied sciences and

the relevant requirements of law for adequate evidence to the act of meas-

uring and locating lines, angles, elevations, natural and man-made fea-

tures in the air, on the surface of the earth, within underground workings

and on the beds of bodies of water for the purpose of determining areas

and volumes, for the monumenting of property boundaries and for the plat-

ting and layout of lands and subdivisions of land, including the topog-

raphy, drainage, alignment and grades of streets, and for the preparation

and perpetuation of maps, records, plats, field notes, records and property

descriptions that represent these surveys * * *

There is some overlap between the functions of a licensed

engineer and those of a licensed land surveyor; e.g., either a

registered engineer or a registered land surveyor may pre-

pare a detailed topographic map to accompany an application

for a coal surface mining operations permit pursuant to

Tenn. Code Ann. sec. 59–8–407 (2002). The Tennessee State

Board of Examiners for Architects and Engineers has

adopted the following delineation of engineering and sur-

veying:

1. Land surveying, measurement and calculation of areas, boundaries,

property lines, the subdivision of property and the plotting thereof must

be done by a surveyor and his drawing must bear his seal.

2. Subdivision road alignment, road grades, cutting and filling of subdivi-

sion lots, and changes to the topography which involves a final grading

plan may be performed by either an engineer or a surveyor; the designer’s

seal must be applied to the drawing. In localities where instability of final

grades and slopes requires analysis of soils to prevent conditions haz-

ardous to life and property, design of roads, slopes, ditches, and building

sites must be done by an engineer.

3. Culverts, storm drainage pipes, water lines, sewer lines, electric power

lines or other utilities not existing prior to development shall not be shown

the specific discipline (depth part). Eleven percent of the questions in the depth part of the fun-

damentals of engineering examination for civil engineering are questions on surveying.

NCEES prepares separate principles and practice of engineering examinations in 25 engineer-

ing disciplines or subdisciplines. The civil engineering exam covers five subdisciplines–construc-

tion, geotechnical, structural, transportation, and water resources and environmental—and con-

sists of a breadth part and a depth part. The breadth part contains questions from all five sub-

disciplines of civil engineering. The depth exams focus more closely on a single subdiscipline of

civil engineering.

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 173

on a subdivision drawing unless that drawing bears the seal of the engi-

neer who designed them.

4. The issue of whether or not the design of storm water drainage systems

may be conducted by a licensed land surveyor was addressed in an opinion

by the Attorney General’s Office on February 9, 2004 (Opinion No. 04–

018). That Opinion answers the question: ‘‘Does the statute (Tenn. Code

Ann. §62–18–102(3), defining the ‘‘practice of land surveying’’) allow land

surveyors to conduct and perform drainage design and calculations

required for the construction of subdivisions, including determining the

detention and retention of storm water as well as determining the size of

ponds, basins, pipes and culverts which hold and through which storm

water will flow?’’ The Opinion concludes, based on its analysis and past

authorities, that a licensed land surveyor who is not a registered engineer

may not conduct drainage design and calculations of this kind. * * *

[Tennessee State Board of Architectural and Engineering Examiners,

Reference Manual for Building Officials and Design Professionals, app. H,

Design and Practice Policies, IV. Delineation of Engineering and Surveying

(Adopted Jan. 26, 1990; rev. and adopted Oct. 4, 1997; rev. and adopted

July 10, 2008).]

IV. Caselaw

Petitioner asserts that because land surveying in Ten-

nessee cannot be performed by a licensed engineer who is not

also a licensed land surveyor, land surveying in Tennessee is

not in the field of engineering. Petitioner concludes that, con-

sistent with Grutman-Mazler Engg. Inc. v. Commissioner,

T.C. Memo. 2008–140, and Alron Engg. & Testing Corp. v.

Commissioner, T.C. Memo. 2000–335, its land surveying is

not in the field of engineering. But cf. Rainbow Tax Serv.,

Inc. v. Commissioner, 128 T.C. 42, 47 (2007) (whether serv-

ices were within the field of accounting under section

448(d)(2) not controlled by State licensing laws).

In Alron Engg. & Testing Corp. v. Commissioner, supra,

the taxpayer, a Wisconsin corporation, performed both

engineering services and geotechnical testing services. At

issue was whether the geotechnical testing was within the

field of engineering under section 448(d)(2). We observed that

under Wisconsin law an engineer licensed with the State

must meet certain minimum education, experience, and

examining board requirements but that there are no

standard minimum requirements for technicians who per-

form geotechnical testing services under the laws of Wis-

consin. We concluded that geotechnical testing did not

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174 134 UNITED STATES TAX COURT REPORTS (167)

require the same education, training, and mastery as

engineering and held that it did not constitute engineering.

In Rainbow Tax Serv., Inc. v. Commissioner, supra, we

held that tax return preparation and bookkeeping services

provided by a Nevada corporation were within the qualifying

field of accounting under section 448(d)(2). In that case,

although we examined State law, we noted that section

448(d)(2) requires only that the services be in the ‘‘field of

accounting’’ and is not limited to public accounting. Id. at 46.

We declined to limit services performed in the field of

accounting to those requiring State licensure. Rather, we

applied the regulations promulgated under section 448 and

the ordinary meaning of the words ‘‘accounting’’ and ‘‘book-

keeping’’ (defined as a branch of accounting), noted that

under Nevada law ‘‘public accounting’’ includes ‘‘the prepara-

tion of tax returns’’, and considered that the ‘‘field of

accounting’’ historically included tax return preparation and

bookkeeping services. Id. at 46–47. Thus, although neither

tax return preparation nor bookkeeping requires the same

education, training, and mastery as accounting, we held that

those activities were services in the field of accounting. Cf.

Alron Engg. & Testing Corp. v. Commissioner, supra.

In Alron Engg. & Testing Corp. we looked primarily to

State law in holding that geotechnical testing was not in the

field of engineering. We did not consider other indicia that

might indicate that geotechnical engineering is a branch of

civil engineering that historically includes geotechnical

testing. 5 See supra note 4. However, Rainbow Tax Serv., Inc.

instructs us to consider other indicia in deciding whether a

service is performed in a qualifying field under section

448(d)(2). We shall do so here in deciding whether section

1.448–1T(e)(4)(i), Temporary Income Tax Regs., supra, prop-

erly includes surveying in the field of engineering for pur-

poses of section 448(d)(2).

5 The NCEES principles and practice of engineering breadth examination for civil engineering

includes questions on material testing (e.g., concrete, soil, asphalt) and subsurface exploration

and sampling (soil classification and boring log interpretation). The depth exam for geotechnical

civil engineering includes questions on subsurface exploration and sampling, covering drilling

and sampling procedures, soil classification, general rock characterization, boring log interpreta-

tion, and in situ testing.

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 175

V. ‘‘Field of Engineering’’

When a court reviews an agency’s construction of the

statute which it administers, ‘‘if the statute is silent or

ambiguous with respect to the specific issue, the question for

the court is whether the agency’s answer is based on a

permissible construction of the statute.’’ Chevron U.S.A. Inc.

v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–843

(1984). A regulation adopting a ‘‘permissible construction’’ of

a statute is due deference ‘‘if the statute is silent or ambig-

uous with respect to the specific issue’’. Id. at 843; see also

Bingler v. Johnson, 394 U.S. 741, 751 (1969) (regulation was

valid where definitions of terms in the regulation ‘‘[com-

ported] with the ordinary understanding of ’’ the terms).

Thus, we first must decide whether the temporary regula-

tion’s inclusion of surveying in the field of engineering is a

permissible construction of section 448(d)(2).

The words of a statute should be given their normal

meaning and effect in the absence of a showing that some

other meaning was intended. Leocal v. Ashcroft, 543 U.S. 1,

9 (2004). If the intent of Congress is clearly and unambig-

uously expressed by the statutory language at issue, the

Court must apply the statute according to its terms. Zuni

Pub. Sch. Dist. No. 89 v. Dept. of Educ., 550 U.S. 81, 93–94

(2007) (‘‘normally neither the legislative history nor the

reasonableness of the Secretary’s method would be deter-

minative if the plain language of the statute unambiguously

indicated that Congress sought to foreclose the Secretary’s

interpretation’’).

Section 448 lists eight qualifying fields but does not define

any of them. When interpreting the text of a statute, courts

frequently begin by looking to the common and ordinary

meaning of a word set forth in a dictionary. See, e.g., Carcieri

v. Salazar, 555 U.S. ll, ll, 129 S. Ct. 1058, 1063–1064

(2009); Rousey v. Jacoway, 544 U.S. 320, 326 (2005); Carlson

v. Commissioner, 116 T.C. 87, 94 (2001). However, analyses

of the legislative history and purpose of a statute are also

traditional tools of statutory construction. ‘‘If a court,

employing traditional tools of statutory construction,

ascertains that Congress had an intention on the precise

question at issue, that intention is the law and must be given

effect.’’ Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.,

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176 134 UNITED STATES TAX COURT REPORTS (167)

supra at 843 n.9. We begin our analysis with the legislative

history because it provides evidence of congressional intent

with respect to the precise point at issue. See Zuni Pub. Sch.

Dist. No. 89 v. Dept. of Educ., supra at 105–106 (Stevens, J.,

concurring).

A. Legislative History and Purpose

Congress enacted section 448, which generally prohibits C

corporations, partnerships that have a C corporation as a

partner, and tax shelters from using the cash method of

accounting, as part of the Tax Reform Act of 1986, Pub. L.

99–514, sec. 801, 100 Stat. 2345. Before the enactment of sec-

tion 448, taxpayers whose businesses did not involve inven-

tories generally could elect to use any method of accounting

that clearly reflected income and that was regularly used in

keeping the taxpayer’s books and records under section 446.

Congress enacted section 448(a) because it believed ‘‘that the

cash method of accounting frequently fails to reflect

accurately the economic results of a taxpayers’s trade or

business over a taxable year.’’ H. Rept. 99–426, at 605 (1985),

1986–3 C.B. (Vol. 2) 1, 605. However, Congress recognized

that the simplicity of the cash method justified its continued

use by certain types of taxpayers and for certain types of

activities. Id. Congress recognized that individuals, especially

those engaged in professional activities, personal service cor-

porations, and entities where the income is taxed at the indi-

vidual level (such as partnerships and S corporations)

traditionally had used the cash method of accounting in the

operation of their trades or businesses and should be able to

continue to use that method. Id. Thus, in section 448(b) Con-

gress provided exceptions to section 448(a), including the

exception for qualified personal service corporations defined

in section 448(d)(2).

The conference report on the Tax Reform Act of 1986, Pub.

L. 99–514, sec. 801, 100 Stat. 2345, states:

A qualified personal service corporation is a corporation that meets both

a function test and an ownership test. The function test is met if substan-

tially all the activities of the corporation are the performance of services

in the field of health, law, engineering (including surveying and mapping),

architecture, accounting, actuarial science, performing arts or consulting.

[H. Conf. Rept. 99–841 (Vol. II), at II–285 (1986), 1986–3 C.B. (Vol. 4) 1,

285; emphasis added.]

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 177

The conference report shows that Congress intended sur-

veying and mapping to be treated as services performed in

the field of engineering for purposes of the function test. 6

The temporary regulation reflects that intent.

B. Definitions of Engineering and Civil Engineering

Webster’s Third New International Dictionary 752 (1993)

defines ‘‘engineering’’ as:

the science by which the properties of matter and the sources of energy

in nature are made useful to man in structures, machines and products—

see chemical engineering, civil engineering, electrical engineering,

hydraulic engineering, industrial engineering, mechanical engineering,

municipal engineering, sanitary engineering[.]

The field of engineering includes any branch of

engineering. See Rainbow Tax Serv., Inc. v. Commissioner,

128 T.C. at 47 (the field of accounting includes bookkeeping,

defined in Webster’s Third New International Dictionary

(1981) as a ‘‘branch’’ of accounting).

Webster’s Third New International Dictionary 413 (2002)

defines ‘‘civil engineering’’ as ‘‘a branch of engineering con-

cerned primarily with public works (as land surveying, the

building of highways, bridges, waterways, or harbors * * *)

but also embracing private enterprises (as railroad and air-

port building, private building construction, and farm drain-

age)’’. (Emphasis added.) Thus, land surveying is within the

ordinary meaning of engineering.

C. Other Indicia

‘‘The traditional concept of civil engineering is the

integrated practice of engineering embracing a number of

related specialty areas including, but not limited to, construc-

tion, transportation, structures, water resources and environ-

mental, and geotechnical engineering.’’ American Society of

6 The year after the enactment of sec. 448, in the Omnibus Budget Reconciliation Act of 1987,

Pub. L. 100–203, sec. 10224, 101 Stat. 1330–412, Congress amended sec. 11(b), making qualified

personal service corporations defined in sec. 448(d)(2) ineligible for the graduated income tax

rates contained in sec. 11(b)(1) and imposing tax on them at the highest rate (34 percent at

that time). The House Ways and Means Committee explained:

The personal service income of corporations owned by its employees is taxed to the employee-

owners at the individual graduated rates as it is paid out as salary. The committee believes that

it is inappropriate to allow the retained earnings to be taxed at the lower corporate graduated

rates. [H. Rept. 100–391 (Part 2), at 1097 (1987).]

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178 134 UNITED STATES TAX COURT REPORTS (167)

Civil Engineers (ASCE) Policy Statement 432 (first approved

1994, adopted May 2, 2008). 7

ASCE recently adopted Policy Statement 333 (adopted April

24, 2007) in response to ‘‘some confusion with respect to the

role of civil engineers in the practice of surveying’’ and the

‘‘lack of understanding on the part of certain engineering dis-

ciplines, other than civil, of the importance of surveying to

the practice of civil, aeronautical, mechanical, and mining

engineering, among others.’’ Id. Policy Statement 333 defines

‘‘Engineering surveying’’ as follows:

Policy

Engineering surveying is defined as those activities involved in the plan-

ning and execution of surveys for the location, design, construction, oper-

ation, and maintenance of civil and other engineered projects.

Such activities include:

The preparation of survey and related mapping specifications;

Execution of photogrammetric and field surveys for the collection of

required data, including topographic and hydrographic data;

Calculation, reduction and plotting of survey data for use in engineering

design;

Design and provision of horizontal and vertical control survey networks;

Provision of line and grade and other layout work for construction and

mining activities;

Execution and certification of quality control spatial measurements during

construction;

Monitoring of ground and structural stability, including alignment

observations, settlement levels, and related reports and certifications;

Measurement of material and other quantities for inventory, economic

assessment and cost accounting purposes;

Execution of as built surveys and preparation of related maps and plans

and profiles upon completion of construction; and

Analysis of errors and tolerances associated with the measurement, field

layout and mapping or other plots of survey measurement required in sup-

port of engineering projects.

Engineering surveying may be regarded as a specialty within the

broader professional practice of engineering and, with the exception of

boundary, right of way, or other cadastral[8] surveying, includes all sur-

7 The American Society of Civil Engineers, founded in 1852, is America’s oldest national engi-

neering society, representing more than 147,000 members of the civil engineering profession

worldwide. See http://www.asce.org/inside/.

8 Webster’s Third New International Dictionary 311 (2002) defines ‘‘cadastral’’ as ‘‘1: of or re-

lating to the records of a cadastre: concerned with assembling or keeping the records necessary

to the cadastre 2 of a map or survey: showing or recording property boundaries, subdivision

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 179

veying and mapping activities required to support the sound conception,

planning, design, construction, maintenance and operation of engineered

projects. Engineering surveying does not include surveys for the

retracement of existing land ownership boundaries or the creation of new

boundaries.

* * * * * * *

Rationale

Engineering surveying is one of the necessary skills of a civil engineer.

A civil engineer may specialize in engineering surveying, thereby devel-

oping the necessary expertise in the execution and analysis of measure-

ments to the highest level practicable. The engineering surveyor, as a spe-

cialist, supports and serves other civil engineers in their task of designing

and constructing manmade works for the benefit of mankind. While a civil

engineer may not engage full time in engineering surveying and may not

be considered an expert on all aspects of engineering surveying, they must

be well qualified to perform those aspects of surveying relevant to their

professional activities.

Preparation of a detailed topographic map to accompany

an application for a coal surface mining operations permit

and subdivision road alignment, road grades, cutting and

filling of subdivision lots, and changes to the topography

which involves a final grading plan falls within the ASCE

definition of surveying engineering. In Tennessee those

activities may be performed by a licensed land surveyor as

well as a licensed engineer.

ASCE publishes various journals that provide technical

information for the civil engineering profession, including the

Journal of Surveying Engineering. An article on the history

of engineering surveying by William E. Kreisle published in

the Journal of Surveying Engineering traces the development

of the engineering surveyor, his equipment, and his methods.

Kreisle, ‘‘History of Engineering Surveying’’, 114 J. Surv.

Engg. 102–124 (1988). In the abstract of the article, Kreisle

observes that ‘‘The engineering surveyor, who evolved from

the land surveyor, was the forerunner of all civil engineers,

including the founders of the American Society of Civil Engi-

neers.’’ Id. at 102.

lines, buildings, and other details’’; Black’s Law Dictionary 195 (8th ed. 1999) defines ‘‘cadastre’’

(also spelled ‘‘cadaster’’) as ‘‘A survey and valuation of real estate in a county or region compiled

for tax purposes.’’

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180 134 UNITED STATES TAX COURT REPORTS (167)

D. State Licensing Laws Not Controlling

The inclusion of surveying in the field of engineering is

supported by the legislative history. Civil engineering is a

branch of engineering, and land surveying falls within the

ordinary meaning of engineering and historically is regarded

as within the field of engineering. The fact that land sur-

veying may be performed by an individual who is not a

licensed engineer does not remove those services from the

‘‘field of engineering’’. See Rainbow Tax Serv., Inc. v.

Commissioner, 128 T.C. at 46 (tax preparation and book-

keeping services are within the field of accounting even when

performed by a corporation that employs no licensed

C.P.A.’s).

‘‘The meaning of the words or the legal status of cir-

cumstances for federal tax purposes need not be identical to

their meaning or their legal effect under state law.’’ Estate of

Steffke v. Commissioner, 538 F.2d 730, 732 (7th Cir. 1976)

(citing Commissioner v. Tower, 327 U.S. 280 (1946), and

Lyeth v. Hoey, 305 U.S. 188 (1938). In interpreting a Federal

taxing statute the Supreme Court said:

Here we are concerned only with the meaning and application of a

statute enacted by Congress, in the exercise of its plenary power under the

Constitution, to tax income. The exertion of that power is not subject to

state control. It is the will of Congress which controls, and the expression

of its will in legislation, in the absence of language evidencing a different

purpose, is to be interpreted so as to give a uniform application to a

nation-wide scheme of taxation. * * * State law may control only when the

federal taxing act, by express language or necessary implication, makes its

own operation dependent upon state law. * * *

Burnet v. Harmel, 287 U.S. 103, 110 (1932); see also United

States v. Pelzer, 312 U.S. 399, 402–403 (1941); Lyeth v. Hoey,

supra at 194. Thus, the provisions of the revenue laws ‘‘ ‘are

not to be taken as subject to state control or limitation unless

the language or necessary implication of the section involved

makes its application dependent on state law.’ ’’ United States

v. Irvine, 511 U.S. 224, 239 (1994) (quoting United States v.

Pelzer, supra at 402–403).

We can find no basis in the text of section 448(d)(2) or its

legislative history to conclude that Congress intended to

condition the meaning of ‘‘services in the field of engineering’’

(or any other qualifying field) on State law. In NLRB v.

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(167) KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER 181

Hearst Publns., Inc., 322 U.S. 111, 123 (1944), the Supreme

Court rejected an argument that the term ‘‘employee’’ as

used in a Federal statute should be defined by State law,

explaining:

Both the terms and the purposes of the statute, as well as the legislative

history, show that Congress had in mind no * * * patchwork plan * * *.

* * * Nothing in the statute’s background, history, terms or purposes

indicates its scope is to be limited by * * * varying local conceptions,

either statutory or judicial, or that it is to be administered in accordance

with whatever different standards the respective states may see fit to

adopt for the disposition of unrelated, local problems. * * *

Similarly, nothing in the backgrounds, histories, terms, or

purposes of sections 11(b)(2) and 448(d)(2) indicates that they

are to be administered in accordance with different licensing

standards States may adopt. Because State licensing laws

governing engineering (and other qualifying fields) differ

from State to State, defining a qualifying field by State

licensing laws would mean that conduct in one State might

constitute the performance of services in a qualifying field,

whereas identical conduct in a neighboring State would not.

‘‘Congress has given no indication it intended the criminality

of official conduct under federal law to depend on geography.’’

United States v. Weyhrauch, 548 F.3d 1237, 1246 (9th Cir.

2008).

Whether a service is performed in one of the qualifying

fields under section 448(d)(2) is to be decided by all relevant

indicia, including the text of the statute, its legislative his-

tory and regulations, application of the normal meaning of

the term ‘‘health’’, ‘‘law’’, ‘‘engineering’’, ‘‘architecture’’,

‘‘accounting’’, ‘‘actuarial science’’, ‘‘performing arts’’, or ‘‘con-

sulting’’, and examination of services historically regarded as

within the qualifying field. See Rainbow Tax Serv., Inc. v.

Commissioner, 128 T.C. 42 (2007).

VI. Conclusion

We hold that section 1.448–1T(e)(4)(i), Temporary Income

Tax Regs., supra, is a reasonable interpretation of the

statute, supported by the legislative history; by the ordinary

meaning of the word ‘‘engineering’’, which encompasses sur-

veying; and by other indicia, that surveying is regarded as

within the field of engineering. It implements the congres-

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182 134 UNITED STATES TAX COURT REPORTS (167)

sional mandate in a reasonable manner and is not arbitrary,

capricious, or manifestly contrary to the statute. Accordingly,

it is valid under both Natl. Muffler Dealers Association v.

United States, 440 U.S. 472 (1979), and Chevron U.S.A. Inc.

v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). 9 We

hold further that petitioner’s land surveying is within the

field of civil engineering, which in turn is within the field of

engineering, and that petitioner is a qualified personal

service corporation defined in section 448(d)(2) and subject to

the flat 35-percent income tax rate under section 11(b)(2).

To reflect the foregoing,

An appropriate order and decision for

respondent will be entered.

f

9 Under Natl. Muffler Dealers Association v. United States, 440 U.S. 472 (1979), an interpreta-

tive regulation is valid if it implements a congressional mandate in a reasonable manner. By

contrast, under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984),

a legislative regulation is upheld ‘‘unless arbitrary, capricious, or manifestly contrary to the stat-

ute’’.

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