T.C. Memo. 2008-263
UNITED STATES TAX COURT
MICHAEL NEIL MCWHORTER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1365-07. Filed November 24, 2008.
Michael Neil McWhorter, pro se.
John P. Stemwedel, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined a deficiency of $44,941
in petitioner’s Federal income tax for 2002 and additions to tax
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
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references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Texas at the time that he filed his
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 the
plants. Petitioner received no 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-by-
project basis. He had authority to supervise the personnel of
Boyle Energy and of client companies. Petitioner did not have
any hiring or firing authority over Boyle Energy personnel and
had to contact Boyle Energy before removing its personnel from a
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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 per
project. The invoices and the subsequent payments were at a rate
of $500 per day for petitioner’s labor during 2002. Petitioner
did not provide Boyle Energy with timesheets. Boyle Energy paid
the amount shown on petitioner’s invoices and issued to
petitioner a Form 1099-MISC, Miscellaneous 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, Wage
and Tax Statement, from Boyle Energy.
Petitioner failed to file a Federal income tax return for
2002. For that year he received compensation of $126,760 from
Boyle Energy, $267.05 of short-term capital gain, and $2 of
interest income. No Federal income tax was withheld 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 from Boyle Energy.
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OPINION
Petitioner claims that he was an employee of Boyle Energy
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 for self-
employment 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) (citing
United States v. Silk, 331 U.S. 704, 716 (1947)), and the
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. Id.
Respondent argues that the degree of control by Boyle
Energy, the lack of permanency in the relationship, and the skill
required in petitioner’s work supports respondent’s contention
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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); Herman v.
Commissioner, T.C. Memo. 1986-590; Steffens v. Commissioner, T.C.
Memo. 1984-592; 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 asserts:
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 Boyle
Energy. Because petitioner’s testimony was credible with respect
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to his arrangements with Boyle Energy, the absence of
corroborating evidence is not determinative. Cf. Boyd v.
Commissioner, 122 T.C. 305, 320 (2004).
Petitioner’s acquiescence in Boyle Energy’s treatment of him
as an independent contractor for tax purposes is troubling. As
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 that we 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, the
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) prevent
application of the general rule that:
SEC. 7491. BURDEN OF PROOF.
(a) Burden Shifts Where Taxpayer Produces
Credible Evidence.--
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(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 the
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 the
amount 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 to
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 under
section 6020(b). Respondent introduced evidence that petitioner
also failed to file a return for 2001.
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Section 6651(a) imposes additions to tax for failure to file
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 v. Commissioner, T.C. Memo. 2007-
128; Lucas v. Commissioner, T.C. Memo. 2000-14.
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 the return
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
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
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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 entered
under Rule 155.