American Airlines, Inc. v. Commissioner

AMERICAN AIRLINES, INC., PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 15957–11. Filed January 13, 2015.

P is a domestic corporation operating as an airline, and its

foreign branches remunerate its foreign flight attendants to

staff P’s South American routes. P’s South American routes

include flights from South America to Miami and vice versa.

During the examination for P’s taxable periods 2003 and

2004, P and R disputed whether P was liable for employment

taxes associated with the remuneration paid to the foreign

flight attendants by its foreign branches. P asserted that it

was not liable for employment taxes with respect to the for-

eign flight attendants because (1) P had never treated the for-

eign flight attendants as employees, and (2) the ‘‘business vis-

itor exception’’ applied and/or relief was available under the

Revenue Act of 1978 (RA ’78), Pub. L. No. 95–600, sec. 530,

92 Stat. at 2885, as amended. R rejected P’s positions and

assessed employment taxes for those periods. R also issued a

notice of deficiency raising an alternative income tax theory

which R contends will apply if it is ultimately decided that P

is not liable for employment taxes under I.R.C. subtitle

C. P timely filed a petition in response to the notice of defi-

ciency determining R’s alternative income tax adjustment and

in response to R’s denial of P’s RA ’78 sec. 530 claim. The par-

ties dispute whether this Court has jurisdiction under I.R.C.

sec. 7436(a) to determine P’s employment tax liabilities.

I.R.C. sec. 7436(a) provides in pertinent part that ‘‘[i]f, in

24

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 25

connection with an audit of any person, there is an actual con-

troversy involving a determination by the Secretary as part of

an examination that * * * such person is not entitled to the

treatment under subsection (a) of section 530 of the Revenue

Act of 1978 * * *, the Tax Court may determine whether

such a determination by the Secretary is correct and the

proper amount of employment tax under such determination.’’

R contends that this Court lacks jurisdiction because RA ’78

sec. 530 is inapplicable when R does not make a determina-

tion of worker classification. P asserts that this Court has

jurisdiction because R determined that P was not entitled to

RA ’78 sec. 530 relief. Held: R made a determination which

provides a basis for our jurisdiction to determine whether P

is entitled to relief under RA ’78 sec. 530 with respect to

remuneration paid to P’s foreign flight attendants by its for-

eign branches. Held, further, R’s motion for partial summary

judgment will be denied. Held, further, P’s motion for partial

summary judgment will be granted in part.

Mary Bell Handley Hevener, Robert R. Martinelli, Robert

H. Albaral, and David Gerald Glickman, for petitioner.

Jeremy H. Fetter, Shelley Turner Van Doran, and Linda P.

Azmon, for respondent.

OPINION

PARIS, Judge: This case is before the Court on the parties’

cross-motions for partial summary judgment under Rule

121. 1 The issue for decision in the partial summary judg-

ment is whether the Court has jurisdiction pursuant to sec-

tion 7436(a) over respondent’s imposition of employment

taxes for taxable periods 2003 and 2004. The Court holds

that it has jurisdiction.

Background

The record establishes and/or the parties do not dispute

the following. Petitioner was a Delaware corporation with its

principal place of business in Fort Worth, Texas, when it

filed the petition.

1 Unless otherwise indicated, all section references are to the Internal

Revenue Code as amended, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

26 144 UNITED STATES TAX COURT REPORTS (24)

A. Petitioner’s Business and Petitioner’s Workers

Petitioner is a subsidiary of AMR Corp., one of the largest

commercial airlines in the world. Petitioner has South Amer-

ican air route authority, among others, and runs the routes

and operations in four South American countries: Argentina,

Chile, Colombia, and Peru (South American routes). The

South American routes include flights that originate and

terminate in South America without making landfall in the

United States, as well as flights between South American

cities and Miami, Florida. The South American routes do not

involve any city or airport in the United States besides

Miami.

This case involves petitioner’s foreign flight attendants

who staff the South American routes. The foreign flight

attendants are domiciled in Argentina, Chile, Colombia, or

Peru. The foreign flight attendants who work on flights that

originate or terminate in Miami are issued restrictive C–1/D

combined transit and crewman visas. 2

The foreign flight attendants who work on flights between

South America and Miami spend minimal time in the United

States. When they are working on a flight to or from Miami,

time in the United States includes pre- and post-flight time,

flight time in U.S. airspace, rest time in the United States

after a flight to Miami, and FAA-mandated training at least

once per year. The foreign flight attendants typically leave

the United States within 12 hours of arrival and nearly

always leave within 24 hours of arrival. They currently are

paid on a ‘‘block-to-block’’ basis, meaning that they are com-

pensated only for the period beginning when the aircraft

pushes off from the blocks of the departure gate and ending

2 C–1 and D visas are nonimmigrant visas. Holders of these visas have

not been authorized by the Department of Homeland Security (DHS) to

work in the United States. See 8 U.S.C. sec. 1101(a)(15)(D)(i) (2012); see

also 8 C.F.R. sec. 274a.12(c)(17)(iii) (2011) (listing classes of aliens who

may apply for authorization for work in the United States and including

only foreign airline employees who have been issued B–1 visas); Social Se-

curity Administration’s Program Operations Manual System RM

10211.420G.3 (classifying holders of C–1 and D visas as nonimmigrants

who may not work and cannot apply for employment authorization). Gen-

erally, DHS must authorize nonimmigrant aliens a classification permit-

ting work in the United States to obtain a Social Security number. 20

C.F.R. sec. 422.105 (2004).

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 27

when it arrives at the blocks of the destination gate. The for-

eign flight attendants are uncompensated for any other time

they are required to be at work, including pre- and post-

flight time and training sessions.

The foreign flight attendants were hired by petitioner’s for-

eign branches (not subsidiaries) in the respective South

American countries, and the branches manage the foreign

flight attendants and pay their salaries. Petitioner’s domestic

payroll headquarters in Tulsa, Oklahoma, does not partici-

pate in the foreign branch payroll. The foreign branches are

responsible for issuing the foreign flight attendants’ checks

(which are paid in the local foreign currency) and with-

holding taxes under the law of the country of origin. The for-

eign branches withhold only the country of origin’s income

taxes and its equivalent social security taxes if applicable.

Petitioner originally acquired the South American routes

around 1990 from the now-dissolved Eastern Airlines. Peti-

tioner continued Eastern Airlines’ practice of foreign branch

withholding and has never withheld U.S. income or FICA

taxes from the foreign flight attendants’ salaries. Moreover,

petitioner has never paid employment taxes, including FICA

or FUTA taxes, with respect to the foreign flight attendants.

The foreign flight attendants have never submitted Forms

W–4, Employee’s Withholding Allowance Certificate, nor has

petitioner ever issued Forms W–2, Wage and Tax Statement,

to the foreign flight attendants.

B. 1992–96 Audit

Initially petitioner’s returns for tax periods 1992–96 were

audited. The focus of respondent’s audit was petitioner’s

potential liability for employment taxes 3 relating to the for-

eign flight attendants. Petitioner, then as now, contended

that it was not obligated to pay employment taxes with

respect to the foreign flight attendants because petitioner

was entitled to ‘‘section 530 relief ’’. Respondent’s Appeals

Office (Appeals) fully conceded the employment tax liabilities

3 In this case, the Court uses the term ‘‘employment taxes’’ as it is de-

fined by sec. 7436(e) to refer to taxes imposed pursuant to subtitle C of

the Internal Revenue Code, including taxes imposed under secs. 3402 (Fed-

eral income tax withholding), 3102 and 3111 (FICA tax), and 3301 (FUTA

tax).

28 144 UNITED STATES TAX COURT REPORTS (24)

for the 1992–96 tax periods pursuant to section 530 of the

Revenue Act of 1978 (RA ’78), Pub. L. No. 95–600, 92 Stat.

at 2885, as amended. 4 In the course of the audit, Appeals

created an administrative file, entitled the Appeals Case

Memorandum, summarizing petitioner’s and respondent’s

positions and explaining its conclusions. Petitioner obtained

the Appeals Case Memorandum for the 1992–96 audit

through a Freedom of Information Act request. The Appeals

Case Memorandum states that petitioner is entitled to RA

’78 sec. 530 relief for taxable periods 1992–96 and should be

entitled to relief from employment taxes for workers in

substantially similar positions for other periods. See RA ’78

sec. 530(a)(2)(B). At the close of the audit respondent agreed

not to audit petitioner’s returns on this issue for tax periods

1997–2002.

C. 2003–04 Audit

Respondent conducted an audit for petitioner’s 2003 and

2004 taxable periods. The focus of the examination was

substantially similar to that of the 1992–96 audit. Petitioner

contended that it was not liable for employment taxes or the

mandatory 30% withholding tax on nonresident aliens under

section 1441 5 with respect to the foreign flight attendants’

salaries because the ‘‘business visitor exception’’ 6 and/or RA

4 The Revenue Act of 1978 (RA ’78), Pub. L. No. 95–600, sec. 530, 92

Stat. at 2885, as amended, provides in relevant part:

(a) Termination of Certain Employment Tax Liability.—

(1) In general.—If—

(A) for purposes of employment taxes, the taxpayer did not treat an

individual as an employee for any period, and

(B) in the case of periods after December 31, 1978, all Federal tax re-

turns (including information returns) required to be filed by the taxpayer

with respect to such individual for such period are filed on a basis con-

sistent with the taxpayer’s treatment of such individual as not being an

employee, then, for purposes of applying such taxes for such period with

respect to the taxpayer, the individual shall be deemed not to be an em-

ployee unless the taxpayer had no reasonable basis for not treating such

individual as an employee.

5 Sec. 1441 requires, relevantly, that ‘‘all persons’’ who make payments

to nonresident aliens of specified items constituting U.S. source income

must withhold 30% of the gross income unless an exception or a treaty pro-

vision applies.

6 The business visitor exception relieves compensation for labor or per-

sonal services performed in the United States from being categorized as

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 29

’78 sec. 530 relief applied. In connection with the 2003–04

examination, respondent issued Technical Advice Memo-

randum (TAM) 201014051 on December 18, 2009. The TAM

concluded that petitioner was liable for employment taxes

with respect to the remuneration paid to foreign flight

attendants for services performed in the United States unless

the ‘‘business visitor exception’’ applied pursuant to sections

861(a)(3) and 864(b)(1). Because the employment tax regime

under subtitle C applied (whether or not the business visitor

exception waived withholding requirements), the TAM held

that the flight attendants’ remuneration was not subject to

withholding under section 1441. See sec. 1.1441–4(b)(1),

Income Tax Regs. Moreover, the TAM stated that ‘‘entitle-

ment to relief under section 530 is not properly at issue in

this case’’ because the case did not involve a worker classi-

fication. 7

Respondent’s exam team and petitioner did not reach an

agreement, and respondent sent petitioner a 30-day letter on

February 3, 2010. On March 11, 2010, petitioner timely sent

a formal protest challenging the 30-day letter on the basis of

petitioner’s continuously maintained position that it is

eligible for RA ’78 sec. 530 relief with respect to the remu-

neration paid to the foreign flight attendants by the foreign

branches for services performed in the United States. Peti-

tioner and its representatives had several conferences with

Appeals but did not settle the case. As in the first audit,

Appeals created an Appeals Case Memorandum, this time

stating: ‘‘The classification of the NRA flight attendants

(under section 530) is not relevant in this case, other than

it was cited by Appeals as a basis for granting complete relief

in a prior cycle. Accordingly, although Appeals has concluded

U.S. source income if: (1) the labor or services are performed by a non-

resident alien who is present in the United States 90 days or less during

the taxable year; (2) the compensation does not exceed $3,000; and (3) the

labor or services are performed, relevantly, for a foreign branch of a do-

mestic corporation. Sec. 861(a)(3).

7 The TAM stated, and respondent contends, that petitioner has not in

any way affirmatively treated the individuals as nonemployees, and there-

fore respondent is not attempting to reclassify them from nonemployees to

employees and RA ’78 sec. 530 relief is not relevant. Petitioner claims in

regard to the foreign flight attendants that RA ’78 sec. 530 relief may be

available whether or not there has been an employee classification.

30 144 UNITED STATES TAX COURT REPORTS (24)

that entitlement to relief under section 530 is not properly at

issue in this case, it has been addressed since it was the

basis for concession when last considered.’’

At this point respondent took a bifurcated approach to

petitioner’s tax liabilities. On April 14, 2011, respondent sent

petitioner a notice of deficiency determining that pursuant to

section 1441 petitioner was liable for a 30% withholding tax

on the foreign flight attendants’ U.S. source income for 2003

and 2004. The deficiencies totaled $796,654. Respondent did

not issue a formal notice of determination of worker classi-

fication with respect to employment taxes. However, on April

25, 2011, respondent assessed employment taxes under sub-

title C in the amounts of $549,810.73 for liabilities from

Form 940, Employer’s Annual Federal Unemployment

(FUTA) Tax Return, and $3,302,226.76 for liabilities from

Form 941, Employer’s Quarterly Federal Tax Return, plus

interest and penalties, for the 2003 and 2004 taxable periods.

Petitioner timely filed a petition with this Court on July 7,

2011.

Petitioner paid the assessed employment taxes on May 9,

2011. Petitioner filed a timely administrative refund claim

that was denied by Appeals on August 22, 2013. The notice

of disallowance said that petitioner could seek review in

either a U.S. District Court or the U.S. Court of Federal

Claims within two years of the notice. To the best of the

Court’s knowledge, petitioner has not filed a refund claim in

either court to date.

Respondent asserts that the determinations reflected in

the notice of deficiency, although it was issued first, is a sec-

ondary, alternative position to protect the Government’s

interest if respondent’s assessment of employment taxes is

successfully challenged by petitioner in an appropriate

refund forum. Respondent agrees that if subtitle C applies,

section 1441 is automatically inapplicable. See sec. 1.1441–

4(b)(1), Income Tax Regs.

In the petition, petitioner challenges respondent’s deter-

minations under section 1441 (the only determinations

reflected in the notice of deficiency) and also asserts that this

Court has jurisdiction to decide whether petitioner is liable

for employment taxes under subtitle C even though

respondent has not issued a notice of determination of

worker classification. On September 6, 2013, petitioner filed

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 31

a motion for partial summary judgment asking the Court to

hold that it has jurisdiction over both the section 1441 liabil-

ities on the basis of the notice of deficiency and the employ-

ment tax liabilities on the basis that respondent made a

determination with respect to those employment taxes. On

December 16, 2013, respondent filed his own motion for par-

tial summary judgment asserting that the Court does not

have jurisdiction over the employment tax liabilities because

respondent did not issue a notice of determination of worker

classification.

Discussion

The Tax Court is a court of limited jurisdiction and may

exercise jurisdiction only when Congress has expressly

authorized it to do so. See sec. 7442; Breman v. Commis-

sioner, 66 T.C. 61, 66 (1976); see also Rule 13(b). The Court

has jurisdiction to determine whether it has jurisdiction over

a particular case. Kluger v. Commissioner, 83 T.C. 309, 314

(1984). Moreover, the Court’s jurisdiction cannot be enlarged

by the parties’ agreement, or waiver, or failure to object.

Romann v. Commissioner, 111 T.C. 273, 281 (1998).

A. Section 7436(a)

The parties disagree about the scope of the Court’s juris-

diction under section 7436(a). Section 7436 was enacted as

part of the Taxpayer Relief Act of 1997, Pub. L. No. 105–34,

sec. 1454(a), 111 Stat. at 1055, and grants the Court limited

jurisdiction over cases involving employment taxes imposed

under subtitle C. Section 7436(a), as amended by the

Consolidated Appropriations Act, 2001, Pub. L. No. 106–554,

sec. 314(f), 114 Stat. at 2763A–643 (2000), 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-

32 144 UNITED STATES TAX COURT REPORTS (24)

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

of the Tax Court and shall be reviewable as such.

As the Court has noted previously: ‘‘[I]n response to the

expressed intent of Congress to provide a convenient, prepay-

ment hearing, this Court and the Courts of Appeals have

given the jurisdictional provisions a broad, practical construc-

tion rather than a narrow, technical meaning.’’ Lewy v.

Commissioner, 68 T.C. 779, 781 (1977) (fn. refs. omitted).

Therefore, where a statute is capable of various interpreta-

tions, the Court is inclined to ‘‘adopt a construction which

will permit the Court to retain jurisdiction without doing

violence to the statutory language.’’ Smith v. Commissioner,

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

B. Section 7436(a)(1) and (2)

Petitioner contends that the Court has jurisdiction in this

case under section 7436(a)(1) and (2), while respondent

asserts that the Court does not have jurisdiction under either

paragraph. The Court need not consider the parties’ conten-

tions relative to section 7436(a)(1) in light of our holding

below relative to our jurisdiction under paragraph (2).

Four requirements must be satisfied before the Court has

jurisdiction under section 7436(a)(2). There must be: (1) an

examination in connection with the audit ‘‘of any person’’; (2)

a determination by the Secretary that ‘‘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’’; (3) an ‘‘actual controversy’’ involving the determina-

tion as part of an examination; and (4) the filing of an appro-

priate pleading in the Tax Court. Sec. 7436(a). Requirements

(1) and (4) are clearly satisfied, and respondent does not

object. The remaining issues are whether there was an actual

controversy and a determination that petitioner is not enti-

tled to treatment under RA ’78 sec. 530.

1. The ‘‘actual controversy’’ Requirement Under Section

7436(a)(2)

Section 7436(a)(2) requires that the Secretary’s determina-

tion be related to an ‘‘actual controversy’’. The record clearly

indicates an actual controversy. The parties disputed peti-

tioner’s entitlement to RA ’78 sec. 530 treatment during the

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 33

1992–96 audit and the 2003–04 audit. The Commissioner

issued a TAM in connection with the 2003–04 examination

on December 18, 2009. On February 3, 2010, respondent sent

petitioner a 30-day letter proposing changes to its employ-

ment tax liabilities for the 2003 and 2004 taxable periods.

After petitioner submitted a formal protest in which it

continued to claim relief under RA ’78 sec. 530, the Appeals

Office considered the 2003–04 audit, including the issue of

RA ’78 sec. 530 relief, and described its findings in an

Appeals Case Memorandum. All three of these documents

show an actual controversy regarding petitioner’s qualifica-

tion for RA ’78 sec. 530 relief. Specifically, the 30-day letter

states that ‘‘[t]here is a question whether the taxpayer is

entitled to relief under section 530 of the Revenue Act of

1978 from any U.S. employment tax liability with respect to

the remuneration paid to the NRA flight attendants.’’ The

30-day letter further summarizes petitioner’s positions,

quotes petitioner’s assertions at length, and then rejects

them. The TAM and the Appeals Case Memorandum simi-

larly acknowledge that there is a disagreement between the

parties.

Respondent argues that for this Court to have jurisdiction

section 7436(a)(2) requires an actual controversy regarding

employment status as well as RA ’78 sec. 530 relief. How-

ever, the plain language of the statute indicates that there

need only be an actual controversy regarding RA ’78 sec. 530

relief. See Charlotte’s Office Boutique, Inc. v. Commissioner,

425 F.3d 1203, 1211 (9th Cir. 2005) (finding an actual con-

troversy even after the Commissioner conceded that the tax-

payer had treated its president and director as an employee

for the relevant taxable periods), aff ’g as supplemented 121

T.C. 89 (2003). Respondent has provided no convincing

authority that there must be an actual controversy about the

employment status of a taxpayer’s workers. Accordingly, the

Court finds that the ‘‘actual controversy’’ requirement has

been satisfied.

2. The Determination Under Section 7436(a)(2) That Peti-

tioner Was Not Entitled to RA ’78 Sec. 530 Relief

Next the Court considers whether respondent made a

‘‘determination’’ under section 7436(a)(2). The absence of a

notice of determination of worker classification or any other

34 144 UNITED STATES TAX COURT REPORTS (24)

document bearing a particular title does not bar our jurisdic-

tion. 8 SECC Corp. v. Commissioner, 142 T.C. 225, 231

(2014); see Gray v. Commissioner, 138 T.C. 295, 303–304

(2012) (holding that the Court has jurisdiction pursuant to

section 6404(h) when the Secretary’s determination

regarding interest abatement is memorialized in a notice of

determination concerning collection action(s) under section

6320 and/or 6330), supplemented by 140 T.C. 163 (2013); Wil-

son v. Commissioner, 131 T.C. 47, 52–53 (2008) (holding that

the Court lacked jurisdiction upon the Commissioner’s

issuance of a notice of determination concerning collection

action(s) under section 6320 and/or 6330 after the taxpayer’s

equivalent hearing). The existence of a determination with

respect to RA ’78 sec. 530 relief is sufficient to support the

Court’s jurisdiction. See SECC Corp. v. Commissioner, 142

T.C. at 231. A determination may manifest itself in nontradi-

tional ways and need not be memorialized in a particular for-

mat. See H.R. Rept. No. 105–148, at 639 (1997), 1997–4 C.B.

(Vol. 1) 319, 961 (stating in the explanation of provision of

section 7436 that ‘‘one way the IRS could make the required

determination is through a mechanism similar to the employ-

ment tax early referral procedures’’). For example, according

to legislative history, a ‘‘failure to agree’’ may constitute a

determination under section 7436(a). S. Rept. No. 105–33, at

304 (1997), 1997–4 C.B. (Vol. 2) 1081, 1384; see SECC

Corp. v. Commissioner, 142 T.C. at 232; see also Caltex Oil

Venture v. Commissioner, 138 T.C. 18, 34 (2012) (‘‘It is well

settled that where a statute is ambiguous, we may look to

legislative history to ascertain its meaning.’’ (citing Bur-

lington N. R.R. v. Okla. Tax Comm’n, 481 U.S. 454, 461

(1987))). In this case, respondent’s assessment of employment

taxes was obviously a memorialization of his determination.

As described above, petitioner’s returns were first audited

on employment taxes for the 1992–96 taxable periods.

Respondent’s administrative file for those periods contains an

Appeals Case Memorandum that addresses substantially the

same issues regarding employment tax liability as the 2003–

8 It is the determination, not the piece of paper, that provides a basis for

our jurisdiction. See SECC Corp. v. Commissioner, 142 T.C. 225, 231,

(2014).

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 35

04 audit. The 1992–96 Appeals Case Memorandum states in

relevant part:

Taxpayer should be entitled to future relief from similar employment

[tax liabilities] in subsequent years. Pursuant to Section 530 of the Rev-

enue Act of 1978 as amplified by Revenue Procedure 85–18, employment

related taxes may not be assessed against a person who is treating those

performing services not as an employee if that individual has a reason-

able basis for not treating as such. Reasonable basis includes a past IRS

audit of the taxpayer, if the audit entailed no assessment attributable

to the taxpayer’s employment tax treatment of the individuals holding

positions substantially similar to the position held by the individual

whose status is at issue.

Since Appeals has determined that these particular employees should

not be treated as employees for FICA, FIT and FUTA, such determina-

tion is tantamount to a past IRS audit.

Despite this concession pertaining to the 1992–96 taxable

periods, respondent iterated his position that petitioner was

not entitled to RA ’78 sec. 530 relief for the 2003 and 2004

taxable periods at least three different times throughout the

audit process. 9

The TAM, the 30-day letter, and the Appeals Case Memo-

randum for the 2003 and 2004 taxable periods all contain a

substantially similar analysis and nearly identical wording

discussing petitioner’s RA ’78 sec. 530 relief claim. The three

documents each acknowledge that petitioner claimed entitle-

ment to such relief, describe legislative history and caselaw

about RA ’78 sec. 530, and conclude that RA ’78 sec. 530 ‘‘is

not properly at issue in this case.’’ The Appeals Case Memo-

randum for 2003–04 also acknowledges that in the 1992–96

audit Appeals concluded that petitioner was entitled to RA

’78 sec. 530 relief but nevertheless concluded, without

explaining the distinction from the 1992–96 audit, that RA

’78 sec. 530 relief was inapplicable here.

The 30-day letter specifically states that ‘‘[t]here is a ques-

tion whether the taxpayer is entitled to relief under section

530 of the Revenue Act of 1978 from any U.S. employment

tax liability with respect to the remuneration paid to the

9 The record does not reveal what, if anything, changed between the two

audits such that petitioner was determined to be no longer entitled to RA

’78 sec. 530 relief. See, e.g., RA ’78 sec. 530(a)(3) (denying relief if an em-

ployer treated any individual holding a substantially similar position to

the position held by the individual whose status is at issue as an employee

for any period beginning after December 31, 1977).

36 144 UNITED STATES TAX COURT REPORTS (24)

NRA flight attendants.’’ It also summarizes petitioner’s argu-

ments that RA ’78 sec. 530 should apply, including a

quotation spanning two pages from a letter that petitioner

sent to respondent on May 12, 2009. The 30-day letter also

contains the words ‘‘CONCLUSION: Section 530 is irrelevant

because this case does not involve the issue of worker classi-

fication’’ in bold print.

These three documents show a clear ‘‘failure to agree’’ on

the issue of RA ’78 sec. 530 relief. See SECC Corp. v.

Commissioner, 142 T.C. at 233 (looking at a 30-day letter, an

Appeals Case Memorandum, and a letter regarding assess-

ment to decide whether the Commissioner had made a deter-

mination under section 7436(a)). They all recognize peti-

tioner’s position regarding RA ’78 sec. 530 and reject that

position. The 30-day letter and the Appeals Case Memo-

randum also state the amounts of the proposed adjust-

ments. 10

Respondent assessed the employment taxes on April 25,

2011, in the amounts of $549,810.73 for Form 940 liabilities

and $3,302,226.76 for Form 941 liabilities, finding that RA

’78 sec. 530 relief is inapplicable for the 2003–04 taxable

periods. The Court finds that respondent’s decision to assess

employment tax was preceded by a determination rejecting

petitioner’s RA ’78 sec. 530 claim as explained in the TAM,

the 30-day letter, and the Appeals Case Memorandum.

3. A Determination of Worker Classification as a Jurisdic-

tional Prerequisite Under Section 7436(a)(2)

Respondent contends that this Court lacks jurisdiction

under section 7436(a)(2) unless respondent makes a deter-

mination of worker classification. Respondent contends that

because petitioner has always treated its foreign flight

10 Respondent argues that the ‘‘failure to agree’’ standard is unworkable

because respondent could make a determination without petitioner’s ever

knowing about it or without knowing precisely when it was made. The

Court addressed these arguments in SECC Corp. v. Commissioner, 142

T.C. at 239, with regard to when the period allowed by statute to file a

petition in the Tax Court begins to run. In that case, relying on the text

of sec. 7436(b)(2), the Court held that a 90-day (or any other) time limit

does not apply where the Commissioner does not send a notice by certified

or registered mail. Id. at 243. Therefore, a taxpayer is not harmed when

the Commissioner makes a determination but does not send formal notice.

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 37

attendants as employees, 11 respondent had no need to make

a determination of worker classification, and therefore the

Court does not have jurisdiction under section 7436(a)(2).

Whether petitioner has ever treated its foreign flight attend-

ants as employees is a disputed material fact not appro-

priately decided on summary judgment. However, it is

unnecessary at this stage to analyze how petitioner treated

its foreign flight attendants because section 7436(a)(2) does

not require that respondent make a determination of worker

classification.

Respondent asserts that RA ’78 sec. 530 relief is unavail-

able when there has been no determination of worker classi-

fication. This proposition seems doubtful. See RA ’78 sec.

530(e)(3) (‘‘Nothing in this section shall be construed to pro-

vide that subsection (a) only applies where the individual

involved is otherwise an employee of the taxpayer.’’); S. Rept.

No. 104–281, at 26 (1996), 1996 U.S.C.C.A.N. 1474, 1500

(explaining that an amendment to RA ’78 sec. 530 in the

Small Business Job Protection Act of 1996, Pub. L. No. 104–

188, sec. 1122, 110 Stat. at 1766, adding subsection (e) ‘‘is

intended to reverse the IRS position * * * that there first

must be a determination that the worker is an employee

under the common law standards before application of sec-

tion 530’’). The Court need not decide this question today,

however, because it goes to the merits of an RA ’78 sec. 530

claim—that is, whether a taxpayer is entitled to relief under

that section. But that is not the question before the Court.

Rather, the question before the Court is jurisdictional, and

the Court need not consider the requirements of RA ’78 sec.

530 here. Instead, the Court looks to the statute that pro-

vides our jurisdiction in the instant case, section 7436(a).

Section 7436 is titled ‘‘Proceedings for Determination of

Employment Status’’, and subsection (a) is titled ‘‘Creation of

Remedy.’’ Respondent suggests that these titles show that

the Court’s jurisdiction is limited to instances where a deter-

mination of worker classification was made. It is a well-

accepted tenet of statutory construction that ‘‘the title of a

statute and the heading of a section cannot limit the plain

meaning of the text.’’ Bhd. of R.R. Trainmen v. Balt. & O.R.

11 Petitioner disputes this fact and contends that it has never treated the

foreign flight attendants as employees.

38 144 UNITED STATES TAX COURT REPORTS (24)

Co., 331 U.S. 519, 528–529 (1947); see Strathearn S.S. Co. v.

Dillon, 252 U.S. 348, 354 (1920); Cornell v. Coyne, 192

U.S. 418, 430 (1904); United States v. Fisher, 6 U.S. (2

Cranch) 358, 386 (1805); Stanley Works & Subs. v. Commis-

sioner, 87 T.C. 389, 419 (1986). Titles are not meant to over-

ride or substitute for the provisions of the text; neither are

they meant as reference guides or synopses. Bhd. of R.R.

Trainmen, 331 U.S. at 528–529. They are available as a tool

when helpful to resolve an ambiguous provision but may fail

even as that because ‘‘matters in the text which deviate from

those falling within the general pattern are frequently

unreflected in the headings and titles.’’ Id. Therefore, the

title of section 7436 need not be read to limit the section to

instances when the Secretary has made a determination of

worker classification.

We next turn to the text of section 7436(a). As discussed

above, section 7436(a) grants the Court jurisdiction when,

among other requirements, there is an actual controversy

involving a determination by the Secretary 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 * * *.

[Emphasis added.]

Here the word ‘‘or’’ is vital. ‘‘The plain meaning of legisla-

tion * * * [is] conclusive, except in the ‘rare cases [in which]

the literal application of a statute will produce a result

demonstrably at odds with the intentions of its drafters.’ ’’

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242

(1989) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S.

564, 571 (1982)); see Pollock v. Commissioner, 132 T.C. 21, 30

(2009) (‘‘We look past plain meaning to determine congres-

sional intent only if the language is ambiguous, applying the

plain meaning would lead to an absurd result, or (maybe)

where there is clear evidence of contrary legislative intent.’’).

By inserting the word ‘‘or’’ between paragraphs (1) and (2) of

section 7436(a), Congress unambiguously indicated that the

two provisions must be read in the disjunctive. Congress

divorced a determination of worker classification from a

determination of denial of RA ’78 sec. 530 relief with the

(24) AMERICAN AIRLINES, INC. v. COMMISSIONER 39

word ‘‘or’’, and the Court has no reason to look past this

plain meaning.

This reading does not lead to an absurd result or obstruct

legislative intent. This reading of section 7436 comports with

other accepted rules of statutory interpretation. The Court

must ‘‘ ‘give effect, if possible, to every clause and word of a

statute’ ’’ and, whenever possible, read a statute so that no

portion of it is rendered superfluous. United States v.

Menasche, 348 U.S. 528, 538–539 (1955) (quoting Inhabitants

of Montclair Tp. v. Ramsdell, 107 U.S. 147, 152 (1883)); see

Guardian Indus. Corp. v. Commissioner, 143 T.C. 1, 14–15

(2014); Caltex Oil Venture v. Commissioner, 138 T.C. at 30.

If section 7436(a)(2) were read as requiring a determination

of worker classification, the entire paragraph would be ren-

dered superfluous. Paragraph (1) already addresses our juris-

diction when the Secretary has made a determination of

worker classification. If this requirement were also embedded

in paragraph (2), Congress would have no need to specify

that the Court has jurisdiction when the Secretary has made

a determination of worker classification and when there has

been a denial of relief under RA ’78 sec. 530. This scenario

would be encapsulated in paragraph (1), and paragraph (2)

would essentially be nothing but an example of an issue that

might accompany a determination of worker classification.

Finally, section 7436(a)(2) does not limit the Court’s juris-

diction to instances where the Secretary has made a deter-

mination of worker classification. As stated above, section

7436(a)(2) grants us jurisdiction when there is a determina-

tion that ‘‘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 individual’’. Nothing in the language of

the statute requires a determination of worker classification

before the Court has jurisdiction over the Secretary’s deter-

mination under RA ’78 sec. 530. Although neither party

asserts that the phrase ‘‘with respect to such an individual’’

in section 7436(a)(2) imposes this additional jurisdictional

prerequisite, the Court addresses this phrase for the sake of

completeness. See Neely v. Commissioner, 115 T.C. 287, 290

(2000) (stating that the Court may question its own jurisdic-

tion sua sponte). The Court finds that the phrase ‘‘with

respect to such an individual’’ does not require that the Sec-

retary first determine the individual to be an employee

40 144 UNITED STATES TAX COURT REPORTS (24)

before jurisdiction arises. The adjective ‘‘such’’ relates back to

the individuals described in section 7436(a)(1). The term

‘‘individuals’’ in section 7436(a)(1) is modified by the present

participle phrase ‘‘performing services for such person’’ and is

not defined in the first instance by reference to ‘‘employees’’.

Therefore, the individuals that section 7436(a)(2) refers to

are workers who are performing services, and they need not

be classified as employees before section 7436(a)(2) jurisdic-

tion arises.

Accordingly, the Court holds that it may have jurisdiction

under section 7436(a)(2) whether or not the Secretary has

made a determination of worker classification. Respondent

has made a determination to deny petitioner relief under RA

’78 sec. 530, thereby fulfilling the final jurisdictional predi-

cate of section 7436(a)(2).

C. Conclusion

All the jurisdictional predicates of section 7436(a)(2) have

been satisfied, and the Court holds that it has jurisdiction

over both the RA ’78 sec. 530 determination and the notice

of deficiency asserting liability under section 1441. Peti-

tioner’s motion for partial summary judgment will be granted

in part, 12 and respondent’s motion for partial summary judg-

ment will be denied.

To reflect the foregoing,

An appropriate order will be issued.

f

12 TheCourt will grant petitioner’s motion for partial summary judgment

insomuch as it relates to our jurisdiction pursuant to sec. 7436(a)(2). We

do not address petitioner’s argument in its motion for partial summary

judgment regarding our jurisdiction pursuant to sec. 7436(a)(1).