United States Court of Appeals,
Eleventh Circuit.
No. 94-8924.
HOSPITAL RESOURCE PERSONNEL, INC., Plaintiff-Appellee,
v.
UNITED STATES of America, Defendant-Appellant.
Nov. 3, 1995.
Appeal from the United States District Court for the Southern
District of Georgia. (No. CV194-053), Dudley H. Bowen, Jr., Judge.
Before BIRCH and BARKETT, Circuit Judges, and HENDERSON, Senior
Circuit Judge.
BARKETT, Circuit Judge:
In this tax refund action, the United States appeals from a
final summary judgment in favor of plaintiff-appellee Hospital
Resource Personnel, Inc. ("HRP"). The United States, through the
Internal Revenue Service ("IRS"), assessed HRP in excess of
$1,144,000 for failing to withhold and pay certain federal
employment taxes on behalf of its workers. HRP filed suit in
district court against the United States, seeking a refund of
partial payments of federal employment taxes, and a permanent
injunction enjoining and restraining the United States from
enforcing a lien and collecting the unpaid portion of the assessed
taxes. HRP moved for summary judgment on the ground that it was
exempt from a duty to withhold and pay such taxes by the "safe
haven" protection of § 530 of the Revenue Act of 1978.1
The district court granted summary judgment, ordering the
1
Pub.L. No. 95-600, 92 Stat. 2763, 2885-86 (as amended and
codified at 26 U.S.C. § 3401 note (1982)).
United States to refund the taxes paid; entered a permanent
injunction, ordering the United States to cease its efforts to
collect employment taxes assessed against HRP; and annulled the
tax lien on HRP's assets. 860 F.Supp. 1557. Because we conclude
that HRP was exempt from the duty to withhold federal employment
taxes, but find that the district court was without jurisdiction to
enjoin the United States, we affirm the district court's ruling in
part and vacate it in part.
Facts & Procedural History
HRP, a Georgia corporation which began operating in 1987, is
a business which provides specialized nurses to hospitals in need
of temporary additional staffing. HRP contracts with approximately
fifteen hospitals in Georgia and South Carolina. The evidence is
undisputed that HRP does not prescribe the work that the nurses are
to perform at the hospitals, nor does it furnish the nurses with
uniforms, transportation, journals, sick pay, vacation pay,
pensions, bonuses, medical insurance, or licenses. In addition,
HRP permits the nurses to be employed directly by the hospitals or
to register with other similar nursing agencies or registries. The
nurses may choose when, where, and how often they work. HRP pays
the nurses according to the number of hours worked at the client
hospitals, making the payments on a regular basis, daily or weekly,
as the nurses complete a particular job or project.
HRP has never withheld federal income or social security taxes
from the compensation it pays to the nurses on its registry.
Instead, it has always treated the nurses as independent
contractors who are not subject to withholding, and at the end of
each year has furnished them with information returns on Form 1099,
listing all payments made during the year.
Following an audit, the IRS assessed employment taxes, plus
penalties and interest, in excess of $1,144,000, against HRP for
all quarters of the years 1988, 1989, and 1990. The IRS disagreed
with HRP's characterization of the nurses as independent
contractors, declaring instead that they were employees subject to
withholding. In response, HRP paid the income withholding tax and
both portions of the social security tax due for one employee for
the fourth quarter of 1990, and filed an administrative claim as
well as this refund action under 26 U.S.C. § 7422.2
Thereafter, the IRS filed a tax lien against HRP and served a
collection summons calling for financial data in order to collect
on its lien. Consequently, HRP added an amendment to its complaint
and filed a motion seeking a permanent injunction restraining the
IRS from collecting the balance of the assessment. The government
opposed the motion, arguing that the Anti-Injunction Act, 26 U.S.C.
§ 7421, precluded the court from exercising jurisdiction over any
action or motion to enjoin the collection of taxes.3 Although the
2
Section 7422 states in relevant part:
No suit or proceeding shall be maintained in any court
for the recovery of any internal revenue tax alleged to
have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to
have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been
duly filed with the Secretary....
26 U.S.C. § 7422(a).
3
The Anti-Injunction Act states in pertinent part:
government acknowledged that the Supreme Court has recognized an
exception to the Act, see Enochs v. Williams Packing & Navigation
Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), it argued
that HRP had failed to satisfy its strict requirements.
The district court entered summary judgment for HRP, finding
that it had established a reasonable basis for treating the nurses
as independent contractors under three separate provisions of § 530
of the Revenue Act.4 The court also entered a permanent injunction
against the United States, concluding that HRP had established that
the action did indeed fall within the exception to the Anti-
Injunction Act: in addition to establishing its entitlement to
success on the merits, HRP had demonstrated that it would suffer
irreparable injury if it were to attempt to bring a full refund
action at law.
Discussion
1. Employees versus Independent Contractors
Employers must withhold federal income tax as well as social
security tax from the wages they pay to their employees. 26 U.S.C.
§§ 3101 et seq. & 3401 et seq. In addition, employers must pay
Prohibition of suits to restrain assessment or
collection (a) Tax.—Except as provided ... no suit for
the purpose of restraining the assessment or collection
of any tax shall be maintained in any court by any
person, whether or not such person is the person
against whom such tax was assessed.
26 U.S.C. § 7421.
4
The court found that the evidence the United States
proffered in opposition to the motion for summary judgment, a
single IRS report, was inadmissible because it was "replete with
hearsay, opinions, and legal conclusions."
social security and unemployment taxes on behalf of their
employees.5 These taxes are known collectively as "employment
taxes." Employers are only required to withhold and pay these
employment taxes, however, in regard to payments to "employees,"
not to "independent contractors." In connection with payments to
"independent contractors," employers only have to send annual
information returns, on Form 1099 to the workers and on Forms 1096
& 1099 to the IRS, indicating the income paid during the year.6
Traditionally, common law rules served as the basis for the
classification of particular workers or classes of workers as
employees or independent contractors.7 Section 530 of the Revenue
Act addresses the distinction specifically within the tax context.
In addition to providing generally that workers are not employees
if the taxpayer has a reasonable basis for not treating them as
employees, it affords three statutory "safe haven" provisions
allowing taxpayers to treat workers as independent contractors,
even though under the common law they might be considered
employees. Institute for Resource Management, Inc. v. United
States, 22 Cl.Ct. 114, 115-16 (1990).
5
Congress has imposed social security taxes on the employer
and the employee under the Federal Insurance Contributions Act
("FICA"). 26 U.S.C. § 3101 et seq. It has imposed unemployment
taxes on the employer under the Federal Unemployment Tax Act
("FUTA"). 26 U.S.C. § 3301 et seq.
6
26 C.F.R. § 1.6041-1(a).
7
See, e.g., General Investment Corp. v. United States, 823
F.2d 337, 341-42 (9th Cir.1987). Both the FICA and FUTA statutes
define 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." 26 U.S.C. §§
3121(d)(2) & 3306(i).
Section 530 of the Revenue Act provides in pertinent part:
CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EMPLOYEES FOR
PURPOSES OF THE EMPLOYMENT TAXES.
(a) TERMINATION OF CERTAIN EMPLOYMENT TAX LIABILITY.—
(1) IN GENERAL.—If—
(A) for purposes of employment taxes, the taxpayer
did not treat an individual as an employee ..., and
(B) ... all Federal tax returns (including
information returns) required to be filed by the
taxpayer ... are filed on a basis consistent with
the taxpayer's treatment of such individual as not
being an employee, then ... the individual shall be
deemed not to be an employee unless the taxpayer
had no reasonable basis for not treating such
individual as an employee.
§ 530(a)(1) (emphasis added). Section 530(a)(2) provides the
additional three statutory safe havens, two of which are relevant
to the present case:
(2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFYING THE
REQUIREMENTS OF PARAGRAPH (1).—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 ... if the taxpayer's treatment of such
individual ... 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;
. . . . .
(C) long-standing recognized practice of a
significant segment of the industry in which such
individual was engaged.
§ 530(a)(2) (emphasis added).
Thus, § 530 provides several means through which a taxpayer
may prove that it had a reasonable basis for not treating a worker
as an employee: the taxpayer may rely on common law rules under §
530(a)(1),8 or on any of the explicit statutory exceptions of §
530(a)(2). Moreover, a taxpayer need satisfy only one of the
available safe havens.
HRP relies on not one but three of the safe havens to support
its characterization of the nurses as non-employees: (1) judicial
precedent, published rulings, and technical advice (§
530(a)(2)(A)); (2) long-standing recognized practice of a
significant segment of the industry in which the taxpayer is
engaged (§ 530(a)(2)(C)); and (3) common law (§ 530(a)(1)(B)).
a. Judicial Precedent, Published Rulings, & Technical Advice
HRP argues that its situation falls within the safe haven
provision of § 530(a)(2)(A) in three respects. First, a published
ruling, Revenue Ruling 61-196, 1961-2 CB 155, held in part that
"private duty nurses" are generally independent contractors, not
employees, except when engaged on a full-time basis on a salary in
the regular employ of individuals or institutions with prescribed
routines during fixed hours. Revenue Ruling 61-196 states in part:
Registered nurses, by reason of their professional status,
generally are independent contractors in the performance of
private duty nursing services. They hold themselves out to
the public as exercising an independent calling requiring
specialized skills. Ordinarily, they have full discretion in
administering their professional services and are not subject
to sufficient direction or control to warrant the finding of
an employment relationship, even though they may be subject to
the supervision of the attending physician. Under such
circumstances they are independent contractors and not
employees for Federal employment tax purposes.
HRP provided undisputed evidence that, like private duty
8
For a detailed analysis of congressional intent, common
law, and "reasonable basis" under § 530(a)(1), see Critical Care
Register Nursing, Inc. v. United States, 776 F.Supp. 1025, 1027-
28 (E.D.Pa.1991).
nurses, its nurses do not work routine fixed hours or full time,
but rather exercise full discretion in making schedules and
administering their professional services, accepting and declining
HRP assignments at-will. Nor do HRP nurses receive a salary, but
rather receive compensation from HRP on an hourly basis. Moreover,
like private duty nurses, HRP nurses may hold themselves out to the
public for direct employment with hospitals, other agencies, or
private parties.
Although the government argues that the status of "private
duty nurses" differs from that of HRP's nurses, we can find no
authority to support such a distinction. The only significant
difference we discern is that HRP's nurses essentially use HRP as
an employment agency. The government suggests that because HRP's
nurses do not work in private settings their status is not
comparable, and thus HRP's reliance on the Revenue Ruling was
unreasonable. We find this rationale unpersuasive. There is
nothing in the record to suggest that HRP could not also send its
nurses to work in a private setting; nor does there appear to be
a difference in status between private duty and HRP nurses working
subject to the supervision of attending physicians.
Second, HRP cites Critical Care Register Nursing, Inc. v.
United States, 776 F.Supp. 1025 (E.D.Pa.1991), as judicial
precedent under § 530(a)(2)(A) to support its position that the
nurses are independent contractors. In Critical Care, a case
practically indistinguishable from the one before us,9 the district
9
Just as in this action, Critical Care involved a business
which provided registered nurses to hospitals in need of
temporary additional staffing. Critical Care contracted with
court for the Eastern District of Pennsylvania concluded that
because the taxpayer had established a reasonable basis for not
treating its workers as employees under traditional common law
rules, it had satisfied the dictates of the general safe haven
provision, § 530(a)(1), and was thus exempt from employment tax
liability. Id. at 1028-29.
Although the government mentions Critical Care in its
appellate brief, it does not disagree with or distinguish it. It
simply argues that whether workers are employees or independent
contractors, and whether HRP had a reasonable basis to treat its
workers as independent contractors, are factual questions for a
jury to decide. This response is inapposite to HRP's claim that
judicial precedent supports its classification of its workers as
independent contractors. Moreover, the record in this case does
not disclose any disputed factual issues for a jury to decide. The
facts here are undisputed. The issue is whether the undisputed
facts support the conclusion that HRP had a reasonable basis to
classify the nurses as independent contractors.10
hospitals to supply nurses according to the hospitals' requests
for particular shifts, and contracted with nurses to work those
shifts. Critical Care did not prescribe for the nurses the work
they were to perform, nor did it furnish uniforms,
transportation, or vacation pay. In addition, Critical Care
permitted its nurses to be employed directly by hospitals and to
register with other agencies. Id. at 1026.
10
Cf. Overeen v. United States, No. 90-1920-W, 1991 WL
338327 (W.D.Okla. Sept. 4, 1991) (court denied plaintiff's
summary judgment motion, concluding in part that the home care
placement agency failed to provide sufficient facts to establish
that its reliance on industry practice and an accountant's advice
was reasonable such that, even if its workers were employees
under the common law, it would be exempt from employment taxes
under the statutory safe havens of § 530).
Finally, in an affidavit, the vice-president and co-founder of
HRP stated that when he and his wife started HRP, they relied in
part on the technical advice of several attorneys and a certified
public accountant in classifying the nurses as independent
contractors. He stated that the attorneys suggested that HRP
should model itself after its chief competitor, noting that the IRS
had audited the competitor and made no adverse ruling concerning
the competitor's characterization of its nurses as independent
contractors.
The government argues that Congress did not intend for
taxpayers to rely on the technical advice of their own consultants,
but rather on advice from the IRS. Because we conclude that HRP
satisfied the "published ruling" and "judicial precedent" portions
of § 530(a)(2)(A), we need not, and do not, address the meaning and
congressional intent behind the term "technical advice."
b. Long-Standing Industry Practice
With respect to the safe haven provision of § 530(a)(2)(C),
HRP argues that in treating the nurses as independent contractors
in the same manner as its chief competitor, it is following the
"long-standing recognized practice of a significant segment of the
industry in which [it] [i]s engaged." While we recognize that
under some circumstances one or two businesses may constitute a
significant segment of an industry, we are reluctant to so hold
under the facts present in this case. Even though HRP offered
undisputed evidence that its only significant competitor in
Augusta, Georgia, also treats its workers as independent
contractors, HRP did not provide any evidence as to other
competitors in the geographic region in which it operates, namely
Georgia and parts of South Carolina. Accordingly, we find that the
evidence on which the district court relied was insufficient to
establish that HRP was exempt from employment taxes as a matter of
law under § 530(a)(2)(C).
c. Common Law
Finally, the district court placed significant reliance on
the common law factors and the general safe haven provision of §
530(a)(1)(B) in reaching its conclusion that HRP had a reasonable
basis for treating the nurses as independent contractors.
The IRS has compiled a non-exclusive list of twenty factors to
aid in analyzing the status of workers. Those indicative of
employee status include: (1) instructions from the employer; (2)
training; (3) integration of worker's services into employer's
business; (4) worker's services rendered personally; (5) a
continuing relationship between worker and employer; (6) set hours
of work; (7) mandatory full-time employment; (8) work on
employer's premises; (9) set order of tasks; (10) oral or written
reports; (11) payment by the hour, week, or month; and (12) right
to discharge for reasons other than nonperformance. Those
indicative of independent contractor status include: (13) worker's
right to hire, supervise, and pay assistants; (14) payment of own
business and/or travel expenses; (15) furnishing own tools and
materials; (16) significant investment; (17) realization of
profit or loss; (18) right to work for more than one firm at a
time; (19) right to make service available to the general public;
and (20) right to terminate without incurring liability. See
Rev.Rul. 87-41, 1987-1 CB 296.
Although no one factor is definitive on its own, collectively
the factors define the extent of an employer's control over the
time and manner in which a worker performs. This control test is
fundamental in establishing a worker's status. General Inv. Corp.
v. United States, 823 F.2d 337, 341 (9th Cir.1987); REAG, Inc. v.
United States, 801 F.Supp. 494, 501 (W.D.Okla.1992); Critical Care
Register Nursing, Inc. v. United States, 776 F.Supp. 1025, 1028-29
(E.D.Pa.1991); see Rick A. Pacynski, Legal Challenges in Using
Independent Contractors, 72 Mich.B.J. 671 (1993); 13 Jacob
Mertens, Jr., Mertens Law of Federal Income Taxation § 47A.09 (July
1995).
HRP presented undisputed evidence that it does not control the
manner and means of the nurses' work: HRP does not instruct or
train the nurses; it does not mandate full-time employment; it
neither schedules the tasks nor sets the number of hours the nurses
must work; and it is the nurses themselves who provide
transportation, incidental expenses, uniforms, tools, and
materials. In addition, while HRP does require the nurses to
provide their services personally and pays them on set time
intervals (hourly), the nurses do not work on HRP's premises, and
they are free to provide their services directly to hospitals and
to register with other similar nursing agencies.11
11
We note, by way of analogy, that generally physicians,
dentists, and others who follow an independent trade, business,
or profession in which they offer their services to the public
are not common law employees. In addition, although the IRS has
ruled that physicians who work under contract with a corporation
are employees rather than independent contractors, contrary to
the situation here, those physicians worked solely for the
The government concedes that HRP would be entitled to prevail
if the common law supported its assertion that the nurses were
independent contractors. Under the common law, however, whether
the nurses are independent contractors depends on whether or not
HRP controls the manner in which they work, which, the government
argues, is a disputed issue of fact. In support of its argument,
the government refers this Court to In re Critical Care Support
Services, Inc., 138 B.R. 378 (Bankr.E.D.N.Y.1992), a case involving
a nurse placement agency in which the bankruptcy court determined
that the nurses were employees under the control of the agency.
However, the bankruptcy court in In re Critical Care did not act as
a factfinder, but instead drew conclusions based upon undisputed
facts, as did the district court here. Moreover, three important
factual differences exist between In re Critical Care and our
situation: (1) the placement agency, Critical Care, told its
nurses which shifts and hours to work; (2) Critical Care's
predecessor had treated the same nurses as employees; and (3)
after two years of treating its nurses as independent contractors,
Critical Care reassigned them the title of "employee" and reported
taxes accordingly.
We agree with the district court's conclusion that the
undisputed facts satisfy many of the twenty factors set forth by
the IRS, and therefore that HRP, as a matter of law, did not
control the manner in which the nurses performed their work.
Accordingly, we hold that HRP was exempt from employment taxes
corporation and had set hours of work. 13 Mertens § 47A.09
(citing Reg. § 31.3401(c)-1(c); TAM 9149001).
under §§ 530(a)(2)(A) & (1)(B) because of its reasonable reliance
on Revenue Ruling 61-196, judicial precedent, and common law in
treating the nurses as independent contractors.
2. Permanent Injunction
We turn now to consideration of whether the district court,
upon determining that HRP succeeded on the merits, had jurisdiction
to enjoin the government from collecting the remaining employment
taxes assessed against HRP. An employer may bring an action at law
against the government for recovery of erroneously assessed
internal revenue taxes under 28 U.S.C. §§ 1340 & 1346. An employer
may bring an action in equity to enjoin the government from
collecting taxes, however, only upon a showing that the court has
jurisdiction despite the Anti-Injunction Act, 26 U.S.C. § 7421,
supra note 3. HRP argues that while a literal reading of the Anti-
Injunction Act would appear to deprive a court of the power to
grant injunctions against tax collection, the Supreme Court has
held that exceptions to the Anti-Injunction Act exist in certain
limited circumstances. See Enochs v. Williams Packing & Navigation
Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962); Miller v.
Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed.
422 (1932). Few taxpayers, however, have been able to meet these
strict requirements.
In Williams Packing, a corporation sought to enjoin collection
of certain past due withholding taxes, claiming that an assessment
of the taxes would force it into bankruptcy, thus causing
irreparable injury. Williams Packing, 370 U.S. at 5, 82 S.Ct. at
1128. The Court overturned the grant of a permanent injunction,
stating that a court may not grant such an injunction merely
because collection of a tax would cause irreparable harm to the
taxpayer's enterprise. Id. at 5-6, 82 S.Ct. at 1128. It held
instead that a suit for an injunction may be maintained only when,
"under the most liberal view of the law and the facts," the
government cannot establish its claim at the time of the suit. Id.
at 7, 82 S.Ct. at 1129. The Court explained,
[t]he manifest purpose of § 7421(a) [the Anti-Injunction Act]
is to permit the United States to assess and collect taxes
alleged to be due without judicial intervention, and to
require that the legal right to the disputed sums be
determined in a suit for refund.... Nevertheless, if it is
clear that under no circumstances could the Government
ultimately prevail, the central purpose of the Act is
inapplicable and, under the Nut Margarine case, the attempted
collection may be enjoined if equity jurisdiction otherwise
exists.
Williams Packing, 370 U.S. at 7, 82 S.Ct. at 1129 (footnote
omitted).
In Nut Margarine, a manufacturer of "Southern Nut Product"
brought an action to restrain the government from collecting
federal oleomargarine taxes on its product. Prior to the
assessment, however, three lower federal court cases had held that
similar products were nontaxable and, by letter, the tax collector
had informed the manufacturer that its product was not subject to
the tax. As the Court made clear, the government had no chance of
prevailing:
This is not a case in which the injunction is sought upon the
mere ground of illegality because of error in the amount of
the tax. The article is not covered by the [Oleomargarine]
act. A valid oleomargarine tax could by no legal possibility
have been assessed against [the manufacturer], and therefore
the reasons underlying [the Anti-Injunction Act] apply, if at
all, with little force.
Nut Margarine, 284 U.S. at 510, 52 S.Ct. at 263 (emphasis added).
As in Williams Packing, but unlike in Nut Margarine, at the
time HRP initiated this suit—judicial hindsight notwithstanding—the
government had at least the legal possibility of prevailing. As
the Court stated in Williams Packing: "the question of whether the
Government has a chance of ultimately prevailing is to be
determined on the basis of the information available to it at the
time of suit." Id. at 7, 82 S.Ct. at 1129 (emphasis added).
Because the circumstances necessary to escape the Anti-Injunction
Act's proscription against a court's power to grant injunctions are
not present in this case, we conclude that the district court was
without jurisdiction to enjoin the government.12
Conclusion
Because we find that HRP established a reasonable basis for
treating the nurses as independent contractors under two provisions
of § 530 of the Revenue Act, we AFFIRM the district court's ruling
granting summary judgment to HRP in its action at law for an
employment tax refund. Because we conclude that the Anti-
Injunction Act precluded the district court from exercising
jurisdiction to enjoin the government from collecting the unpaid
portion of the taxes it assessed against HRP, we VACATE the
injunction. We REMAND this case to the district court for further
proceedings consistent with this opinion.
AFFIRMED in part; VACATED in part; and REMANDED.
12
We note that this determination will have little
significance on the outcome of this action. As the government
conceded at oral argument, if the Court determined that HRP's
nurses were independent contractors, it would be impracticable
for the government to pursue collection of the remaining taxes.