T.C. Memo. 2000-375
UNITED STATES TAX COURT
ROBERT PATRICK DAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7118-98. Filed December 13, 2000.
Robert Patrick Day, pro se.
Tracy Anagnost Martinez, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PARR, Judge: This case is before the Court on a petition
for a redetermination of a Notice of Determination Concerning
Worker Classification Under Section 7436.1
1
Section references are to the Internal Revenue Code in
effect for the taxable year in issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
- 2 -
The issues for decision are: (1) Whether the individuals
(the drivers) who drove petitioner's trucks2 during 1995 were
employees of petitioner or independent contractors. We hold they
were employees. (2) Whether petitioner is eligible for relief
provided to employers by section 530 of the Revenue Act of 1978,
Pub. L. 95-600, 92 Stat. 2763, 2885 (section 530). We hold he is
not.
FINDINGS OF FACT
At the time the petition in this case was filed, petitioner
resided in Mazeppa, Minnesota.
During 1995, petitioner owned or leased five or six trucks
and operated a sole proprietorship called Dayline Trucking (the
company). Petitioner's business consisted of hauling freight
mainly between North Dakota and Texas and to the east coast.
Petitioner recruited drivers to operate his trucks through
newspaper advertisements and by word of mouth. Usually, at the
time he hired a driver, petitioner already had contracted with a
broker or a shipper for a load to be transported to a particular
destination. Every driver that petitioner hired held a
commercial license to operate a truck and had performed
satisfactorily on a short test drive conducted by petitioner. In
2
A trucking rig is made up of a tractor and a semitrailer.
For convenience, and to avoid confusion of petitioner's vehicles
with an agricultural implement, we refer to the tractors and
semitrailers in this case as trucks.
- 3 -
the year at issue, petitioner had 11 drivers who operated his
vehicles.
Petitioner had the right to discharge the drivers, and the
drivers had the right to quit, at any time. During the year at
issue, most of the drivers worked only a few months for
petitioner.
The driver chose the route to take between the point where
he engaged the load and the destination point, and also which
hours he would drive and rest. If the driver delivered the load
late, the company, not the driver, was liable for any penalties.
Petitioner required the drivers to call him daily while they
were on the road to inform him of their progress so that he could
arrange timely loads near the delivery points for the drivers to
haul on the return trips. Petitioner provided each driver with a
cellular telephone for that purpose, and petitioner paid the
expense of these telephone calls.
On the occasions that a driver delivered a load to a place
where petitioner had not been able to arrange a return load, the
driver would try to find a load by contacting a broker or by
consulting the "load board" at a truck stop. On these occasions,
the driver would call petitioner for approval of the terms of the
haul before engaging the load. The contract for the
transportation of the freight always was between the company and
the broker; the contract was never between the driver and the
- 4 -
broker. The driver was never paid for the time spent locating a
return load, and the driver was always responsible for his own
living expenses while on the road. Almost without exception, the
drivers slept in the trucks rather than in motels.
Petitioner paid the drivers 25 cents per mile for driving a
truck hauling a load, whether the driver or petitioner arranged
for the load, and, usually, 12-1/2 cents per mile for driving a
truck pulling an empty semitrailer. Some shipments were required
to be off-loaded upon delivery. In these instances, petitioner
allowed the driver $50 to $100 to hire a "lumper" to perform the
offloading; however, if a driver preferred to do the work
himself, the driver would be paid the lumper's fee.
Petitioner paid the acquisition and maintenance costs of the
trucks and all operating expenses including insurance, fuel, oil,
repairs, tolls, and scale charges. The drivers provided their
commercial driver's licenses and carried their own mechanic's
tools, which they used occasionally to make minor repairs to the
trucks (e.g., replace a burned-out flasher or fuse) while in
transit.
If a truck required a repair that prevented the operation of
the vehicle, e.g., a tire blowout, the driver would turn the
truck over to a professional truck mechanic for the repair work.
In these instances, petitioner would authorize the repair over
the telephone. If a truck had a mechanical problem that did not
- 5 -
prevent its operation, the driver would inform petitioner of the
problem, and petitioner would decide whether to have the truck
repaired while in transit or after the truck returned to
petitioner's place of business. In either event, petitioner paid
for the repair.
If the truck was involved in an accident, the company was
liable for any loss not paid by insurance for the damage to the
trucking rig or freight. The driver was responsible for the
payment of fines imposed for driving violations.
Drivers were provided a "Comcheck" to pay expenses incurred
while hauling the freight. A Comcheck has a number code that the
driver submits at truck stops to pay for fuel, oil, and other
necessary expenditures. The driver may also use the Comcheck to
draw cash advances and to pay for personal items, such as food.
At the end of the run, the driver reconciled the sum of the cash
advances and the amounts spent on personal items against the
amount earned for driving the truck; then either petitioner paid
the driver the balance owed or the driver repaid petitioner the
amount overdrawn. If a driver submitted incomplete records to
petitioner for the miles driven, the loads hauled, and expenses
incurred, petitioner charged the driver $25 to $100 to complete
the paperwork.
- 6 -
For employment tax3 purposes, petitioner treated all the
drivers as independent contractors, rather than as employees, and
issued every driver a Form 1099 instead of a Form W-2. Most of
the drivers working for petitioner considered themselves to be
employees, but some considered themselves independent
contractors.
OPINION
Issue 1. Whether the Drivers Are Employees or Independent
Contractors
Respondent determined that for employment tax purposes the
drivers of petitioner's trucks during 1995 were employees, not
independent contractors. Relying mainly on his own previous
experiences as a driver and his interpretation of a State
multiple-factor test, petitioner asserts that the drivers of his
trucks were independent contractors.
Respondent's determinations of fact are presumptively
correct, and petitioner bears the burden of proving by a
preponderance of the evidence that those determinations are
erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933); Day v. Commissioner, 975 F.2d 534, 537 (8th Cir.
1992), affg. in part and revg. in part T.C. Memo. 1991-140.
3
For convenience, we use the term "employment tax" to refer
to taxes under the Federal Insurance Contributions Act (FICA),
secs. 3101-3125, the Federal Unemployment Tax Act (FUTA), secs.
3301-3311, and income tax withholdings, secs. 3401-3406 and 3509.
See Henry Randolph Consulting v. Commissioner, 112 T.C. 1, 1 n.1
(1999).
- 7 -
These general principles apply to the Commissioner's
determination that a taxpayer's workers are employees. See Boles
Trucking, Inc. v. United States, 77 F.3d 236, 240 (8th Cir.
1996); Kiesel v. United States, 545 F.2d 1144, 1146 (8th Cir.
1976); see also Air Terminal Cab, Inc. v. United States, 478 F.2d
575, 578 (8th Cir. 1973) ("The issue of whether an employer-
employee relationship exists for purposes of employment taxes has
generally been held to be one of fact.").
For the purposes of employment taxes, the term "employee"
includes "any individual who, under the usual common law rules
applicable in determining the employer-employee relationship, has
the status of an employee". Sec. 3121(d)(2); accord sec.
3306(i).
The regulations provide that
Generally, such relationship exists when the
person for whom services are performed has the right to
control and direct the individual who performs the
services, not only as to the result to be accomplished
by the work but also as to the details and means by
which that result is accomplished. That is, an
employee is subject to the will and control of the
employer not only as to what shall be done but how it
shall be done. In this connection, it is not necessary
that the employer actually direct or control the manner
in which the services are performed; it is sufficient
if he has the right to do so. The right to discharge
is also an important factor indicating that the person
possessing that right is an employer. Other factors
characteristic of an employer, but not necessarily
present in every case, are the furnishing of tools and
the furnishing of a place to work, to the individual
who performs the services. In general, if an
individual is subject to the control or direction of
another merely as to the result to be accomplished by
- 8 -
the work and not as to the means and methods for
accomplishing the result, he is an independent
contractor. * * * [Secs. 31.3121(d)-1(c)(2),
31.3306(i)-1(b), Employment Tax Regs.]
The regulations provide a "summary of the principles of the
common law, intended as an initial guide" for the employer-
employee determination, rather than a workable test complete in
itself for determining whether an employer-employee relationship
exists. United States v. W.M. Webb, Inc., 397 U.S. 179, 194
(1970); see also Breaux & Daigle, Inc. v. United States, 900 F.2d
49, 51 (5th Cir. 1990); In re McAtee, 126 Bankr. 568, 571 (N.D.
Iowa 1991).
In Avis Rent A Car System, Inc. v. United States, 503 F.2d
423, 429 (2d Cir. 1974), the Court of Appeals for the Second
Circuit distilled the following seven factors for determining
whether an employer-employee relationship exists (the Avis test)
from the Supreme Court's decisions in Bartels v. Birmingham, 332
U.S. 126 (1947), and United States v. Silk, 331 U.S. 704 (1947):
(1) If the person receiving the benefit of a service has the
right to control the manner in which the service is performed,
the person rendering the service may be an employee. (2) If a
person rendering a service has a substantial investment in his
own tools or equipment, he may be an independent contractor. (3)
If a person performing a service undertakes a substantial cost,
for example, by employing and paying his own laborers, he may be
an independent contractor. (4) If a person performing a service
- 9 -
has an opportunity to profit depending on his management skill,
he may be an independent contractor. (5) If a service rendered
requires a special skill, the person rendering it may be an
independent contractor. (6) If the relationship between a person
rendering a service and the person receiving it is permanent, it
may be an employment relationship. (7) If a person rendering a
service works in the course of the recipient's business, rather
than in some ancillary capacity, he may be an employee.
The Court of Appeals for the Eighth Circuit, the court to
which any appeal in this case would lie, has adopted the Avis
test. See Nuttelman v. Vossberg, 753 F.2d 712, 714 (8th Cir.
1985); In re McAtee, supra at 572. The list of factors in the
Avis test is not exhaustive or exclusive. See Breaux & Daigle,
Inc. v. United States, supra at 51; Avis Rent A Car System, Inc.
v. United States, supra at 429 n.3; In re McAtee, supra at 571-
572. Determination of whether individuals are "employees" for
the purpose of employment taxes depends upon the totality of
their circumstances, and no single consideration governs. See
Avis Rent A Car System, Inc. v. United States, supra at 430; Azad
v. United States, 388 F.2d 74, 76 (8th Cir. 1968).
Although the determination of employee status is to be made
by common law concepts, a realistic interpretation of the term
"employee" should be adopted, and doubtful questions should be
resolved in favor of employment in order to accomplish the
- 10 -
remedial purposes of the legislation involved. Breaux & Daigle,
Inc. v. United States, supra at 52; see also United States v.
Silk, supra at 712 ("As the federal social security legislation
is an attack on recognized evils in our national economy, a
constricted interpretation of the phrasing by the courts would
not comport with its purpose.").
Applying these criteria to the facts and circumstances of
the present case, we conclude that during the year at issue
petitioner's drivers were employees.
1. Petitioner's Right To Control
"The absence of need to control should not be confused with
the absence of right to control." McGuire v. United States, 349
F.2d 644, 646 (9th Cir. 1965). The degree of control necessary
to find employee status varies with the nature of the services
provided by the worker. See United States v. W.M. Webb, Inc.,
supra at 192-193; Breaux & Daigle, Inc. v. United States, supra
at 52; Azad v. United States, supra at 77; McGuire v. United
States, supra at 646 ("The right to control contemplated by the
Regulations relevant here and the common law as an incident of
employment requires only such supervision as the nature of the
work requires."). It is not necessary that the purported
employer "'stand over the employee and direct every move that he
makes.'" Simpson v. Commissioner, 64 T.C. 974, 985 (1975)
(quoting Atlantic Coast Life Ins. Co. v. United States, 76 F.
- 11 -
Supp. 627, 630 (E.D.S.C. 1948)).
In this case, the drivers were required to deliver the loads
to a certain place at a certain time, and the drivers chose the
routes and the speeds that would take them to that destination
point by that time. Petitioner was not in the cabs of the trucks
supervising every movement of the drivers, directing which routes
to take or controlling the speeds at which to drive. Nor did he
control which hours the drivers drove or rested. Petitioner did
not direct the intimate details of the drivers' work, because the
drivers' work requires little supervision. Though petitioner was
not required to supervise closely the drivers hour by hour, the
right to control was not lacking. See Air Terminal Cab, Inc. v.
United States, 478 F.2d at 580.
Petitioner exercised control by requiring the drivers to
call him daily on the cellular phones, which he provided, to
inform him of their locations and progress. Petitioner
controlled which loads the drivers would haul and the prices
charged for the transportation of those loads. Petitioner
determined whether repairs to the trucks should be performed on
the road or deferred until the driver returned the truck to
petitioner's business location. On this record, petitioner
exercised the necessary control over the drivers' activities
consistent with an employer-employee relationship. See Avis Rent
A Car Systems, Inc. v. United States, 503 F.2d at 430; Air
- 12 -
Terminal Cab, Inc. v. United States, supra at 580-581; Frische v.
Commissioner, T.C. Memo. 2000-237; In re McAtee, 126 Bankr. at
572 (while truck drivers had some discretion as to route chosen
to get to particular destination, drivers were obligated to
follow directions of employer as to where and when to transport
various loads).
2. Substantial Investment
The fact that a worker provides his or her own tools
generally indicates independent contractor status. See United
Sates v. Silk, 331 U.S. at 716-717; Breaux & Daigle, Inc. v.
United States, supra at 53. The drivers had a small investment
in their mechanic's tools, which were incidental to their service
of driving the truck, and their commercial driver's licenses.
Although the drivers incurred some cost in their hand tools and
in obtaining and maintaining their commercial driver's licenses,
the amount of each driver's investment is insignificant in
comparison to petitioner's substantial investment to acquire and
maintain his five or six trucks. See In re McAtee, supra at 572;
see also United Sates v. Silk, supra (value of the workers' tools
was so minimal that this factor was not of great weight); Breaux
& Daigle, Inc. v. United States, supra (same).
Most importantly, the drivers had no investment in the
trucking equipment; i.e., the tractors and the semitrailers. See
Avis Rent A Car System, Inc. v. United States, supra at 430; cf.
- 13 -
Carrell v. Sunland Constr., Inc., 998 F.2d 330 (5th Cir. 1993)
(welders were found to be independent contractors partly because
welders invested average of $15,000 each in welding equipment).
Furthermore, the drivers undertook none of the costs of operating
the trucks or transporting the freight; petitioner paid for all
repair expenses and maintenance costs on the trucks, and all
operating expenses, including insurance, fuel, oil, repairs,
tolls, and scale charges. Cf. Labor Relations Div. of Constr.
Indus. v. Teamsters Local 379, 156 F.3d 13, 20 (1st Cir. 1998)
(independent contractor owner-operators of trucks bear cost of
owning and insuring their own trucks and cover fuel, repair, and
tax expenses stemming from operation of those vehicles).
The relatively minor investment by the drivers and the
substantial investment by petitioner support a finding that the
drivers were petitioner's employees.
3. Substantial Costs Incurred by Drivers
The drivers in this case did not incur any substantial
costs. The drivers paid their own living expenses while on the
road. However, expenditures on personal items are not costs
relevant to this factor. Occasionally, the driver hired a lumper
to unload a semitrailer; however, the lumper's fee was paid by
petitioner, not the driver. (Petitioner's argument regarding the
lumpers is considered thoroughly in the discussion of the next
factor.) This factor does not support a finding that the drivers
- 14 -
were independent contractors.
4. Ability To Profit by Management Skills
In considering whether the drivers had an opportunity to
profit, we also consider whether they were at risk of loss. See
United States v. Silk, supra at 716, 717.
The drivers had a limited ability to profit by their own
management skills. Drivers were paid by the mile; therefore, to
maximize his earnings, a driver had to rely on his own knowledge
of traffic patterns and road conditions, his ability to read a
map, and his ability to anticipate the need for an alternate
route.
However, the ability to read a map and choose a quicker
route does not constitute a management skill. The execution of
this duty is only evidence of efficient and hard-working
employees. See In re McAtee, supra at 572. "[I]nitiative, not
efficiency, determines independence". Brock v. Mr. W Fireworks,
Inc., 814 F.2d 1042, 1053 (5th Cir. 1987). The drivers' energy,
care, and judgment may have conserved the equipment and increased
their earnings, but petitioner was the director of their
activities.
In this case, the drivers were dependent primarily upon
petitioner's ability to locate loads for them to haul with his
trucks. If petitioner failed to locate a return load, the
drivers would attempt to arrange one through a broker or the load
- 15 -
board at a truck stop; however, the terms and the acceptance of
the contract were petitioner's domain. The drivers were unable
to exert initiative in any of the major components open to
initiative; i.e., advertising, pricing, and choice of clients.
See Brock v. Mr. W Fireworks, Inc., supra; Usery v. Pilgrim
Equip. Co., 527 F.2d 1308, 1313 (5th Cir. 1976). The drivers
were not allowed the initiative and did not have the independence
or the decision-making authority normally associated with an
independent contractor.
Finally, petitioner argues that the drivers had an
opportunity to profit through the use of their management skills
in unloading the trucks. Petitioner's argument is that the
driver could choose to hire a lumper to unload the truck, or the
driver could profit by unloading the truck himself. We disagree.
Unloading a truck to earn a lumper's fee is not profiting by
management skill. See United States v. Silk, supra at 717-718.
Furthermore, if a driver hired a lumper instead of unloading the
truck himself, he did not incur a loss through mismanagement.
The lumper's fee was provided by petitioner, not by the driver;
therefore, a driver who hired a lumper incurred an opportunity
cost, not an out-of-pocket expense.
Because the drivers were paid by the mile, they had no real
risk of loss. One driver, appearing as respondent's witness,
testified that when he chose an alternate route which required
- 16 -
payment of higher tolls, petitioner charged him for the extra
expense. We do not find this instance of a driver's liability
for the extra toll charges supportive of petitioner's assertion
that his drivers were independent contractors.
Charging an employee for losses caused by the employee is
not incompatible with employee status. See Gierek v.
Commissioner, T.C. Memo. 1993-642 (employee stockbroker charged
for substantial trading loss errors); Butchko v. Commissioner,
T.C. Memo. 1978-209 (racetrack teller's cash register shortages
characterized as employee business expenses and deductible only
as itemized deductions), affd. 638 F.2d 1214 (9th Cir. 1981).
This factor supports respondent's determination that the drivers
were employees.
5. Special Skill
Although the Court recognizes that driving a truck requires
skill, we do not think that it is the type of skill envisioned by
the Court of Appeals for the Second Circuit in deciding Avis Rent
A Car System, Inc. v. United States, 503 F.2d 423 (2d Cir. 1974).
See In re McAtee, 126 Bankr. at 572. Rather, the special skill
pertains to services that are outside of the ordinary course of
petitioner's business. See id.; McLaughlin v. Seafood, Inc., 861
F.2d 450 (5th Cir. 1988) (the workers were not specialists called
in to solve a problem, but laborers who performed the essential,
everyday chores of their employer's operation). In this case,
- 17 -
the services provided by the drivers were an essential and normal
part of petitioner's regular business. See In re McAtee, supra
at 572. This factor supports a finding that the drivers were
petitioner's employees.
6. Permanency of the Relationship
Generally, the drivers worked for petitioner for a short
time. A transitory work relationship may point toward
independent contractor status. See Herman v. Express Sixty-
Minutes Delivery Serv., Inc., 161 F.3d 299, 305 (5th Cir. 1998).
However, if the workers work in the course of the employer's
trade or business, that they do not work regularly is not
significant. See United States v. Silk, 331 U.S. at 718; see
also Avis Rent A Car System v. United States, supra at 430
(transients may be employees); Kelly v. Commissioner, T.C. Memo.
1999-140 (working for a number of employers during a tax year
does not necessitate treatment as an independent contractor).
In considering the permanency of the relationship, we must
also consider petitioner's right to discharge the drivers, and
the drivers' right to quit, at any time. Usually, the right to
discharge a worker, and the worker's right to quit, at any time
indicates an employer-employee relationship. See United States
v. W.M. Webb, Inc., 397 U.S. at 193 ("'The right to discharge is
also an important factor indicating that the person possessing
that right is an employer.'" (quoting sec. 31.3121(d)-1(c)(2),
- 18 -
Employment Tax Regs.)); Breaux & Daigle, Inc. v. United States,
900 F.2d at 53 (same); Air Terminal Cab, Inc. v. United States,
478 F.2d at 581.
Although most of the drivers worked for only a few months,
we find the facts that the drivers' brief periods of employment
were in the course of petitioner's regular business and that
petitioner had the right to discharge the drivers, and the
drivers had the right to quit, most persuasive. See United
States v. Silk, supra. Accordingly, this factor supports a
finding that the drivers were employees of petitioner.
7. Service Integral to the Business
The drivers in this case did not have their own independent
businesses; rather, they performed a function that was an
essential part of petitioner's company's normal operations. The
success of petitioner's trucking business depended, in part, upon
the work performed by the drivers. Therefore, the drivers'
services were an integral part of petitioner's business. See
Breaux & Daigle, Inc. v. United States, supra (financial success
of processor of crab meat was dependent upon crab meat pickers;
therefore, crab meat pickers' services were integral part of
processor's business); Air Terminal Cab, Inc. v. United States,
supra at 581 (taxicab drivers were performing personal services
constituting integral part of taxpayer's business operations); In
re McAtee, 126 Bankr. at 572 (truck drivers services were
- 19 -
integral part of taxpayer's trucking business). This factor
supports respondent's determination.
Other Factors
Other factors courts have considered in determining the
status of workers are the relationship the parties believed they
were creating, see Simpson v. Commissioner, 64 T.C. at 984-985,
and whether the taxpayer withheld taxes, worker's compensation,
and unemployment insurance funds, see Professional & Executive
Leasing, Inc. v. Commissioner, 862 F.2d 751, 753 (9th Cir. 1988),
affg. 89 T.C. 225 (1987).
Petitioner treated all of the drivers as independent
contractors; he issued the drivers Forms 1099 instead of Forms
W-2, and he did not withhold or make contributions of employment
taxes. Most of the drivers, on the other hand, believed they
were employees, and reported their earnings from driving
petitioner's trucks as wages. None of the drivers who appeared
as a witness testified that he reported his earnings on Schedule
C, Profit or Loss From Business (Sole Proprietorship).
Thus, it is clear that petitioner and the drivers were not
in agreement about the relationship that they were creating.
This factor does not support a finding that the drivers were
independent contractors.
Moreover, as we must decide this issue to resolve
petitioner's obligation to comply with the employment tax
- 20 -
provisions, consideration of the fact that petitioner did not
comply with those provisions, e.g., withhold taxes, worker's
compensation, and unemployment insurance funds, would provide no
value to our determination. Cf. id. (issue for determination was
whether corporation's pension and profit-sharing plans qualified
under section 401, I.R.C. 1954).
On the basis of the facts and circumstances of this case, we
hold that the drivers were employees of petitioner.
Issue 2. Whether Petitioner Is Eligible for Section 530 Relief
In the notice of determination concerning worker
classification, respondent determined that petitioner is "not
entitled to relief from this classification pursuant to section
530 of the Revenue Act of 1978". Petitioner assigned error in
his petition to this determination and asserts that he is
entitled to such relief.
Congress enacted section 530 to alleviate what it perceived
as the "overly zealous pursuit and assessment of taxes and
penalties against employers who had, in good faith, misclassified
employees as independent contractors." Boles Trucking, Inc. v.
United States, 77 F.3d at 239 (citing In re Rasbury, 130 Bankr.
990 (N.D. Ala. 1991)). Section 530(a)(1) shields a taxpayer who
has mistakenly not classified his workers as employees from
employment tax liability if the taxpayer had a reasonable basis
for not treating the workers as employees and has filed all
- 21 -
required Federal employment tax returns on a basis consistent
with this treatment. Petitioner never treated the drivers as
employees and consistently issued them Forms 1099. Therefore,
the threshold requirement petitioner must satisfy to qualify for
section 530 relief is that he had a reasonable basis for treating
the drivers as nonemployees.
Section 530(a)(2) provides that reasonable reliance on any
of three "safe harbors" shall be treated as a reasonable basis
for not treating a worker as an employee. See Boles Trucking,
Inc. v. United States, supra. Paragraph (2) provides:
For purposes of paragraph (1), a taxpayer shall in any
case be treated as having a reasonable basis for not
treating an individual as an employee for a period if
the taxpayer's treatment of such individual for such
period was in reasonable reliance on any of the
following:
(A) judicial precedent, published rulings,
technical advice with respect to the taxpayer, or
a letter ruling to the taxpayer;
(B) a past Internal Revenue Service audit of
the taxpayer in which there was no assessment
attributable to the treatment (for employment tax
purposes) of the individuals holding positions
substantially similar to the position held by this
individual; or
(C) long-standing recognized practice of a
significant segment of the industry in which the
individual was engaged.
Petitioner provided no evidence that he had a reasonable
reliance on any of these safe harbor provisions. Respondent
called as witnesses five of petitioner's former drivers, all of
whom were employed as truck drivers at other times for other
- 22 -
trucking companies. Although, petitioner never questioned the
witnesses about their worker status at those other companies,
petitioner testified that when he was a driver for other
companies, he was treated as an independent contractor.
Petitioner's experience by itself is not evidence of the
"long-standing recognized practice of a significant segment" of
the trucking industry. See, e.g., Small Business Job Protection
Act of 1996, Pub. L. 104-188, sec. 1122, 110 Stat. 1755, 1766
(amending section 530 by adding new subsection (e), which
provides that "in no event shall the significant segment
requirement * * * be construed to require a reasonable showing of
the practice of more than 25 percent of the industry (determined
by not taking into account the taxpayer)").
The three statutory safe harbor methods are not the
exclusive ways that a taxpayer may qualify for section 530
relief. A taxpayer may qualify by demonstrating that it had some
other reasonable basis for treating its workers as independent
contractors. See H. Rept. 95-1748, at 5 (1978), 1978-3 C.B.
(Vol. 1) 629, 633 ("A taxpayer who can demonstrate a reasonable
basis for the treatment of an individual in some other manner
also is entitled to termination of employment tax liabilities.");
see also Boles Trucking, Inc. v. United States, supra at 239.
As evidence of a reasonable basis for treating the drivers
as independent contractors, petitioner proffered a letter dated
- 23 -
March 31, 2000, sent to him from the Minnesota Department of
Economic Security (MDES). The letter states:
Based on the information we have in our files at this
time we will not be making any further effort to hold
you individually liable for the unemployment tax debts
of the above business [Dayline Trucking]. If new
information is made available that changes the
situation you will be notified before any further
action is taken.
This letter does not support petitioner's assertion that he
is entitled to section 530 relief. Petitioner could not have
relied on this letter for his treatment of the drivers as it is
dated 5 years after the year at issue in the instant case.
Furthermore, the letter provides no indication of what
information in the MDES files prompted the department to
discontinue its efforts to hold petitioner liable for the
unemployment debts of his company. Petitioner has not proved
that he had a reasonable basis for treating his drivers as
independent contractors. Accordingly, we hold that petitioner is
not entitled to section 530 relief.
To reflect the foregoing,
Decision will be entered
sustaining respondent's notice
of determination.