T.C. Summary Opinion 2001-101
UNITED STATES TAX COURT
GEORGE A. AND LAURENE S. BEITEL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17769-99S. Filed July 5, 2001.
George A. and Laurene S. Beitel, pro se.
Robert V. Boeshaar, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for the year in issue. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
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Respondent determined a deficiency of $126 in petitioners’
1997 Federal income tax. The issue for decision is whether
certain deductions claimed on a Schedule C, Profit or Loss from
Business, included with petitioners’ 1997 Federal income tax
return should be treated as unreimbursed employee business
expenses. The resolution of this issue depends upon whether
George A. Beitel was an independent contractor or an employee in
connection with services he provided as an adjunct professor at
certain universities in 1997.
Background
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. At the time the petition was
filed, they resided in Idaho Falls, Idaho. References to
petitioner are to George A. Beitel.
During 1997, in addition to his full time employment as an
engineer with the Idaho National Engineering and Environmental
Laboratory, petitioner, who holds a Ph.D. degree in physics, was
also an adjunct professor at Idaho State University (ISU) and at
the University of Idaho (UOI)(collectively, the universities).
Petitioner taught at the universities and was compensated
for so doing on a course-by-course basis. During the 1997 spring
semester, petitioner taught a class in Low Level Radioactive
Waste at ISU. During the 1997 fall semester, petitioner taught a
class in Systems Engineering Principles at UOI. Classes for
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these courses were conducted on campus in classrooms provided by
the universities. Petitioner prepared for classes and reviewed
student assignments from his home. He communicated with and
received assignments from his students through e-mail on his home
computer, and he maintained a website on the Internet devoted to
his teaching activities at the universities.
In addition to his course responsibilities, as an adjunct
professor, petitioner also supervised a thesis student and a
special topic student at UOI during 1997. Petitioner
communicated with these students primarily through e-mail and
various off-campus meeting places.
All of petitioner’s teaching assignments during 1997 were
subject to written contracts between himself and the
universities. Among other things, each contract specified the
course to be taught or student to be supervised, the duration of
the assignment, and the amount and method of payment. Each
contract also indicated that petitioner would be treated as an
employee of the university, albeit at least with respect to UOI,
the contract provided that petitioner enjoyed “very limited
[employee] benefits”.
For 1997, each university issued to petitioner a Form W-2,
Wage and Tax Statement, reflecting the amounts paid to petitioner
for his services. Both Forms W-2 classified amounts paid to
petitioner as wages. Each university also withheld Social
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Security, FICA, and Federal and State income taxes on the
payments.
Petitioners filed a timely 1997 joint Federal income tax
return. The taxable income reported on the return takes into
account their election to itemize deductions. Income and
deductions attributable to petitioner’s teaching assignments are
reported on a Schedule C, Profit or Loss From Business, included
with that return.
The adjustments made in the notice of deficiency reflect
respondent’s determination that in 1997 petitioner performed
services for the universities as an employee, not as an
independent contractor.
Discussion
Whether an individual is an employee or an independent
contractor for Federal income tax purposes is a factual question
to be determined with reference to common-law principles of
agency. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318,
322-325 (1992); Weber v. Commissioner, 103 T.C. 378, 386 (1994),
affd. 60 F.3d 1104 (4th Cir. 1995); Professional & Executive
Leasing, Inc. v. Commissioner, 89 T.C. 225, 232 (1987), affd. 862
F.2d 751 (9th Cir. 1988). The relevant factors in determining
the characterization of an employment relationship include:
(1) The degree of control exercised by the principal over the
details of the work; (2) which party invests in the facilities
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used in the work; (3) the opportunity of the hired party for
profit or loss; (4) whether the type of work is part of the
principal’s regular business; (5) the permanency of the
relationship between the parties to the relationship; (6) whether
the principal has the right to discharge the individual; (7)
whether the principal provides benefits to the hired party
typical of those provided to employees; and (8) the relationship
the parties believe they are creating. See Nationwide Mut. Ins.
Co. v. Darden, supra at 322-324; Weber v. Commissioner, supra at
387; Professional & Executive Leasing, Inc. v. Commissioner,
supra at 232. The factors are not necessarily weighed equally,
but according to their significance in the particular case. See
Aymes v. Bonelli, 980 F.2d 857, 861 (2d Cir. 1992); Matt v.
Commissioner, T.C. Memo. 1990-209; see also sec. 31.3401(c)-1(d),
Employment Tax Regs.
Ordinarily, the principal’s right to control the manner in
which the work is performed is the single most important factor
in determining whether there is an employer-employee
relationship. See Leavell v. Commissioner, 104 T.C. 140, 149
(1995). In this regard, petitioners point out that petitioner
was free to teach his classes and supervise his thesis and
special topic students as he deemed appropriate. Petitioners
also point out that, other than the time spent teaching students
in the classroom, petitioner was required to spend very little
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time on campus. They contend that the universities exercised
very little control over petitioner’s teaching assignments.
Therefore, according to petitioners, petitioner’s relationship to
each university was as an independent contractor, not as an
employee.
A similar argument was advanced by the taxpayer under
similar circumstances in Potter v. Commissioner, T.C. Memo. 1994-
356. In that case the taxpayer was an untenured college
professor employed on a course-by-course basis. The colleges and
the taxpayer entered into written contracts that specified the
courses to be taught, teaching hours, location of classes, and
compensation arrangements. The taxpayer considered himself to be
an independent contractor and reported the income and related
expenses from his teaching activities on a Schedule C. The
Commissioner determined that the taxpayer was an employee of the
colleges and, accordingly, treated the deductions claimed on the
Schedule C as employee business expenses.
The Court agreed with the Commissioner and rejected the
taxpayer’s argument that the colleges did not exert sufficient
control over his teaching activities to render him an employee of
the colleges. In so doing, we stated that “Where the inherent
nature of the job mandates an independent approach, a lesser
degree of control exercised by the principal may result in a
finding of an employer-employee status.” Id. (citing Bilenas v.
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Commissioner, T.C. Memo. 1983-661); see also Weber v.
Commissioner, supra at 390 (noting that where professional
individuals are involved, the control necessarily becomes more
tenuous than the control over nonprofessional employees). We
concluded that the colleges maintained and exercised sufficient
control appropriate to the situation and that the level of
control was sufficient to render the taxpayer an employee of the
colleges. Taking into account other common-law factors set forth
above, we concluded that the taxpayer was an employee of both
colleges. See also Bilenas v. Commissioner, supra (finding that
an untenured, adjunct professor was an employee of a college
rather than an independent contractor in relation to his teaching
activities).
As in Potter v. Commissioner, supra, we are satisfied in
this case that the universities had the authority to exercise,
and exercised, sufficient control over petitioner’s teaching
assignments to support a finding that petitioner was an employee
of the universities. Our conclusion on this point is further
supported by the application of other of the common-law factors
relevant to such determinations. Specifically, we note:
(1) The nature of petitioner’s services to the universities as an
adjunct professor is consistent with the regular business of each
university; (2) petitioner’s compensation for the teaching
assignments was set by contract--the risk of loss from under
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enrollment, or profit from excess enrollment, rested with the
universities; (3) petitioner began his relationship with the
universities in 1991, and he has continued to teach various
courses related to his profession at both universities; and
(4) each written contract expressly provides that petitioner
would be treated as an employee.
Accordingly, we find that petitioner was an employee of ISU
and UOI during 1997. It follows that expenses related to his
teaching activities must be deducted as miscellaneous itemized
deductions. See secs. 62(a)(1), 63(d), 67(a). Respondent’s
determination in this regard is therefore sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Based on the foregoing,
Decision will be
entered for respondent.