T.C. Memo. 2016-62
UNITED STATES TAX COURT
B G PAINTING, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20518-15. Filed April 5, 2016.
Blas Gaytan (an officer), for petitioner.
Linda P. Azmon, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case is before us on respondent’s motion to dismiss
for lack of jurisdiction (motion to dismiss) on the following grounds: (1)
respondent did not mail to B G Painting, Inc. (petitioner), a notice of
determination regarding worker classification or make any other determination
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[*2] sufficient to confer jurisdiction on this Court pursuant to section 74361 and
(2) respondent did not conduct an “examination” in connection with an “audit” for
petitioner. As explained herein, we agree with respondent and will grant his
motion to dismiss.
Background
The following undisputed facts are established by the pleadings and the
exhibits attached thereto.
At the time the petition was filed, petitioner’s principal place of business
was in Bixby, Oklahoma. Petitioner is a painting contractor that engaged
individuals to perform commercial and residential painting services. Blas Gaytan
is petitioner’s president. Petitioner issued Forms 1099-MISC, Miscellaneous
Income, to each worker at yearend to report the moneys received as nonemployee
compensation. Petitioner did not treat its workers as employees.
In January 2013 Guillermo Gaytan, one of petitioner’s workers, filed a Form
SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes
and Income Tax Withholding, requesting a determination as to his employment
status, for services performed from 2011 to 2013. By letter dated January 26,
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times.
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[*3] 2013, respondent acknowledged receipt of the Form SS-8 and requested that
Guillermo provide additional forms and information relating thereto.
By Letter 3897, dated March 21, 2013, respondent notified petitioner’s
president, Blas, that Guillermo had submitted a Form SS-8. Respondent requested
that Blas complete a Form SS-8 and furnish additional information. The letter
further advised petitioner that a response to the letter was necessary within 30 days
and that nonreceipt of a response would not preclude the Internal Revenue Service
(IRS) from issuing an information letter on the matter. Finally, the letter advised
petitioner: “If it is found that you owe employment taxes as a result of this
determination, we may provide an information report to the IRS office having
examination jurisdiction for your area.”
By letter dated April 18, 2013, Blas advised respondent that Guillermo is
his father and enclosed a completed Form SS-8, copies of 2008-12 Forms 1099-
MISC for Guillermo, and a list of petitioner’s workers and subcontractors for that
period.
By Letter 4991 dated May 6, 2015, the IRS SS-8 Unit, in Holtsville, New
York, notified Guillermo that having considered his Form SS-8, it determined that
he is “an employee for federal employment tax purposes. Therefore, you must pay
federal income tax and your share of Federal Insurance Contributions Act (FICA)
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[*4] tax (that is, social security and Medicare taxes) on the income you received
for your services”. By Letter 4991-A, dated May 6, 2015, the IRS SS-8 Unit
notified petitioner of the determination that it is Guillermo’s employer. In
pertinent part the Letter 4991-A states as follows:
This determination is binding on the Service, assuming there is no
change in the facts or law that form the basis for the ruling. If you
take a contrary position or disregard the ruling, you may be referred
for audit. If you haven’t filed employment tax returns, you may need
to do so. If you filed employment tax returns, you may need to amend
them.
Employers generally must withhold income tax and Federal Insurance
Contributions Act (FICA) tax (that is, social security and Medicare
tax) from wages paid to their employees and pay these taxes to the
government. Employers must also pay the employer share of FICA
tax and Federal Unemployment Tax Act (FUTA) tax on the wages.
To make any necessary adjustments to pay these taxes on past wages
to your employees, including the use of special rates, please refer to
Publication 15, (Circular E) Employer’s Tax Guide and Publication
15-A, Employer’s Supplemental Tax Guide. You can get these
publications by calling 1-800-TAX-FORM (1-800-829-3676) or by
visiting us online at www.irs.gov/formspubs.
Attached to both Letter 4991 and Letter 4991-A is Form 14430, SS-8
Determination Analysis, setting forth the specific factors used in determining that
Guillermo was petitioner’s employee.
On August 14, 2015, Blas filed a petition in this Court on petitioner’s behalf
seeking review of a purported notice of determination concerning worker
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[*5] classification. Petitioner did not attach to its petition a notice of
determination concerning worker classification or any other document.
Having diligently searched his records for the purported notice of
determination concerning worker classification, respondent determined that no
such notice was sent to petitioner. Accordingly, on September 29, 2015,
respondent filed a motion to dismiss this case for lack of jurisdiction. On October
29, 2015, petitioner filed a notice of objection to the motion. On January 26,
2016, respondent filed a memorandum in support of the motion to dismiss. On
February 29, 2016, petitioner filed a reply to the memorandum in support of
respondent’s motion to dismiss.
Discussion
The Tax Court is a court of limited jurisdiction, Naftel v. Commissioner, 85
T.C. 527, 529 (1985), and may exercise jurisdiction only to the extent expressly
provided by statute, Breman v. Commissioner, 66 T.C. 61, 66 (1976). The Court
has jurisdiction to determine whether it has jurisdiction over a particular case.
Kluger v. Commissioner, 83 T.C. 309, 314-315 (1984). Jurisdiction must be
shown affirmatively and, as the party invoking our jurisdiction, petitioner has the
burden of proving that we have jurisdiction of its case. See, e.g., David Dung Le,
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[*6] M.D., Inc. v. Commissioner, 114 T.C. 268, 270 (2000), aff’d, 22 F. App’x
837 (9th Cir. 2001).
Pursuant to section 7436, this Court is granted limited jurisdiction over
cases involving employment status. Section 7436(a) provides:
SEC. 7436(a). Creation of Remedy.--If, in connection with an
audit of any person, there is an actual controversy involving a
determination by the Secretary as part of an examination that --
(1) one or more individuals performing services for such
person are employees of such person for purposes of subtitle C,
or
(2) such person is not entitled to the treatment under
subsection (a) of section 530 of the Revenue Act of 1978 with
respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may
determine whether such a determination by the Secretary is correct
and the proper amount of employment tax under such determination.
Any such redetermination by the Tax Court shall have the force and
effect of a decision of the Tax Court and shall be reviewable as such.
Section 7436(b)(1) further provides that a pleading may be filed only by the
person for whom the services are performed.
In the motion to dismiss for lack of jurisdiction respondent bases his
argument on three grounds: (1) respondent did not mail to petitioner a notice of
determination concerning worker classification as authorized by section 7436
sufficient to form the basis for a petition to this Court and confer jurisdiction;
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[*7] (2) respondent made no other determination with respect to petitioner’s
taxable periods 2008 through 2012 or taxable years 2008 through 2012 which
would confer jurisdiction on this Court pursuant to section 7436; and (3)
respondent did not make an examination in connection with an audit with respect
to petitioner’s taxable periods 2008 through 2012 or taxable years 2008 through
2012 which would confer jurisdiction on this Court under section 7436.
On the other hand, petitioner contends that this Court has jurisdiction by
virtue of the alleged notice of determination concerning worker classification.
Section 7436(a) confers jurisdiction on this Court only with regard to
determinations that are made by the IRS in connection with an audit of a taxpayer.
Other IRS determinations of employment status that are not made as part of a
taxpayer audit, including those made in the context of private letter rulings or
Forms SS-8, are not subject to review by this Court under section 7436(a). See,
e.g., Staffmore, LLC v. Commissioner, T.C. Memo. 2013-187 (holding that the
Court had no jurisdiction over a determination as to employment status because
there was no IRS audit or examination).
Petitioner has not shown that the May 6, 2015, Letter 4991 constitutes a
notice of determination concerning worker classification or any other
determination that would confer jurisdiction on this Court in this case. Rather,
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[*8] that letter is a Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, which was issued in response to
Guillermo’s filing of a Form SS-8. It was not a notice that confers jurisdiction on
this Court under section 7436(a).
Further, in Am. Airlines, Inc. v. Commissioner, 144 T.C. 24, 32 (2015), we
enunciated four requirements that must be satisfied for this Court to have
jurisdiction under section 7436(a). There must be: (1) an examination in
connection with the audit “of any person”; (2) a determination by the Secretary
that one or more individuals performing services for such person are employees of
such person for purposes of subtitle C, or “such person is not entitled to the
treatment under section (a) of section 530 of the Revenue Act of 1978 with respect
to such an individual”; (3) an “actual controversy” involving the determination as
part of an examination; and (4) the filing of an appropriate pleading in the Tax
Court. See also SECC Corp. v. Commissioner, 142 T.C. 225, 231-238 (2014). In
its February 29, 2016, reply to the memorandum in support of respondent’s motion
to dismiss, petitioner argues that Am. Airlines was “erroneously” decided and
“flawed”. We disagree.2
2
The IRS has historically required a notice of determination of worker
classification as a prerequisite for Tax Court jurisdiction under sec. 7436. Chief
(continued...)
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[*9] Clearly, under the first prong of Am. Airlines, the Commissioner must make
an examination in connection with an audit. Neither the Internal Revenue Code
nor the regulations expressly define “examination” or “audit” for section 7436
purposes.3 However, this Court has specifically held that IRS review of
information provided in a Form SS-8 submission is not considered an “audit” or
“examination”. Staffmore, LLC v. Commissioner, T.C. Memo. 2013-187; see also
SECC v. Commissioner, 142 T.C. at 236 n.7.
We note that although Staffmore is the only case explicitly discussing the
meaning of “examination” and “audit” in connection with section 7436, this Court
has uniformly found that voluntary participation in connection with tax
administration by a taxpayer, even if the taxpayer produces books and records for
2
(...continued)
Counsel Notice CC-2016-002 (Dec. 17, 2015), pronounced a change in this
litigation position for worker classification cases. The IRS is no longer arguing
that a notice of determination of worker classification is a necessary prerequisite
to Tax Court jurisdiction when the jurisdictional requirements set forth in two
recent Tax Court cases, Am. Airlines, Inc. v. Commissioner, 144 T.C. 24 (2015),
and SECC v. Commissioner, 142 T.C. 225 (2014), are met.
Pursuant to this Court’s January 12, 2016, order, respondent filed a
memorandum on January 26, 2016, articulating that Chief Counsel Notice CC-
2016-002 does not affect respondent’s position in this case.
3
Sec. 7602(a)(1) authorizes the IRS “[t]o examine any books, papers,
records, or other data which may be relevant” for the purpose of ascertaining the
correctness of any return.
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[*10] review by the IRS, does not constitute an “examination” or an “audit”. See,
e.g., Ballantine v. Commissioner, 74 T.C. 516, 524 (1980) (where the
Commissioner conducts a second inspection of a taxpayer’s books and records
without first notifying the taxpayer that an additional inspection is necessary,
section 7605(b)4 is violated); Seiffert v. Commissioner, T.C. Memo. 2014-4.
In sum, the Form SS-8 process does not constitute an “audit” or
“examination”, but rather arises when a firm or worker voluntarily provides
information to obtain a determination regarding the employment status of a
worker. After considering the information voluntarily provided by the parties, the
IRS provides a ruling to the taxpayer and related parties. The process exists so
that taxpayers can come into compliance with their employment tax obligation, but
specific tax liabilities are not determined and tax assessments are not made. The
Form SS-8 process is an entirely voluntary compliance initiative, and a Form SS-8
determination does not involve an “examination” in connection with an “audit”
relating to any person, as clearly required in the Court’s Am. Airlines Opinion.
4
Sec. 7605(b) provides that a taxpayer shall not be subjected to
“unnecessary examination or investigations, and only one inspection of a
taxpayer’s books of account shall be made for each taxable year unless the
taxpayer requests otherwise or unless the Secretary, after investigation, notifies the
taxpayer in writing that an additional inspection is necessary.”
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[*11] We hold that because the Form SS-8 determination underlying the petition
in this case was not issued as part of petitioner’s examination under audit, this
Court does not have jurisdiction pursuant to section 7436. Accordingly,
respondent’s motion to dismiss for lack of jurisdiction will be granted.
To reflect the foregoing,
An appropriate order of dismissal for
lack of jurisdiction will be entered.