SECC Corp. v. Commissioner

SECC CORPORATION, PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 3937–12. Filed April 3, 2014.

In this case brought under I.R.C. sec. 7436, P seeks our

determination of the proper classification of P’s workers for

employment tax purposes and certain related issues. R sent P

a letter (Apr. 15, 2011, letter) which stated that P’s employ-

225

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226 142 UNITED STATES TAX COURT REPORTS (225)

ment tax liabilities as determined by Appeals will be assessed.

The letter was not sent by certified or registered mail. P peti-

tioned this Court more than 90 days after R sent the Apr. 15,

2011, letter. Held: The Apr. 15, 2011, letter was a determina-

tion relating to the classification of P’s workers for employ-

ment tax purposes. Held, further, the determination related to

matters specified in I.R.C. sec. 7436(a) over which we have

jurisdiction. Held, further, the determination related to an

actual controversy in connection with an audit which was part

of an examination. Held, further, because R did not send P a

notice of determination by certified or registered mail, the 90-

day period for filing an action in the Court provided in I.R.C.

sec. 7436(b)(2) is inapplicable and the petition is timely. Held,

further, I.R.C. sec. 7436(d)(1), applying the principles of sev-

eral listed Internal Revenue Code sections to I.R.C. sec. 7436,

does not alter our holdings stated above. Held, further, R’s

motion to dismiss for lack of jurisdiction and P’s cross-motion

to dismiss for lack of jurisdiction will be denied.

Alvah Lavar Taylor, for petitioner.

Vladislav M. Rozenzhak, for respondent.

OPINION

COLVIN, Judge: This case is before the Court on respond-

ent’s motion to dismiss for lack of jurisdiction and peti-

tioner’s cross-motion to dismiss for lack of jurisdiction. The

issue for decision is whether we have jurisdiction to deter-

mine whether respondent’s worker classification determina-

tion was correct. We hold that we have jurisdiction. 1

Background

The record establishes and/or the parties do not dispute

the following.

Petitioner was a California corporation with its principal

office in Corona, California, when it filed the petition.

A. Petitioner’s Business and Petitioner’s Workers

During the tax periods in issue petitioner operated a busi-

ness connecting cable lines (cable splicing) for corporate and

residential customers. From 2005 through 2007 petitioner

1 Unless

otherwise indicated, section references are to the Internal Rev-

enue Code in effect for the years in issue, and Rule references are to the

Tax Court Rules of Practice and Procedure. We round monetary amounts

to the nearest dollar.

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(225) SECC CORP. v. COMMISSIONER 227

employed 117 to 145 workers whom it paid to perform cable

splicing services.

During the tax periods in issue petitioner treated its

workers in dual capacities: as employees and as independent

contractors, i.e., as lessors to petitioner of tools and vehicles

they were required to provide in connection with providing

services for petitioner. Petitioner reported taxable hourly

wages for its workers on Forms W–2, Wage and Tax State-

ment. Petitioner also made payments to its workers for

rental of tools and vehicles (equipment lease payments). Peti-

tioner did not classify its workers as employees for purposes

of equipment rental. Petitioner reported the equipment lease

payments on Forms 1099–MISC, Miscellaneous Income, as

nonemployee compensation for 2005 and as rent for 2006 and

2007.

B. The IRS Examination and Appeals Process

In 2008 respondent audited petitioner’s Forms 941,

Employer’s Quarterly Federal Tax Return, for all tax periods

in 2005, 2006, and 2007. On September 24, 2008, respondent

sent petitioner an audit report (30-day letter) stating that

the Examination Division had concluded that petitioner is

liable for the following Federal Insurance Contributions Act

and withholding tax increases (imposed under sections 3101,

3111, and 3402) and penalties as a result of respondent’s

classification of the equipment lease payments to petitioner’s

workers as wages:

Tax period Proposed Proposed

ending tax increase sec. 6656 penalty

3/31/05 $105,914 $1,975

6/30/05 104,557 1,907

9/30/05 104,287 1,893

12/31/05 104,117 1,885

3/31/06 90,903 1,682

6/30/06 90,615 1,668

9/30/06 90,590 1,666

12/31/06 90,206 1,647

3/31/07 109,987 2,051

6/30/07 109,960 2,050

9/30/07 108,140 1,959

12/31/07 106,480 1,876

Total 1,215,756 22,259

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228 142 UNITED STATES TAX COURT REPORTS (225)

On the assumption that the equipment lease payments

were properly classified as wages, the 30-day letter also said

that those payments did not meet the requirements of section

62(c) for treatment as reimbursements under an accountable

plan and therefore were subject to employment taxes. The

30-day letter said that the Examination Division had made

a ‘‘final determination on this issue’’ but also said that

‘‘[t]hese changes to your employment taxes are not based on

a worker classification determination.’’

On November 15, 2008, petitioner filed a protest with the

Examination Division and requested a hearing with the

Internal Revenue Service (IRS) Appeals Office. In the pro-

test, petitioner contended that for the periods in issue: (1)

the equipment lease payments were not properly classified as

wages; (2) its workers were independent contractors with

respect to both the amounts paid to them as wages and the

equipment lease payments; (3) petitioner qualifies for relief

under the Revenue Act of 1978, Pub. L. No. 95–600, sec. 530,

92 Stat. at 2885 (RA ’78 sec. 530), and sections 3402(d) and

3509; and (4) petitioner is not liable for any penalties.

In January 2009 Appeals acknowledged receipt of the case.

Petitioner’s representative met with an Appeals officer. Peti-

tioner’s representative notified the Appeals officer that it was

continuing to raise all of the issues stated in its protest.

On November 9, 2009, Appeals returned the case to the

Examination Division for further consideration because

Appeals had concluded that ‘‘additional development by the

Examination Division of the issue at hand is needed.’’ The

case was returned to Appeals on March 15, 2010. An undated

Appeals Case Memo states in part the following:

Were the workers at issue independent contractors?

No. Taxpayer’s argument that W–2 wages paid to the employees were

erroneously classified as wages to common law employees does not have

merit. There is no evidence to support taxpayer’s position that the

workers were in business for themselves.

* * * * * * *

Were the payments issued to the workers for tool and vehicle rentals

issued to workers working under a dual capacity (common law employee

and independent contractor)?

No. Taxpayer’s argument is without merit. There is no evidence to sup-

port taxpayer’s argument that the workers worked under a dual

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(225) SECC CORP. v. COMMISSIONER 229

capacity. There is no evidence showing that the taxpayer and the

workers had a bona-fide rental contract.

* * * * * * *

Does the taxpayer qualify for relief under Section 530, 3509(a) or

3402(d)?

No. Taxpayer has not been able to substantiate his position that the

payments were issued to bona-fide independent contractors.

By letter dated April 15, 2011, Appeals informed petitioner

that the employment tax liabilities would be assessed in the

amounts determined. The April 15, 2011, letter states:

Unfortunately, we were unable to reach an agreement on your case.

The employment tax liability as determined by Appeals will be assessed

and you will receive a Notice and Demand for payment of the tax, pen-

alty, and interest owed.

If you would like to challenge our determination in court, you may file

a complaint in the United States District Court or the United States

Court of Federal Claims. If you decide to do this, you must first pay, at

a minimum, the employment tax assessment attributable to one

employee for any one quarter and file a claim for refund of the tax. Once

the claim for refund is denied or 6 months elapse without any action by

the Service, you may initiate suit.

The April 15, 2011, letter was not sent by certified or reg-

istered mail. Petitioner filed a petition in this Court on Feb-

ruary 13, 2012. Respondent did not issue petitioner a Letter

3523, Notice of Determination of Worker Classification

(NDWC), with respect to the tax periods in issue. On May 9,

2011, respondent sent petitioner a notice of adjustment

assessing the above tax increases and penalties.

Discussion

The Tax Court may exercise jurisdiction only to the extent

expressly provided by Congress. See sec. 7442; Breman v.

Commissioner, 66 T.C. 61, 66 (1976); see also Rule 13(a).

However, we have the authority to determine whether we

have jurisdiction over a particular case. Kluger v. Commis-

sioner, 83 T.C. 309, 314 (1984).

A. Positions of the Parties

Both parties assert that this Court should dismiss this

case for lack of jurisdiction because respondent did not issue

an NDWC. Despite the superficial similarity of those

motions, the parties have sharply contrasting views of the

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230 142 UNITED STATES TAX COURT REPORTS (225)

effect of dismissal. Respondent contends that dismissal would

deprive this Court of jurisdiction over this case, leave the

assessment in place, and allow the IRS to proceed with

collection.

In contrast, petitioner contends that the failure to issue an

NDWC means the assessment is invalid and the IRS may not

collect the disputed employment taxes unless and until an

NDWC is sent. Under petitioner’s theory, issuance of an

NDWC would trigger the right to file a petition and seek our

determination under section 7436.

Our jurisdiction is not expanded or contracted by the posi-

tions of the parties. Thus, it is not dispositive that both par-

ties claim that we lack jurisdiction. See Charlotte’s Office

Boutique, Inc. v. Commissioner, 121 T.C. 89, 102 (2003),

aff ’d, 425 F.3d 1203 (9th Cir. 2005). We will independently

decide whether we have jurisdiction.

B. Section 7436

Section 7436 governs proceedings in the Court for deter-

mining employment status. Section 7436(a) provides:

SEC. 7436(a). CREATION OF REMEDY.—If, in connection with an audit

of any person, there is an actual controversy involving a determination

by the Secretary as part of an examination that—

(1) one or more individuals performing services for such person are

employees of such person for purposes of subtitle C, or

(2) such person is not entitled to the treatment under subsection (a)

of section 530 of the Revenue Act of 1978 with respect to such an indi-

vidual,

upon the filing of an appropriate pleading, the Tax Court may determine

whether such a determination by the Secretary is correct and the proper

amount of employment tax under such determination. Any such redeter-

mination by the Tax Court shall have the force and effect of a decision

of the Tax Court and shall be reviewable as such.

Generally, we have jurisdiction under section 7436(a) to

determine: (1) whether an individual providing services to a

principal is that principal’s employee for purposes of subtitle

C; (2) whether the principal, if an employer, is entitled to

relief under RA ’78 sec. 530; and (3) if the individual pro-

viding services is an employee, the proper amounts of

employment taxes which relate to the Commissioner’s deter-

mination concerning worker classification. Sec. 7436(a).

In deciding whether we have jurisdiction, we are mindful

that ‘‘in response to the expressed intent of Congress to pro-

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(225) SECC CORP. v. COMMISSIONER 231

vide a convenient, prepayment hearing, this Court and the

Courts of Appeals have given the jurisdictional provisions a

broad, practical construction rather than a narrow, technical

meaning.’’ Lewy v. Commissioner, 68 T.C. 779, 781 (1977) (fn.

refs. omitted). Therefore, we should ‘‘adopt a construction

which will permit the Court to retain jurisdiction without

doing violence to the statutory language.’’ Smith v. Commis-

sioner, 140 T.C. 48, 51 (2013).

C. Whether the April 15, 2011, Letter Was a Determination

The Commissioner’s ‘‘determination’’ of worker classifica-

tion provides the predicate for our jurisdiction under section

7436(a). Respondent states that the April 15, 2011, letter is

a Letter 4451, which the IRS uses as a closing letter in

employment tax cases if worker classification and RA ’78 sec.

530 are not at issue. Both parties argue (though with sharply

conflicting views of the effect of prevailing) that issuance of

an NDWC is required to give this Court jurisdiction under

section 7436.

We disagree that we have jurisdiction under section 7436

only when the Commissioner has issued an NDWC. Section

7436(a) limits our jurisdiction to cases in which there has

been (among other requirements) ‘‘a determination by the

Secretary’’. In other contexts, we have held that the absence

of a document bearing a particular title or format does not

mean that no determination has been made. See, e.g.,

Corbalis v. Commissioner, 142 T.C. 46, 57–58 (2014) (Letters

3477, even though stating they were not final determinations

with respect to interest abatement, constituted final deter-

minations for purposes of section 6404(h)); Gray v. Commis-

sioner, 138 T.C. 295 (2012); Cooper v. Commissioner, 135 T.C.

70, 75 (2010) (a letter rejecting whistleblower claims was a

determination for purposes of section 7623(b)(4)); Wilson v.

Commissioner, 131 T.C. 47, 53 (2008); Craig v. Commis-

sioner, 119 T.C. 252, 259 (2002) (a form decision letter issued

after an ‘‘equivalent hearing’’ constituted a determination

conferring jurisdiction under section 6330(d)(1)); Lunsford v.

Commissioner, 117 T.C. 159, 164 (2001) (a written notice to

proceed with a collection action constituted a determination

under section 6330).

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232 142 UNITED STATES TAX COURT REPORTS (225)

Legislative history accompanying the Taxpayer Relief Act

of 1997, Pub. L. No. 105–34, sec. 1454(a), 111 Stat. at 1055,

enacting section 7436 makes abundantly clear that the April

15, 2011, letter was a determination. Section 7436 originated

in the House of Representatives. H.R. 2014, 105th Cong.

(1997). In H.R. Rept. No. 105–148, at 639 (1997), 1997–4

C.B. (Vol. 1) 319, 961, the Explanation of Provision states, in

pertinent part:

The bill provides that, in connection with the audit of any person, if

there is an actual controversy involving a determination by the IRS as

part of an examination that (a) one or more individuals performing serv-

ices for that person are employees of that person or (b) that person is

not entitled to relief under section 530 of the Revenue Act of 1978, the

Tax Court would have jurisdiction to determine whether the IRS is cor-

rect. For example, one way the IRS could make the required determina-

tion is through a mechanism similar to the employment tax early referral

procedures. 20

20 See

Announcement 96–13 and Announcement 97–52.

[Emphasis added.]

The Senate report includes the paragraph quoted above

from the House report, and also states: ‘‘A failure to agree

would also be considered a determination for this purpose.’’

S. Rept. No. 105–33, at 304 (1997), 1997–4 C.B. (Vol. 2) 1081,

1384 (emphasis added). That is exactly what happened here:

The April 15, 2011, letter states that they ‘‘were unable to

reach an agreement’’ in this case. (Emphasis added.) The con-

ference agreement, H.R. Conf. Rept. No. 105–220, at 734

(1997), 1997–4 C.B. (Vol. 2) 1457, 2204, contains language

essentially identical to that quoted above from the House

report. 2

In summary, the 30-day letter prepared by the Examina-

tion Division and the Appeals Case Memo both explain in

detail the disagreement with petitioner’s position. After

2 The staff of the Joint Committee on Taxation stated in its General Ex-

planation of Tax Legislation Enacted in 1997, at 428 (J. Comm. Print

1997) (Blue Book): ‘‘A failure to agree would also be considered a deter-

mination for this purpose, to the extent permitted under Tax Court rules.’’

(Emphasis added.) (None of the Committee reports cited in the text in-

cludes the italicized phrase.) The Supreme Court said in United States v.

Woods, 571 U.S. ll, ll, 134 S. Ct. 557, 568 (2013), that ‘‘the Blue

Book, like a law review article, may be relevant to the extent it is persua-

sive.’’ This Blue Book phrase does not alter our conclusion stated in the

text.

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(225) SECC CORP. v. COMMISSIONER 233

saying that ‘‘unfortunately, we were unable to reach an

agreement on your case’’, the April 15, 2011, letter states

that employment tax liabilities as ‘‘determined by Appeals’’

will be assessed. The House report made clear that deter-

minations for purposes of section 7436 may be made in non-

traditional ways. The Senate committee report states that

‘‘[a] failure to agree’’ would be considered a determination, a

phrase that is indistinguishable from the words ‘‘we were

unable to reach an agreement’’ in the April 15, 2011, letter.

We conclude that respondent made a determination in this

case. 3

Our analysis of section 7436 is buttressed by consideration

of the twofold statute of limitations in section 6532(a)(1) for

filing a refund suit. The provision given there is as follows,

with bracketed [A] and [B] added by us to show the two dis-

tinct rules in the statute:

SEC. 6532(a). SUITS BY TAXPAYERS FOR REFUND.—

(1) GENERAL RULE.—No suit or proceeding under section 7422(a) for

the recovery of any internal revenue tax, penalty, or other sum, shall

be begun

[A] before the expiration of 6 months from the date of filing the

claim required under such section unless the Secretary renders a

decision thereon within that time, nor

[B] after the expiration of 2 years from the date of mailing by cer-

tified mail or registered mail by the Secretary to the taxpayer of a

notice of the disallowance of the part of the claim to which the suit

or proceeding relates.

[Emphasis added.]

Rule [B] provides a hard-and-fast two-year deadline for filing

suit that commences only with the certified mailing of a

formal ‘‘notice’’. But the six-month bar of rule [A] is subject

to being lifted if the Secretary simply ‘‘renders a decision’’.

This provision of rule [A] does not require a ‘‘notice’’ (rather,

a ‘‘decision’’) and includes no provision as to certified mailing

or any other formality. See Register Publ’g Co. v. United

States, 189 F. Supp. 626 (D. Conn. 1960); Skopil v. United

States, 56–2 U.S. Tax Cas. (CCH) para. 9841 (D. Or. 1956).

Thus, a taxpayer who files a refund claim and one month

3 In arguing that we lack jurisdiction under sec. 7436, the dissenting

opinion does not cite or discuss sec. 7436(a), which establishes our worker

classification jurisdiction, or the legislative history underlying it, which ex-

pressly shows that we have jurisdiction under circumstances like those

present here.

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234 142 UNITED STATES TAX COURT REPORTS (225)

later gets an informal ‘‘decision’’ by the IRS under section

6532(a)(1)[A] may file suit, even without receiving a formal

notice of disallowance under section 6532(a)(1)[B].

The features of these rules are similar to the features of

section 7436(a) and (b). Section 7436(b)(2) provides a hard-

and-fast 90-day deadline for filing suit that commences only

‘‘if the Secretary sends by certified or registered mail notice

* * * of a determination’’; yet section 7436(a) permits the

filing of suit simply upon the existence of ‘‘an actual con-

troversy involving a determination’’—without regard to cer-

tified mailing and without regard to any formal ‘‘notice’’.

Thus, a taxpayer who is the subject of a ‘‘determination’’ by

the IRS under section 7436(a) can file suit without receiving

a notice of determination under section 7436(b)(2).

Finally, neither Charlotte’s Office Boutique v. Commis-

sioner, 425 F.3d 1203, Neely v. Commissioner, 115 T.C. 287

(2000), 4 nor Henry Randolph Consulting v. Commissioner,

112 T.C. 1 (1999), establishes that an NDWC must be sent

before we have jurisdiction to make a worker classification

determination under section 7436. In none of those cases did

the Court identify or decide the issue present here, i.e.,

whether we necessarily lack jurisdiction where no NDWC

was sent. Therefore none of those opinions establishes

whether we have jurisdiction where no NDWC was sent but

a determination was otherwise made. 5

4 Similarly, we do not consider Tree-Tech, Inc. v. Commissioner, T.C.

Memo. 2011–162, slip op. at 14, a collection due process case in which we

cited Neely v. Commissioner, 115 T.C. 287 (2000), to have decided the issue

now before the Court.

5 We disregard the Commissioner’s statement in Notice 2002–5, 2002–1

C.B. 320, 321, that ‘‘[b]ecause the Notice of Determination constitutes the

Service’s determination described in § 7436(a), * * * [it] is a jurisdictional

prerequisite for seeking Tax Court review of * * * determinations regard-

ing worker classification, § 530 treatment, and the proper amount of em-

ployment tax under those determinations.’’ We owe no deference to what

an administrative agency says about our jurisdictional bounds. See Fox

Television Stations, Inc. v. FCC, 280 F.3d 1027, 1038–1039 (D.C. Cir.

2002). This is so even if an agency directly or indirectly interprets the

bounds of our jurisdiction through the implementation of regulations con-

struing a statute which it administers. See also Adams Fruit Co. v. Bar-

rett, 494 U.S. 638, 650 (1990) (the delegation of power to an agency to ad-

minister a statute does not empower that agency to ‘‘regulate the scope of

the judicial power vested by the statute’’). The dissenting opinion argues

that we lack jurisdiction because the IRS did not intend for us to have

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(225) SECC CORP. v. COMMISSIONER 235

D. Whether the Determination Related to Matters Specified in

Section 7436(a) Over Which We Have Jurisdiction

Section 7436(a) provides our jurisdiction where, among

other requirements, the Secretary has determined whether:

(1) one or more individuals performing services for such person are

employees of such person for purposes of subtitle C, or

(2) such person is not entitled to the treatment under subsection (a)

of section 530 of the Revenue Act of 1978 with respect to such an indi-

vidual,

upon the filing of an appropriate pleading, the Tax Court may determine

whether such a determination by the Secretary is correct and the proper

amount of employment tax under such determination. * * *

The determination in this case dealt with worker classifica-

tion disputes between petitioner and the Examination Divi-

sion and the Appeals Office identified above, including

whether petitioner’s workers can serve in a dual capacity;

whether petitioner’s workers are employees with respect to

any of the amounts paid to them as compensation; and

whether petitioner qualifies for relief under RA ’78 sec. 530

and sections 3402 and 3509(a). We conclude that the dispute

between the parties includes matters specified in section

7436(a) over which we have jurisdiction. 6

jurisdiction. See dissenting op. p. 246. The concurring opinion, which is

joined by 11 of the Judges who voted yes, makes a similar point, see con-

curring op. pp. 241–242; and we note that it is the statute, not the IRS,

that grants us jurisdiction.

6 The dissenting opinion finds fault with what it calls ‘‘the majority’s

dual use of the word ‘determination’ ’’ to refer both to the IRS decision con-

cerning worker classification and to the April 15, 2011, letter. See dis-

senting op. pp. 244–245. There is no inconsistency in this usage. The IRS

makes an internal determination concerning worker classification before it

issues a letter that conveys the determination to the taxpayer. Because it

is clear to us that the April 15, 2011, letter shows that a determination

requisite to our jurisdiction was made, we need not decide whether, or

when, the IRS made a determination for purposes of sec. 7436(a) before

sending the April 15, 2011, letter.

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236 142 UNITED STATES TAX COURT REPORTS (225)

E. Whether the Determination Related to an Actual Contro-

versy in Connection With an Audit and Was Part of an

Examination

Section 7436(a) provides in part that

[i]f, in connection with an audit of any person, there is an actual con-

troversy involving a determination by the Secretary as part of an exam-

ination * * *

The essential facts relating to this point are: (1) during the

tax periods at issue petitioner treated its workers dually as

employees and as independent providers of rental equipment;

(2) in the 30-day letter Ms. Buck, speaking for the Examina-

tion Division, rejected petitioner’s approach and treated peti-

tioner’s workers as employees with respect to the equipment

lease payments; (3) in the protest petitioner continued to

assert the position the Examination Division had rejected in

the 30-day letter and added contentions disputing that its

workers were employees with respect to any of petitioner’s

payments to them and claiming entitlement to relief under

RA ’78 sec. 530 and sections 3402 and 3509(a); and (4) the

case was subsequently considered by the Appeals Office and

reconsidered by the Examination Division and the Appeals

Office during which time petitioner continued to assert all of

the positions included in the protest.

On the basis of this series of events, we conclude that the

determination related to an actual controversy in connection

with an audit and was part of an examination as required by

section 7436(a). 7

F. Whether the Petition Was Timely

Section 7436(b)(2) imposes a 90-day limit on filing a peti-

tion where the Commissioner sends a notice of determination

by certified or registered mail but otherwise imposes no spe-

cific time limit on filing a petition with this Court. Specifi-

cally, section 7436(b) provides:

If the Secretary sends by certified or registered mail notice to the peti-

tioner of a determination by the Secretary described in subsection (a),

no proceeding may be initiated under this section with respect to such

7 In

Staffmore, LLC v. Commissioner, T.C. Memo. 2013–187, we con-

cluded that the Court had no jurisdiction over a determination as to em-

ployment status because there was no IRS audit or examination. In this

case, however, there was an audit.

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(225) SECC CORP. v. COMMISSIONER 237

determination unless the pleading is filed before the 91st day after the

date of such mailing.

Petitioner filed its petition more than 90 days after

receiving the April 15, 2011, letter; however, that letter was

not sent by certified or registered mail. Therefore, the 90-day

limitation does not apply in this case.

The fact that section 7436 does not require filing a petition

within 90 days after a determination is made (unless the

notice is sent by certified or registered mail) contrasts with

section 6212 relating to our deficiency jurisdiction. However,

section 7436(b) closely resembles sections 7428, 7476(b)(5),

7477(b)(3), 7478(b)(3), and 7479(b)(3), which all address the

time for bringing actions for declaratory judgments. 8 Sec-

tions 7428, 7476, 7478, and 7479 each create a judicial

remedy even in the absence of a determination. 9 Section

7477, like section 7436, requires a ‘‘determination’’. 10 All of

these declaratory judgment provisions, like section 7436,

have almost identical rules establishing the time for bringing

an action, stating almost identically that if the Secretary

sends a notice of a determination by registered or certified

mail, then the taxpayer must commence his or her action in

the Tax Court within 90 days of such mailing. The similarity

of section 7436(b) to these other sections eliminates any

impulse we might have had to read part of section 6212 into

section 7436(b). Our discussion of section 6532(a)(1) supra

part C also supports our analysis here. We conclude that the

90-day limitation does not apply in this case because no

8 Secs.

7478(b)(3), 7477(b)(3), 7479(b)(3) all provide: ‘‘If the Secretary

sends by certified or registered mail notice of his determination * * * , no

proceeding may be initiated under this section unless the pleading is filed

before the 91st day after the date of such mailing.’’ Sec. 7476(b)(5) is

slightly different but materially the same.

9 Secs. 7476(a) and 7478(a) both provide: ‘‘In a case of actual controversy

involving—(1) a [particular] determination by the Secretary * * * , or (2)

a failure by the Secretary to make a [particular] determination * * * ,

upon the filing of an appropriate pleading, the Tax Court may make a dec-

laration’’ regarding the particular determination or lack thereof. Sec.

7476(a) is slightly different but materially the same.

10 Sec. 7477(a) provides: ‘‘In case of an actual controversy involving a

[particular] determination by the Secretary * * * , upon the filing of an

appropriate pleading, the Tax Court may make a declaration’’ regarding

the particular determination. Sec. 7436(a) is slightly different but materi-

ally the same.

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238 142 UNITED STATES TAX COURT REPORTS (225)

notice of determination was sent by certified or registered

mail and thus the petition is timely. 11

G. Whether Section 7436(d)(1) Alters Our Holdings Stated

Above

Section 7436(d)(1) provides that the principles of several

Code sections relating to ‘‘assessment and collection, etc.’’

apply to section 7436. Specifically, section 7436(d)(1) provides

as follows:

SEC. 7436(d). SPECIAL RULES.—

(1) RESTRICTIONS ON ASSESSMENT AND COLLECTION PENDING ACTION,

ETC.—The principles of subsections (a), (b), (c), (d), and (f) of section

6213, section 6214(a), section 6215, section 6503(a), section 6512, and

section 7481 shall apply to proceedings brought under * * * [section

7436] in the same manner as if the Secretary’s determination

described in subsection (a) were a notice of deficiency.

Section 7436(d)(1) provides that these other sections shall

apply in the same ‘‘manner as if the Secretary’s determina-

tion described in subsection (a) were a notice of deficiency.’’

(Emphasis added.) Importantly, it does not say ‘‘as if the

notice described in subsection (a) were a notice of deficiency.’’

11 In keeping with its conclusion that the analysis of the opinion of the

Court ‘‘simply do[es] not work’’, see dissenting op. pp. 242–243, the dis-

senting opinion asks: ‘‘If the April 15, 2011, letter had been sent by cer-

tified mail, would it have triggered that deadline even though it did not

purport to be a determination?’’, see id. p. 243, and: ‘‘Would the undisclosed

section 7436 determination the Court found here have allowed the IRS to

assess after 90 days in the absence of a petition?’’, see id. We are satisfied

that the analysis herein does not cause the administrative problems posed

in the dissenting opinion. In raising those questions, the dissenting opinion

does not cite or discuss subsecs. (a) and (b) of sec. 7436. Subsec. (a) pro-

vides our jurisdiction simply if there has been a determination. But appli-

cation of the 90-day rule is not triggered so easily; instead, under subsec.

(b), the 90-day period applies only if the Secretary sends notice of the de-

termination to the taxpayer (by certified or registered mail).

The statute, properly interpreted, provides clear and logical answers to

the questions posed by the dissenting opinion. First, if the IRS sends the

taxpayer a letter by certified or registered mail including clear notice that

the IRS has made a determination of worker classification, it triggers the

jurisdictional period for filing a petition in our Court. Second, if the IRS

does not send a letter by certified or registered mail including clear notice

that the IRS has made a determination of worker classification, the IRS

may not assess after 90 days absent a petition because sec. 7436(b) re-

quires that the Secretary first ‘‘send[] * * * notice’’ to the taxpayer.

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(225) SECC CORP. v. COMMISSIONER 239

In other words, jurisdiction hinges upon the making of ‘‘a

determination’’, not necessarily the mailing of a notice.

To consider the application of this paragraph to the

present case, we will first identify two principles of section

6213(a). 12 The first principle of section 6213(a) is that a tax-

payer has 90 (or 150) days after the notice of deficiency is

mailed to file a petition. As stated supra part F, section

7436(b) imposes a 90-day limit on filing a petition where the

Commissioner sends a notice by certified or registered mail

but otherwise does not impose a 90-day limit. To treat sec-

tion 7436(d)(1) as imposing the 90-day limit that appears in

section 6213(a) on section 7436 would require two leaps of

faith: first, that Congress enacted an express rule (section

7436(b)) and then rewrote that rule by saying ‘‘principles’’ of

other sections apply; and second, that the words of the title

to the paragraph, ‘‘Restrictions on Assessment and Collection

Pending Action’’, were not well chosen or were too narrowly

phrased. We conclude that this principle of section 6213(a)

does not cause this Court to lack jurisdiction where a petition

is filed more than 90 days after a determination where the

Commissioner did not exercise the right under section

7436(b)(2) to trigger a 90-day limitation period by sending

the notice by certified or registered mail.

The second principle of section 6213(a) 13 is that, if a peti-

tion is filed, the IRS may not assess tax resulting from a

12 The first sentence of sec. 6213(a) provides as follows:

SEC. 6213(a). TIME FOR FILING PETITION AND RESTRICTION ON ASSESS-

MENT.—Within 90 days, or 150 days if the notice is addressed to a per-

son outside the United States, after the notice of deficiency authorized

in section 6212 is mailed (not counting Saturday, Sunday, or a legal holi-

day in the District of Columbia as the last day), the taxpayer may file

a petition with the Tax Court for a redetermination of the deficiency.

* * *

13 The second sentence of sec. 6213(a) provides as follows:

SEC. 6213(a). TIME FOR FILING PETITION AND RESTRICTION ON ASSESS-

MENT.— * * * Except as otherwise provided in section 6851, 6852 or

6861 no assessment of a deficiency in respect of any tax imposed by sub-

title A or B, chapter 41, 42, 43, or 44 and no levy or proceeding in court

for its collection shall be made, begun, or prosecuted until such notice

has been mailed to the taxpayer, nor until the expiration of such 90-day

or 150-day period, as the case may be, nor, if a petition has been

filed with the Tax Court, until the decision of the Tax Court has

Continued

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240 142 UNITED STATES TAX COURT REPORTS (225)

deficiency until the Tax Court case commenced by filing a

petition with respect to that deficiency is final. To treat sec-

tion 7436(d)(1) as imposing this restriction on assessment

requires neither of the leaps of faith just stated: There is no

contrary rule on assessment in section 7436 that would be

rewritten on the basis of application of principles of another

section; and the title to the paragraph, ‘‘Restrictions on

assessment and collection pending action’’, directly suggests

that this second principle of section 6213(a)—i.e., if a petition

is filed, the IRS may not assess tax determined to be owing

as a result of a deficiency until the Tax Court case is final—

applies to section 7436 because of section 7436(a)(1). In the

context of section 7436, this appears to bar assessment and

collection of employment tax determined to be owing after

the filing of a Form 941.

In none of the sections cross-referenced by section

7436(d)(1) is there any suggestion that a 90-day (or any

other) time limit applies where a notice was not sent by cer-

tified or registered mail, nor that a determination may be

made only through a notice of determination. Thus, we con-

clude that application by section 7436(d)(1) of ‘‘the principles

of ’’ several Code sections ‘‘relating to assessment and collec-

tion, etc.’’ to section 7436 does not limit our jurisdiction to

cases in which the Commissioner sends a formal notice of

determination (e.g., a Letter 3523), or imposition of the 90-

day period where the Commissioner does not send a notice

by certified or registered mail. 14

become final. * * *

14 Citing sec. 7436(d), the dissenting opinion states that ‘‘we should treat

a worker classification determination as if it were a deficiency determina-

tion in an income tax case’’ because ‘‘Congress borrowed heavily from the

statutes controlling income tax deficiency cases.’’ See dissenting op. pp.

242, 245. Following from that assumption, the dissenting opinion relies on

cases applying deficiency procedures such as Lerer v. Commissioner, 52

T.C. 358 (1969). See dissenting op. pp. 245–246. However, the dissenting

opinion overlooks two essential points: (1) the text of sec. 7436(a) and (b)

differs from that in the statutes governing deficiency procedures and (2)

in sec. 7436(d), Congress did not list sec. 6212 as one of the sections the

principles of which are made applicable to sec. 7436. The omission of sec.

6212 from sec. 7436(d) is significant because sec. 6212 provides that if the

Secretary determines a deficiency, he is authorized to ‘‘send’’ a ‘‘notice of

deficiency’’ by certified or registered mail. The words ‘‘send’’ and ‘‘notice’’

in sec. 7436(b) do not appear in sec. 7436(a), which establishes our

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(225) SECC CORP. v. COMMISSIONER 241

H. Conclusion

We hold that we have jurisdiction over this case. Respond-

ent’s motion and petitioner’s cross-motion will be denied.

To reflect the foregoing,

An appropriate order will be issued.

Reviewed by the Court.

THORNTON, HALPERN, FOLEY, VASQUEZ, GALE, WHERRY,

KROUPA, HOLMES, GUSTAFSON, PARIS, MORRISON, BUCH,

LAUBER, and NEGA, JJ., agree with this opinion of the Court.

HALPERN, J., concurring:

I join the majority opinion without reservation. I write only

to emphasize that, not only is the majority’s analysis of our

jurisdiction under section 7436 correct as a matter of law; it

is also correct as a matter of tax policy.

As the majority states, see op. Ct. note 5: ‘‘We owe no def-

erence to what an administrative agency says about our

jurisdictional bounds.’’ Moreover, respondent’s position,

reflected both in this case and in Notice 2002–5, 2002–1 C.B.

320, 321, that only his issuance of a notice of determination

as described in Notice 2002–5 may confer jurisdiction on this

Court to resolve a worker classification or RA ’78 sec. 530

issue would improperly permit the Commissioner to deter-

mine, in his sole discretion, whether a taxpayer shall have

access to this Court in order to resolve any such issue raised

on audit. Were we to adopt respondent’s position, the

Commissioner, by refusing to issue a notice of determination,

would be able to deny the taxpayer access to this Court,

which he may be tempted to do whenever he feels his chance

of success on a worker classification or RA ’78 sec. 530 issue

is better in either the District Court or the Court of Federal

Claims than in this Court. There is no basis in section 7436

or as a matter of policy for granting the Commissioner this

‘‘forum shopping’’ discretion, and it would thwart the obvious

congressional intent embodied in that provision to permit

taxpayers, in their discretion, 1 to litigate, in this Court,

jurisdiction.

1 ‘‘Petitioner.—A pleading may be filed under this section * * * by the

Continued

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242 142 UNITED STATES TAX COURT REPORTS (225)

worker classification and RA ’78 sec. 530 issues that the

Commissioner has raised on audit.

THORNTON, COLVIN, VASQUEZ, GALE, WHERRY, KROUPA,

HOLMES, GUSTAFSON, MORRISON, BUCH, and LAUBER, JJ.,

agree with this concurring opinion.

GOEKE and KERRIGAN, JJ., dissenting: Our primary dis-

agreement with the opinion of the Court stems from its

insistence on cutting our jurisdiction under section 7436 from

whole cloth. The structure of the statute indicates that we

should treat a worker classification determination as if it

were a deficiency determination in an income tax case.

Instead of following the statute’s mandate, the opinion of the

Court applies a new approach to the jurisdictional question.

We disagree with that approach and respectfully dissent.

I. We believe the IRS must issue a notice of determination of

worker classification to trigger our jurisdiction under sec-

tion 7436.

The opinion of the Court finds that section 7436 does not

require the issuance of a notice of determination as a pre-

requisite for our jurisdiction. This conclusion is not reconcil-

able with section 7436(d), which provides the following direc-

tive.

SEC. 7436(d). SPECIAL RULES.—

(1) RESTRICTIONS ON ASSESSMENT AND COLLECTION PENDING ACTION,

ETC.—The principles of subsections (a), (b), (c), (d), and (f ) of section

6213, section 6214(a), section 6215, section 6503(a), section 6512, and

section 7481 shall apply to proceedings brought under this section in

the same manner as if the Secretary’s determination described in sub-

section (a) were a notice of deficiency.

This paragraph references the analogous procedural sec-

tions that prevent the IRS from assessing and collecting

income tax deficiencies unless and until it sends proper

notice to the taxpayer. These restrictions and deadlines

simply do not work without a notice of determination

requirement. We acknowledge that the statute does not

explicitly reference section 6212, which contains the notice of

person for whom the services are performed.’’ Sec. 7436(b)(1) (emphasis

added).

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(225) SECC CORP. v. COMMISSIONER 243

deficiency provisions, but we think the statute incorporates

its principles nonetheless. The statute directs us to apply the

restrictions ‘‘in the same manner as if the Secretary’s deter-

mination * * * were a notice of deficiency.’’ We think this

means that a notice of determination should set the restric-

tion deadlines under section 7436 just as a notice of defi-

ciency sets the restriction deadlines for income tax assess-

ment and collection.

Section 6213(a) prevents the IRS from assessing and col-

lecting tax before it has sent a notice of deficiency. It also

provides the taxpayer 90 days from the notice of deficiency

date to petition the Tax Court. Would the undisclosed section

7436 determination the Court found here have allowed the

IRS to assess after 90 days in the absence of a petition? Sec-

tion 6503(a) provides that a notice of deficiency suspends the

running of the period of limitations for the IRS to assess and

collect. Would a determination the IRS had not disclosed to

a taxpayer have the same effect? Section 7436(b) provides

that a taxpayer must file a petition within 90 days of a notice

of determination if the IRS sent it by certified mail. If the

April 15, 2011, letter had been sent by certified mail, would

it have triggered that deadline even though it did not pur-

port to be a determination? The opinion of the Court raises

all these questions but dismisses them.

In note 11, the opinion of the Court points out that under

section 7436(b) the 90-day window to file a petition begins

only after the IRS has sent notice of its determination by cer-

tified or registered mail. According to the opinion of the

Court, this means that the 90-day period will not begin ‘‘if

the IRS does not send a letter by certified or registered mail

including clear notice that the IRS has made a determination

of worker classification’’. See op. Ct. note 11 (emphasis

added). Although the plain language of section 7436(b)

requires only ‘‘notice’’, the opinion of the Court reads a ‘‘clear

notice’’ requirement into the statute in responding to our

questions. In so doing, the opinion reinforces our point. By

requiring clear notice, we can avoid the administrative prob-

lems we discussed above. If we accept jurisdiction in the

absence of clear notice, as the Court has in this very case,

the administrative problems return. Here the IRS failed to

send clear notice; instead, it sent an ambiguous letter that

neither party believed was a notice. Nevertheless, the Court

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244 142 UNITED STATES TAX COURT REPORTS (225)

finds that the letter provided notice of a determination. Thus,

if the IRS had sent the letter by certified mail, the Court

presumably would have found that it triggered the 90-day

period. Would the Court have decided not to recharacterize

the letter if the IRS had used certified mail?

The Court’s approach also creates an open-ended period to

file a petition, which has no touchstone in the deficiency

procedures. The Court ignores the possibilities for abuse that

an unlimited period to bring action will create. We should

avoid these and other problems by simply recognizing that

only a clear notice of determination can trigger our jurisdic-

tion under section 7436.

II. The opinion of the Court holds that a ‘‘determination’’ trig-

gers our jurisdiction, but it uses the word ‘‘determination’’

to refer to two different events.

The opinion of the Court concludes that our jurisdiction

turns on whether the IRS has made a ‘‘determination’’, but

it is not clear what the Court thinks a ‘‘determination’’ is.

The opinion of the Court identifies the issue here as

‘‘whether we have jurisdiction to determine whether respond-

ent’s worker classification determination was correct.’’ See op.

Ct. p. 226 (emphasis added). The opinion of the Court’s first

holding is ‘‘the April 15, 2011, letter was a determination’’

relating to the classification of P’s workers for employment

tax purposes. See id. p. 232 (emphasis added). These two

excerpts demonstrate the opinion’s dual use of the word

‘‘determination’’. In the first, it refers to the IRS decision

regarding worker classification. In the second, it refers to the

letter that communicated that decision. Which of these

things does the Court believe triggers our jurisdiction?

If it is the first, the administrative problems we described

above return. See supra pp. 242–244. How could we enforce

time limits for filing against taxpayers who were unaware

the Commissioner had made a decision? If it is the second,

we think the opinion of the Court is confusing the terms

‘‘determination’’ and ‘‘notice of determination’’. Semantically

speaking, a letter cannot be a determination. A determina-

tion is a decision—an abstraction. A letter is tangible. A

letter can communicate a determination or serve as evidence

of a determination, but it cannot itself be a determination. If

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(225) SECC CORP. v. COMMISSIONER 245

the letter triggered our jurisdiction, we are not sure the

Court disagrees with our conclusion that notice is required.

It simply chooses to call the notice of determination a ‘‘deter-

mination’’.

III. The April 15, 2011, letter was not a notice of determina-

tion, and consequently it did not trigger our jurisdiction.

The Court finds that the April 15, 2011, letter was a deter-

mination, but we think the proper analysis is whether it was

a notice of determination. To qualify as a notice of determina-

tion, we think that a letter must, at a minimum, actually

provide notice of a determination. The April 15, 2011, letter

did no such thing. The letter did not notify SECC that the

IRS had made a determination. If it had, SECC would have

simply petitioned this Court for review of that determination.

Instead, SECC has petitioned us to compel the IRS to issue

a notice of determination. The Commissioner used a letter

reserved for closing out disputes not involving worker classi-

fication determinations. If anything, the letter notified SECC

that the IRS had made no worker classification determina-

tion in deciding its case.

IV. The Court should not have recharacterized the IRS cor-

respondence with SECC.

Congress has given our Court the authority to review

determinations of worker classification. In creating the

administrative rules governing this jurisdiction, Congress

borrowed heavily from the statutes controlling income tax

deficiency cases. Specifically, section 7436(d) incorporates the

restrictions on assessment and collection that apply in such

cases. In the light of Congress’ apparent intention to create

parallel administrative regimes for notices of determination

and notices of deficiency, we think we should evaluate

notices of determination the same way we evaluate notices of

deficiency.

Suppose, after examining a taxpayer’s Federal income tax

return, the IRS assessed additional income tax without fol-

lowing the deficiency procedures established by sections

6211–6216. Next, suppose that the IRS mailed that taxpayer

a notice of the additional assessment. We would not treat

that letter as a notice of deficiency, and we have found that

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246 142 UNITED STATES TAX COURT REPORTS (225)

the Court is without jurisdiction under those circumstances.

See Lerer v. Commissioner, 52 T.C. 358, 363 (1969); Kane v.

Commissioner, T.C. Memo. 1989–272.

Now substitute the type of tax contemplated by section

7436 for the types of tax subject to the deficiency procedures

referenced above. Under similar circumstances, the Court is

doing exactly the opposite of what we have done with respect

to taxes subject to the deficiency procedures. And to make

matters worse, it is doing so in the face of express statutory

language instructing us to treat worker classification deter-

minations like notices of deficiency.

In income tax deficiency cases, a notice of deficiency is the

taxpayer’s ticket to our Court. If the IRS has not sent a

notice of deficiency, we do not have jurisdiction over the dis-

pute. We have, on occasion, decided whether an ambiguous

letter from the IRS was a notice of deficiency that triggered

our jurisdiction. In each of those cases, we relied heavily on

the IRS intent in reaching our conclusion. See Lerer v.

Commissioner, 52 T.C. at 363; Kane v. Commissioner, T.C.

Memo. 1989–272. When the IRS sends a letter that neither

purports to be nor is intended to be a notice of deficiency, we

do not recharacterize the letter as a notice of deficiency. We

simply dismiss the case for lack of jurisdiction. Here the IRS

did not intend to send a notice of worker classification deter-

mination, and the letter it sent did not purport to be such

a notice. In fact, the IRS sent a letter reserved for cases not

involving worker classification determinations. We disagree

with the Court’s decision to recharacterize that letter.

The opinion of the Court does not dispute that the IRS did

not intend the April 15, 2011, letter to be a notice of deter-

mination, 1 but it nevertheless concludes that the letter trig-

gered our jurisdiction. Instead of citing cases involving

notices of deficiency, the opinion of the Court cites a whistle-

blower case and two collection due process cases in which we

found that unofficial letters were notices of determination.

See op. Ct. p. 231. Those cases are inapposite because they

involve statutes that do not incorporate the restrictions on

assessment applicable in income tax deficiency cases. In the

light of Congress’ explicit instruction to treat worker classi-

1 The parties also agree that the IRS did not intend the letter to be a

notice of worker classification determination.

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(225) SECC CORP. v. COMMISSIONER 247

fication determinations as if they were notices of deficiency,

we find our notice of deficiency jurisprudence more relevant.

In keeping with our notice of deficiency cases, we would find

that the IRS intent is the most important factor in character-

izing an ambiguous notice. The IRS did not intend the April

15, 2011, letter to be a notice of determination, and the letter

did not purport to be a notice of determination. Accordingly,

we would find that it did not trigger our jurisdiction under

section 7436.

The IRS bears the burden of providing proper notice before

assessing tax. If it has made a determination, it has no rea-

son not to notify the taxpayer. If the IRS fails to issue a

timely notice, applicable statutes of limitation may bar its

later assessment. Moreover, dismissing the case here would

not leave the taxpayer without recourse. SECC would have

the same options as a taxpayer challenging an income tax

deficiency whose case had been dismissed because the IRS

had not issued a notice of deficiency. It could bring a refund

case attacking the invalid assessment, file for an injunction

against the assessment, 2 seek an abatement under section

6404(a), or contest the assessment’s legality in a collection

due process case pursuant to section 6330.

V. We should not delve into the administrative record to

determine whether the IRS made a determination.

Congress has provided an avenue for employers to

reimburse their employees for work-related expenses. A tax-

payer must simply follow the accountable plan rules outlined

in section 1.62–2, Income Tax Regs. The IRS initially ana-

lyzed this case as an accountable plan dispute. SECC only

later argued that its workers were dual-capacity employees

or independent contractors. Under the opinion of the Court’s

approach, any taxpayer in an accountable plan case could

make these arguments and transform its case into a worker

classification dispute. We think we should permit the IRS to

decide whether the taxpayer’s arguments warrant a worker

classification determination.

The workers at issue here performed a single task, and

SECC calculated both payments on the number of hours they

2 Sec. 6213(a) provides for this remedy by waiving the sec. 7421 anti-in-

junction provisions.

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248 142 UNITED STATES TAX COURT REPORTS (225)

spent performing that task. SECC self-reported the workers

as employees on its employment tax returns. The IRS could

have reasonably concluded that the worker classification

arguments were frivolous and did not justify a determina-

tion. Instead of permitting this result, the Court combs

through the administrative record to discover whether the

IRS should have issued a notice of determination. This

approach sets a dangerous precedent that may require us to

review the administrative record every time a taxpayer

makes a worker classification argument and the IRS chooses

not to issue a notice of determination. We believe we should

permit the IRS to decide when its examination warrants a

notice of determination. If it improperly fails to issue a

notice, it will face the consequences of an invalid assessment.

VI. Conclusion

Section 7436 explicitly incorporates many of the rules that

apply in income tax deficiency cases. In fact, the incorporated

material dwarfs the original material in the statute. We

believe that this structure reflects Congress’ intent to create

identical schemes for our review of worker classification

determinations and income tax deficiency determinations.

Instead of relying on the principles that govern our income

tax deficiency cases, the opinion of the Court has created a

new approach to determine whether we have jurisdiction.

Because we disagree with that approach, we respectfully dis-

sent.

f

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