T.C. Summary Opinion 2011-41
UNITED STATES TAX COURT
JONATHAN C. AND SHAMANE C. LADUE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25208-09S. Filed April 5, 2011.
Jonathan C. and Shamane C. LaDue, pro sese.
Randall B. Childs, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
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.
- 2 -
other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a deficiency in petitioners’ 2007
Federal income tax of $2,030. In the Amendment to Answer
respondent asserted an increased deficiency of $3,037. The sole
issue for decision is whether petitioners are liable for self-
employment tax under section 1401 on income received by
petitioner husband, a deputy sheriff, for off-duty services. We
hold that petitioners are liable for self-employment tax.
Background
This case was submitted fully stipulated under Rule 122, and
the stipulated facts are so found. The stipulation of facts and
the attached exhibits are incorporated herein by this reference.
Petitioners resided in Florida when the petition was filed. All
references to petitioner in the singular are to Jonathan C.
LaDue.
During 2007, petitioner was employed as a deputy sheriff by
the Jacksonville Sheriff’s Office (JSO). JSO permits deputies to
provide off-duty services for entities other than JSO. JSO’s
General Order LIII.10 (JSO General Order) contains detailed
provisions that an officer must follow to obtain and maintain
off-duty work.
Entities desiring to hire JSO deputies for off-duty services
must submit an application to the Secondary Employment Unit of
- 3 -
JSO. A JSO job scheduler acts as a liaison between JSO and the
entity by completing the jobsite schedule for JSO employees
working for a particular entity, “ensuring employee attendance is
adhered to, and resolving employee/employer conflict when
appropriate.” Entities that hire deputies for off-duty services
are required to pay an administrative fee to JSO for each hour of
off-duty service provided by each officer. Working while off
duty is strictly voluntary; JSO deputies are not required to
perform off-duty services.
The JSO General Order determines the off-duty minimum pay
rate, limits the maximum monthly hours of off-duty work, and
requires JSO deputies to wear their uniforms and monitor their
police radios when providing off-duty law enforcement-related
services. Deputies providing off-duty services are also subject
to recall to regular duty by JSO. While working off duty,
deputies are governed by all JSO policies, procedures, and
directives, and the JSO Watch Commander may suspend a deputy’s
off-duty work if the work or the officer does not meet policy
requirements.
In 2007 petitioner earned $23,240 from his off-duty services
and included that amount on his 2007 Federal income tax return.
This amount was not included on the 2007 Form W-2, Wage and Tax
Statement, received from JSO. Each of the entities that hired
petitioner for off-duty service paid petitioner directly and
- 4 -
issued Forms 1099-MISC, Miscellaneous Income, and employment
taxes were not withheld with respect to the amount earned from
off-duty services.
In a notice of deficiency respondent determined that
petitioners failed to correctly report the amount of nonemployee
compensation received by petitioner in 2007. However, respondent
later conceded that petitioners did report the correct amount of
nonemployee compensation but asserted that petitioners failed to
report or pay self-employment tax on the full amount.
Petitioners contend that petitioner remained an employee of
JSO while working off duty and, therefore, that they are not
liable for self-employment tax. In contrast, respondent argues
that petitioner was not an employee of JSO while working off
duty, and that petitioners are therefore liable for self-
employment tax.2
Discussion
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). The Commissioner may assert an
increased deficiency under section 6214(a), which grants the
2
The parties stipulated that “Mr. LaDue was not an
employee of the entities which hired him to perform off-duty
services, and which paid him nonemployee compensation during the
2007 tax year.”
- 5 -
Court jurisdiction to redetermine a deficiency. Garrison v.
Commissioner, T.C. Memo. 2010-261. However, with respect to any
new matter and increases in deficiency pleaded in the answer, the
Commissioner bears the burden of proof. Rule 142(a). In the
instant case, we decide the issue on the evidence without regard
to the burden of proof.
Section 1401 imposes a tax upon a taxpayer’s self-employment
income. Self-employment income consists of gross income derived
by an individual from any trade or business carried on by such an
individual. Sec. 1402(a). The self-employment tax, however,
does not apply to compensation paid to an employee. Sec.
1402(c)(2).
Section 3121(d)(2) defines an employee as “any individual
who, under the usual common law rules applicable in determining
the employer-employee relationship, has the status of an
employee”. That definition is made applicable for self-
employment tax purposes by section 1402(d). Whether an
individual is an employee or an independent contractor is a
question of fact determined by application of common law
principles. Hosp. Res. Pers., Inc. v. United States, 68 F.3d
421, 424 (11th Cir. 1995); Weber v. Commissioner, 103 T.C. 378,
386 (1994), affd. 60 F.3d 1104 (4th Cir. 1995); sec. 31.3401(c)-
1(b), (d), Employment Tax Regs. The Court may consider various
factors in determining the relationship between the parties.
- 6 -
Milian v. Commissioner, T.C. Memo. 1999-366. No one factor,
however, is controlling. Weber v. Commissioner, supra at 387.
After considering these factors, as discussed below, we conclude
that petitioner was not an employee of JSO but performed his off-
duty services as an independent contractor.
First, petitioner’s off-duty services were performed for,
and were directly beneficial to, the third-party entity. See
Milian v. Commissioner, supra (stating that performance of
services by the employee for the employer is implicit in an
employee relationship); March v. Commissioner, T.C. Memo. 1981-
339. “Any benefit * * * [the department] received by an
increased police presence at petitioner’s off-duty assignments
was incidental and similar in nature to the benefit to a police
department when officers increase the police presence in a
community by driving their police cruisers home.” Cicciari v.
Commissioner, T.C. Memo. 2003-179 (citing Milian v. Commissioner,
supra and March v. Commissioner, supra).
A second factor of an employer-employee relationship is the
ability to select and discharge at will. March v. Commissioner,
supra. The mere approval from JSO to work off-duty jobs and the
ability to suspend if department policies were not adhered to do
not amount to the ability to hire and fire with regard to the
off-duty positions. See Kaiser v. Commissioner, T.C. Memo. 1996-
- 7 -
526, affd. without published opinion 132 F.3d 1457 (5th Cir.
1997).
Third, the source and method of payment may also help
establish whether an employer-employee relationship exists.
March v. Commissioner, supra. All of the third-party entities
for which petitioner provided off-duty services operated
separately from the city of Jacksonville and JSO; the third-party
entities paid petitioner directly and treated him as an
independent contractor, issuing him Forms 1099. The city of
Jacksonville did not include off-duty pay in petitioner’s Form W-
2.
As did the departments in the March, Kaiser, and Milian
cases, JSO in this case exercises control over off-duty work in
that it has a detailed approval process and the officer is always
to abide by the policies, procedures, and directives of JSO.
However, the Court found in those cases, and we so find again in
the instant case, that the incidental control held by the
department relates solely to the on-duty employment relationship,
rather than to the details of the off-duty relationship. Milian
v. Commissioner, supra; Kaiser v. Commissioner, supra; March v.
Commissioner, supra. We find that JSO is looking after its own
interests in making sure that off-duty work does not interfere
with on-duty employment, that the JSO image is not tarnished, and
- 8 -
that JSO knows where its officers are located in case of an
emergency.
Although there may be some factors that may point to an
employer-employee relationship between petitioner and JSO with
respect to petitioner’s off-duty work (i.e., establishing minimum
pay rates and requiring petitioner to wear his uniform), when
taken as a whole the facts establish that petitioner was self-
employed with respect to the off-duty services that he provided
to third-party entities. Accordingly, we hold that the earnings
in dispute are earnings from self-employment, subject to the tax
imposed by section 1401.
Conclusion
We have considered all of the arguments made by petitioners
and, to the extent that we have not specifically addressed those
arguments, we conclude that they do not support a conclusion
contrary to that reached herein.
To reflect our disposition of the disputed issue,
Decision will be entered
for respondent in the amount
of the increased deficiency of
$3,037.