T .C . Memo . 2008-26 3

T .C . Memo . 2008-26 3

UNITED STATES TAX COURT

MICHAEL NEIL MCWHORTER, Petitioner v .

COMMISSIONER' OF INTERNAL REVENUE, Responden t

Docket No . 1365-07 .

Filed, Novemb -er 24~, 2008 .

Michael Neil McWhorter, pro se .

John P . Stemwedel , for respondent .

MEMORANDUM FINDINGS OF-FACT,AND OPINIO N

COHEN,

Judge : Respondent determined a deficiency of $44,941

.in petitioner's Federal income tax for 2002 and additions to ta x

under sections 6651(a)(1) and (2) and 6654(a) . After

concessions, the issues for decision are whether petitioner

performed services as an employee and whether he is liable for

the additions to tax . Unless otherwise indicated, all section .

SERVED NOV 2 4 2008

2

references are to the Internal Revenue Code in effect for the

year}in .issue, and all Rule references are to the, Tax Court Rule s

of Practice and Procedure .

FINDINGS OF FACT

Some of :the factshave been stipulated ,

and the stipulate d

facts are,iricorporated in our findings by this reference .

Petitioner resided in Texas at the time that he filed hi s

petition . --During 2002 he resided in Arizona .

Commencing in 2001 and ending in 2004, petitioner performed

services as a project manager for . Boyle Energy Services and

Technology, Inc . . (Boyle Energy) . Boyle .Energy hired petitioner

because of his knowledge of power plants and specialized

knowledge and expertise in industrial pipe fitting . . His .,work for

Boyle Energy focused on industrial cleaning of steam piping in

power plants as part of the process of recommissioning theF

plants . Petitioner received nol .training from Boyle Energy

regarding either its procedures or on industrial pipe fitting .

Petitioner's training by Boyle Energy' was restricted to teaching .

him the recommissioning process of the company .

Petitioner's work for Boyle Energy was on a project-byproject basis . He had authority to supervise the personnel o f

Boyle Energy and of client companies . Petitioner did not have

any hiring or,firing authority over Boyle Energy personnel an d

had to contact Boyle-Energy before removing its personnel from a

job site . Petitioner had a credit card with the name of Boyle

Energy on it'and a business card with, . the company logo on it .

Petitioner invoiced Boyle Energy for' services rendered pe r

project . The invoices and the subsequent payments-were at a rate-,of $500per dayfor petitioner's labor during 2002 . Petitioner,

ddid not provide Boyle'Energywith timesheets . Boyle Energy pai d

the •amount shown on :-petitioner' s' invoices and-issued t o

petitioner a-Form 1099-MISC,YMiscellaneous Income, for 2002 ,

reporting $126,760 as nonemployee compensation ., Petitioner

received a Form 1099 from Boyle Energy for each of the years''

2001, 2002, -2003,, and =2004 .'He never received a<Form W-2, .-Wa4 e

and Tax Statement ;' from Boyle Energy .Petitioner'=failed to file a Federal income tax return for

2002 . For thattyear,he`received compensation'of $126',760 fro m

Boyle Energy,--$267 .05 ofshort-termcapital gain, and'°$2 of :

interest income . 'No :Federal income tax'waslwithheld from, any=of

the amounts that petitioner received,`and .he failed to-make any

payments of estimated taxes- .during'2002 .

The Internal . Revenue'Service ,(IRS) prepared :a substitute for

return under section 6020(b)}with',respect :to'petitioner .s Federal

income tax liability ., In, the notice of deficiency, the IRS .

determined that petitioner was liable' for . self-employment tax on

the income received fromBoyle Energy .

OPINION

Petitioner claims that-he was an-employee of .Boyle Energ y

and not an independent contractor liable for self-employment

taxes . He initially-'claimed -that . Boyle . Energy should be,

responsible :for the .income taxes ..that .were . .not withheld . By the

conclusion of the trial, however, he understood that the issues

remaining in .dispute were his liability for,-self-employment, tax

and the additions to tax for failure . to file a tax return ,

failure to 'pay, tax due on a return,,,,and . failure to make estimated

tax payments .

-Respondent contends that petitioner is liable fore selfemployment tax under sections 1401(a) and 1402 ., Respondent

argues=that petitioner was . not an employee under the definition` .

set .out in .section 3121(d) . See sec . 1 .1402(c)-3,(a),,Income Tax

Regs . Respondent relies on the test set'out .,in . Breaux & Daigle,

Inc . v . . United States , 900 F .2d 49, 51 (5th Cir . 1990) .4 (citing

United States V . Silk , 331,U .S . ;704, 716 (1947)), . and they

following factors : (1) Degree of control, (2) opportunities for,

profit or loss, (3) investment in facilities, (4) permanency of

relation, and (5) skill required_in .the operation in question .

The list is not exclusive, and no- .one factor is controlling . I

Respondent'argues that the degree of control .by,Boyl e

Energy, the lack of permanency in the, relationship, and- .the-skill

required in petitioner's work supports respondent's-contention

5 that petitioner was an independent contractor during 2002 .

Respondent concedes that the lack of opportunities for profit or

investment in the facilities supports petitioner's .,contention .

that he was an employee . Recognizing that this is a close case,

respondent argues that the understanding of the parties to the

contract should-be given :weight . See McCormick v . United States ,

209 Ct .

Cl .

331, .531 F .2d 554, 560 (1976) ;

Commissioner , . T .C . Memo . 1986-590 ;

Memo . . 1984-59 .2 ;

Herman v .

Steffens v . Commissioner , T .C .

Bothke v . Commissioner , T .C . Memo . 1980-1 ;

Springfield Prods ., Inc . v . Commissioner , T .C Memo . 1979-23 ;

Harris v . Commissioner , T .C . Memo . 1977-358 .

Respondent as.s.erts : ,

Petitioner contends that there was an ongoing

dispute with Boyle Energy regarding his status .

Petitioner acknowledges, however, that he worked under

this arrangement from 2001 until he ended the

relationship in 2004 for unrelated reasons . If there

was a valid dispute as to his status, petitioner

essentially acquiesced to Boyle Energy's understanding .

of his status by continuing to work under this

arrangement . And despite the availability of . persons

aware of his employment status and relationship with

Boyle Engineering [sic] over the period in question,

such as Mike Boyle and Diane Gagnon, petitioner did not

obtain any evidence to .corroborate his testimony where

it is at variance with documentary evidence .

Of course, respondent also could have called

witnesses concerning

the nature of the relationship between petitioner and Boyl e

Energy . Because petitioner's testimony was credible with respect

6 to his arrangements with Boyle Energy, . the absence of

corroborating evidence is-not determinative . Cf .

Commissioner ,' 122 T .C . 305,

320

Boyd-v .

(2004) .

as an independent contractor-for tax purposes is troubling .

discussed below „he has'"presented no reasonable ' excuse for his

failure to file,a .return and pay the income tax due .',On the

limited record thatwe-have, however, we conclude that petitioner'' .

was an employee of Boyle Energy during .2002 and should ., have been

treated as such for tax purposes .

In respondent's pretrial memorandum, respondent referred-to

section 7491(a) and asserted that petitioner had failed to,

produce any evidence that he was an employee and not an

.independent contractor of Boyle,Energy . At . trial, however, th e

nature of=petitioner's employment-was the subject of his

testimony, and his testimony was credible : In the posttrial

brief, respondent does not challenge the credibility of

petitioner's testimony and acknowledges=that some of the relevant

factors favor petitioner .-Respondent does not address section

7491(a)(1) in the posttrial brief . Thus respondent does not

claim that any of the limitations in section 7491(a)(2) preven t

application of the general rule that :

SEC .-7491 . BURDEN OF PROOF .

(a) Burden Shifts Where Taxpayer Produces

Credible Evidence .--

- 7 (1) General rule .--If, in any court

proceeding, a taxpayer introduces credible

evidence with respect to any factual issue

relevant to ascertaining the liability of th e

,taxpayer for any tax imposed by subtitle A or

B, the Secretary shall have the burden of

proof with respect to such issue .

We conclude that the burden of proof in this case shifted to

respondent .

We are not persuaded that the factors relied on by

respondent prove-that petitioner was an independent contractor

with respect to the services 'that he :performed for Boyle Energy .

Neither the degree of control exercised by Boyle Energy nor theamount of skill possessed by petitioner distinguishes his

situation from that of a supervisory employee . We are not

persuaded that .a job that continued from 2001 into 2004 can be

described as "impermanent" . .Respondent acknowledges that other

factors favor petitioner . On the record that has been made, we

conclude that. respondent did not carry the burden of proof .

Petitioner is not liable for self-employment tax for 2002 .

Respondent also had the burden of production with-respect t o

the additions to tax under sections 6651(a) and 6654 . See sec .

7491(c) . Petitioner stipulated that he failed to file a return

for 2002 and that a substitute tax return was prepared unde r

section 6020,(b) . Respondent introduced evidence that petitione r

also failed to file a return for 2001 .

- 8 -

Section 6651( a) 'imposes additions to ,tax for failure to fil e

a return and failure to pay the .amount shown as-tax on a-return .

Petitioner's-only explanation' of .,his failure to file a return for

2002 is that he did not want to sign-a return saying that he was

an independent contractor . He has no?reasonable cause, however,,

for failing to file a return reporting that he received $126,760,

in compensation and other-amounts of income during 2002 . The .

failure of Boyle .-,Energy to withhold taxes that should have been

withheld neither excuses petitioner's,failure to file .the return .

and pay the taxes .nor relieves-him . of the . additions . to tax under ; :

section 6651(a) .-- See .- Escandon-y . Commiss .ioner , .T .~C . Memo .,2007-~ ._

128 ;

Lucas v .-Commissioner,

T .C . Memo :°x2000-14 .

Section 6654-imposes an addition .-to tax,when a-taxpayer

fails to make` a required installment of estimated income-tax .

Each required installment is equal .to 25'" .percent,of the required

annual payment . Sec . 6654(d) (1) (A) , -The required annual,payment .,

is the lesser of (1) .90 percent,of'the tax shown on thereturn

for the taxable year (or ., .if the taxpayer filed no return, 90 .._

percent of the tax" for that year),- or (2)" . 100 ,percent of the . tax d.,_ . .

shown on the return for the preceding . taxable, year . . Sec .

6654(d) (1) (B) . Because .petitioner failed • to file a return for

2001,' his required annual :payment .for .,.2002 was 90 percent ,of-the

9 tax for that year . Because petitioner failed to pay any Federal

income tax for 2002, the section 6654 addition to tax applies to

the recomputed deficiency .

The implication of our holding that petitioner was an

employee of-Boyle Energy for 2002 is that he may be liable for

his share of taxes under the Federal Insurance Contributions Act,

section 3101(a) and (b) . That determination, however, is not

within our jurisdiction in this case . See Lucas v . Commissioner ,

supra n .3 ;

Grooms v . Commissioner , T .C . Memo . 1992-291 .

To reflect the foregoing,

Decision will be entere d

under Rule 155 .