                        T.C. Memo. 1998-270



                      UNITED STATES TAX COURT



         WESLEY C. AND RHONDA A. WICKUM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7265-95.                 Filed July 27, 1998.



     Mark L. Rosenbloom, for petitioners.

     Patricia Pierce Davis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GALE, Judge:   Respondent determined deficiencies in

petitioners’ Federal income taxes, an addition to tax, and

accuracy-related penalties as follows:
                                  - 2 -

                            Addition to Tax   Accuracy-Related Penalty
Year          Deficiency    Sec. 6651(a)(1)         Sec. 6662(a)

1990            $7,664            $654                 $1,533
1992            10,807             ---                  2,161
1993            10,069             ---                  2,014

       Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

       The deficiencies and the accuracy-related penalties result

from respondent’s determination that Wesley Wickum (petitioner)

was a common-law employee rather than an employee as defined in

section 3121(d)(3)(B),1 as petitioners claimed in their returns.

Respondent recomputed petitioners’ income taxes by subjecting

petitioner’s business expense deductions to the 2-percent floor

under section 67 and by recomputing petitioners’ alternative

minimum tax pursuant to sections 55(a) and 56(b)(1)(A)(i).

       After concessions, we must decide the following issues:

       (1) Whether petitioner was a statutory employee.    We hold

that he was not.

       (2) Whether petitioner was an employee or an independent

contractor under the common-law standards.      We hold that he was

an independent contractor.2

       1
       We will refer to a person who qualifies under sec.
3121(d)(3)(B) as a “statutory employee”.
       2
           Respondent also argues that if we find that petitioner was
                                                       (continued...)
                               - 3 -

     (3) Whether petitioners are liable for the addition to tax

and accuracy-related penalties as determined by respondent.   We

find that they are not liable for the accuracy-related penalties

but are liable for the addition to tax to the extent discussed

below.

                        FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.    We

incorporate by this reference the stipulation of facts, first

supplemental stipulation of facts, and attached exhibits.    At the

time of filing the petition, petitioners resided in Minot, North

Dakota.

     During the years in issue, petitioner was a district manager

for Combined Insurance Co. of America (Combined).   Petitioner’s

primary duties as district manager were to recruit, hire, train,

and supervise insurance agents who sold accident and health

insurance in North Dakota.   In addition, petitioner himself sold

accident and health insurance for Combined in North Dakota.   He

was compensated by Combined in three ways:   (1) Override

commissions, based on sales and renewals of policies made by the

insurance agents he supervised; (2) bonuses; and (3) sales


     2
      (...continued)
an independent contractor, then petitioners are liable for self-
employment tax, and petitioners must include in income
contributions to pension and profit-sharing plans, insurance
premiums, and health care costs. As will be discussed below, we
need not decide these issues because we find that petitioners
have conceded them.
                               - 4 -

commissions, based on sales and renewals of policies he made.    In

general, during the times relevant to this case, approximately 70

percent of a district manager’s income came from override

commissions and bonuses; the remainder came from sales

commissions.   District managers were paid on commission as a

carryover from the days when Combined treated them as independent

contractors.

     Petitioner recruited insurance agents using several

different methods, including advertisements, college visits,

field recruiting, and employment agencies.   Normally between 15

and 25 people would interview for a single position.     Petitioner

set his own hiring schedule.   Combined’s district managers in

general, and petitioner in particular, made the choice of who to

hire.   Combined established certain qualifications for its

insurance agents, but petitioner used more stringent

qualifications in selecting the insurance agents that worked

under him.   Following an interview, a prospective insurance agent

would go on a field demonstration, a 1-day opportunity to

experience the job first-hand with another insurance agent.

After the field demonstration, if the district manager considered

the prospective insurance agent to be promising, the district

manager would normally make the decision to hire the agent, and

Combined and the agent would execute a contract with respect to

the agent’s services.   Combined never rejected an applicant that

petitioner chose.
                               - 5 -

     All of Combined’s insurance agents were required first to

attend a 2-week sales school and then undergo field training that

lasted 7 weeks.   The course of instruction at the sales school

was uniform nationwide, whereas the field training was designed

to educate the trainee regarding conditions and practices in his

local sales territory.   The sales school cost between $1,000 and

$1,500 per agent, of which petitioner, as district manager, paid

$150, and Combined paid the remainder.   Field training was

usually conducted by a sales manager, although sometimes by a

district manager.   Petitioner, as district manager, usually

conducted the first week of field training himself.    The 7-week

field training period was not devoted exclusively to training,

but rather consisted of a schedule, devised by Combined, of items

to be covered in each week of the 7-week period.   The manager

conducting the field training was supposed to follow the program

schedule for field training, but managers often did not, and

Combined’s senior management was aware of this fact.

     The agents learned an organized sales presentation during

sales school.   When selling Combined’s insurance products, they

were required to use the organized sales presentation, which

included an initial sales pitch as well as responses to possible

questions from customers.   The agents were taught the same

presentation for a given product, regardless of where it was to

be sold.   The presentation was designed to function as a script

for the agents, whose responsibility was to deliver it.   The
                               - 6 -

words of the script were prescribed by Combined, but the agent’s

“style”--i.e., the manner in which he made the delivery, his

overall demeanor, manner of dress, etc.--were left to the

discretion of the individual agent.    The main purpose for using

the scripted presentation was to avoid misrepresentations of the

insurance products, and agents have been fired for

misrepresenting products.   Nonetheless, Combined’s agents did not

always use the scripted presentation, and Combined’s senior

management was aware of this fact.     Petitioner, at times, devised

his own presentations, rather than those scripted by Combined,

for use by the agents he supervised as well as in his own sales

work.   Petitioner set his own hours and those of the agents he

supervised.   For the sales agents he supervised, petitioner

decided which of Combined’s products to concentrate in, which mix

of new policies versus renewals to pursue, and the location in

the territory where each agent would do sales work, although the

territory itself was established by Combined.

     Each of the insurance products that petitioner supervised

the sale of or sold had a fixed percentage commission, which was

set when the product was designed for all the agents selling it

in a particular State.   The insurance agents’ sales commissions

were paid by Combined rather than by petitioner as district

manager.   However, by controlling the routes and accounts

assigned to each agent, petitioner could significantly affect the

compensation of the agents he supervised.
                                - 7 -

     Petitioner was advised by Combined that he had full

responsibility for his district; he filed no daily logs and got

no assistance from his supervisors.     He made weekly calls

reporting his sales results.   Combined did not provide specific

sales goals; rather, petitioner met once a year with a regional

supervisor and presented his own sales goals, and the regional

supervisor would give some thoughts on achieving those goals.

Petitioner held weekly meetings with his insurance agents to

boost morale and to ensure that the agents had sufficient

supplies.

     In connection with his work, petitioner incurred substantial

business expenses, the majority of which were not reimbursed.

Petitioner paid 100 percent of the following expenses:     Mileage,

meals when traveling, home office space, telephone service, fax

machine, copier, secretary, utilities, the cost of hotel

facilities in which to conduct training sessions for agents, and

entertainment and incentive awards for the agents he supervised.

He paid 50 percent of, and received 50-percent reimbursement from

Combined for, two expenses:    (1) Advertisements he placed to fill

positions of insurance agents to work under him and (2) lodging

expenses while working for Combined.     Combined required that

certain advertisements be used.   Combined did not require

petitioner to purchase or lease equipment or office space, to

hire clerical help, or to pay for incentive awards, although this

last item was strongly encouraged by senior management.
                                - 8 -

Nonetheless, in order to perform the duties of a district manager

effectively, it was necessary for petitioner to incur these

expenses.    Petitioner required the assistance of a part-time

secretary to keep up with the paperwork entailed in tracking and

reporting the sales of the agents he supervised.    Likewise, he

needed to maintain communications with his agents through

telephoning, faxing, and traveling extensively.    He required a

place to store materials because policy forms and the like for

all his agents were delivered to him quarterly.    Petitioner

believed that the incentive awards and entertainment that he

provided for his agents at his own expense contributed

significantly to the morale necessary to maintain a high level of

sales in his district.    During certain months, petitioner showed

a loss from his activities as a district manager; i.e., his

expenses exceeded his income.    However, petitioner ended every

year with a profit.

     Petitioner executed a “Standard Employment Contract”

(Contract) with Combined.   The Contract required petitioner to

devote all of his working time to advancing Combined’s business

interests.   Further, the Contract prevented petitioner from

representing any other insurance company.    The Contract also

required petitioner to abide by the rules and regulations issued

by Combined with respect to the conduct of, and selling methods

to be used by, Combined’s field personnel and to abide by the

directions of Combined’s authorized personnel.    The Contract
                                 - 9 -

referred to the district manager as an employee.    The Contract

limited petitioner’s territory to six named counties in the State

of North Dakota.    The contract that petitioner had previously

signed when he was a sales representative (before becoming

district manager) contained virtually identical language with

respect to the obligation to abide by rules, regulations, and

directions of Combined.

     Under its terms, the district manager could terminate the

Contract upon 2 weeks' notice.    Combined could likewise terminate

the Contract upon 2 weeks' notice, or without notice if the

termination was for cause.    “Cause” included, among other

reasons, failure to observe and practice Combined’s underwriting

principles, financial irregularity, sale of new policies when

renewals should have been sold, failure to settle accounts, and

commission of a felony.

     Before 1975, insurance agents who sold Combined’s insurance

policies were treated as independent contractors.    Combined

wanted to change the status of the agents from independent

contractor to employee, and to that end Combined altered the

contract it used.    The new contract was designed to demonstrate

that Combined had sufficient right of control over the insurance

agents’ actions so that there would be no doubt that the agents

were employees.    Combined made this change in part because of

concern with respect to various governmental agencies, including

the Internal Revenue Service, about liabilities for
                               - 10 -

mischaracterizing workers as independent contractors rather than

employees.

     Combined's insurance operations were organized into three

divisions:   Life, which exclusively sold life insurance policies;

Health, which exclusively sold health insurance policies; and

Accident, which sold accident and some health insurance policies.

Petitioner worked in the Accident division.    The policies that

petitioner and the agents under his supervision sold provided

cash benefits in the event of the insured's death or serious

injury from specified accidents.    The premiums on these policies

were fixed; they did not vary with the insured's age or health

status.    The policies were renewable semiannually at the fixed

premium.

     Petitioner was licensed solely to sell accident and health

insurance in the State of North Dakota.    He did not have a

license to sell life insurance and was not required by the State

of North Dakota to carry a life insurance license in order to

sell the products he sold for Combined.    Combined was required to

file separate reports with the North Dakota Commissioner of

Insurance concerning its sales of life insurance and its sales of

accident and health insurance.

     Petitioner first claimed statutory employee status in an

amended return for tax year 1990.    On the original return for

1990, he took business expense deductions on Schedule A, but he

took them on Schedule C on the amended return.    When he filed as
                                    - 11 -

a statutory employee, he was aware that the “statutory employee”

box on his Form W-2 was not checked.          Petitioner consulted with a

tax attorney and discussed the nature of his work and the

policies he sold.       Following the consultation, the attorney

advised petitioner to file as a statutory employee.           On his

original return for 1990, he listed his occupation as “Insurance

Sales”.   He listed his business in the same way on his amended

return.   On his returns for 1992 and 1993, he listed his business

as “Life Insurance Sales”.       Combined withheld tax for all the

years in issue.

                                    OPINION

Statutory Employee

     Petitioners argue that petitioner was an employee under

section 3121(d)(3)(B), i.e., a statutory employee, while

respondent argues that petitioner does not qualify as a statutory

employee.    Section 3121(d) provides:

     For purposes of this chapter, the term “employee”
     means--

            (1) any officer of a corporation; or

          (2) any individual who, under the usual common law
     rules applicable in determining the employer-employee
     relationship, has the status of an employee; or

          (3) any individual (other than an individual who
     is an employee under paragraph (1) or (2)) who performs
     services for remuneration for any person--

                    *     *     *      *       *     *    *

                    (B) as a full-time life insurance salesman;
            * * *
                               - 12 -


Petitioner was not an officer of a corporation; moreover, as

discussed later in this opinion, we find that petitioner was not

an employee under the usual common-law rules.   Thus, we must

consider whether he was a full-time life insurance salesman.

     Respondent argues that petitioner was not a full-time life

insurance salesman because he did not sell life insurance,

whereas petitioners contend that petitioner did sell life

insurance because the policies he sold paid benefits in the event

of the death of the insured.

     The regulations provide as follows:

     An individual whose entire or principal business
     activity is devoted to the solicitation of life
     insurance or annuity contracts, or both, primarily for
     one life insurance company is a full-time life
     insurance salesman. * * * An individual who is
     engaged in the general insurance business under a
     contract or contracts of service which do not
     contemplate that the individual’s principal business
     activity will be the solicitation of life insurance or
     annuity contracts, or both, for one company, or any
     individual who devotes only part time to the
     solicitation of life insurance contracts, including
     annuity contracts, and is principally engaged in other
     endeavors, is not a full-time life insurance salesman.
     [Sec. 31.3121(d)-1(d)(3)(ii), Employment Tax Regs.3]


     Neither section 3121(d)(3)(B) nor the regulation just quoted

defines “life insurance” or “life insurance contract”.   However,

section 7702(a) provides that for purposes of the Internal



     3
       This regulation mirrors the legislative history of sec.
3121(d), which contains almost identical language. See S. Rept.
1669, 81st Cong., 2d Sess. (1950), 1950-2 C.B. 302, 347.
                                - 13 -

Revenue Code, the term “life insurance contract” means any

contract that is a life insurance contract “under the applicable

law”.4   Since this definition by its terms applies for all Code

purposes, we conclude that a “full-time life insurance salesman”

as that term is used in section 3121(d)(3)(B) is a person engaged

in the sale of “life insurance contracts” as defined in section

7702(a).   The question then becomes whether the products that

petitioner sold were life insurance contracts under section

7702(a).

     The parties dispute what meaning should be given to the

phrase “under the applicable law” as used in section 7702(a).

Respondent argues that “applicable law” means State law, in this

case the law of North Dakota.    Petitioners do not directly offer

an interpretation of “applicable law”.   Rather, they argue that

the Court should have the discretion to decide what counts as

life insurance, keeping in mind the broadly remedial purpose of

section 3121(d)(3)(B).   Petitioners further argue that a

particular State should not have the power to affect the

definition of life insurance for purposes of Federal tax law.

Petitioners' concerns notwithstanding, we believe Congress

intended to incorporate State law for the definition of “life

insurance contract” for purposes of the Code, as evidenced by the



     4
       There are two alternative prerequisites in sec. 7702(a)
for qualifying as a life insurance contract that are not relevant
to the instant case.
                               - 14 -

legislative history of section 7702(a).       The conference report

for the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat.

494, states with respect to the statutory definition in section

7702(a) that “A life insurance contract is defined as any

contract, which is a life insurance contract under the applicable

State or foreign law” (as long as the contract also meets one of

two conditions not relevant here).      H. Conf. Rept. 98-861, at

1075 (1984), 1984-3 C.B. (Vol. 2) 1, 329 (emphasis added).       This

interpretation is further supported by legislative history of the

Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L.

100-647, 102 Stat. 3342.    TAMRA sec. 6078, 102 Stat. 3709, added

section 7702(j), which treats certain church self-funded death

benefit plans as “life insurance contracts” by exempting them

from the section 7702(a) requirement that they be life insurance

contracts “under the applicable law”.5       The legislative history


     5
         Sec. 7702(j) provides as follows:

     SEC. 7702(j). Certain Church Self Funded Death Benefit
Plans Treated as Life Insurance.--

          (1) In general.--In determining whether any plan
     or arrangement described in paragraph (2) is a life
     insurance contract, the requirement of subsection (a)
     that the contract be a life insurance contract under
     applicable law shall not apply.

          (2) Description.--For purposes of this subsection,
     a plan or arrangement is described in this paragraph
     if--

                 (A) such plan or arrangement provides for the
            payment of benefits by reason of the death of the
                                                     (continued...)
                              - 15 -

of TAMRA makes clear that Congress’ purpose in exempting such

church plans from the “applicable law” requirement was to ensure

that they were treated as life insurance contracts “even if the

arrangements do not constitute life insurance under applicable

State law.”   H. Conf. Rept. 100-1104 (Vol. II), at 169 (1988),

1988-3 C.B. 473, 659.

     Since petitioner’s insurance activities took place in North

Dakota, the applicable law for determining whether the products

he sold were life insurance contracts is the law of North Dakota.

Petitioners argue that what petitioner sold was life insurance

because every policy he sold or supervised the sale of contained

a death benefit if death occurred as a result of an accident

covered by the policy.   In sum, petitioners' argument is that

accident policies that contain death benefits constitute life



     5
      (...continued)
          individuals covered under such plan or
          arrangement, and

               (B) such plan or arrangement is provided by a
          church for the benefit of its employees and their
          beneficiaries, directly or through an organization
          described in section 414(e)(3)(A) or an
          organization described in section
          414(e)(3)(B)(ii).

          (3) Definitions.--For purposes of this subsection
     --

               (A) Church.--The term “church” means a church
          or a convention or association of churches.

               (B) Employee.--The term “employee” includes
          an employee described in section 414(e)(3)(B).
                                - 16 -

insurance.

     North Dakota law distinguishes between life insurance, on

the one hand, and accident and health insurance, on the other.

Title 26.1 of the North Dakota Century Code is styled

"Insurance", and within this title are separate chapters entitled

"Life Insurance" (chapter 26.1-33) and "Accident and Health

Insurance" (chapter 26.1-36).    Insurance companies selling both

types of insurance are required to report separately on their

activities to the North Dakota Commissioner of Insurance.

Although chapter 26.1-33 does not provide a definition of life

insurance, the chapter does mandate certain mortality tables and

interest rate assumptions for life insurance sold in the State,

see N.D. Cent. Code secs. 26.1-33-22 and 26.1-33-23 (1995), which

are not required with respect to accident and health insurance.

Most significantly, with respect to petitioners' argument that a

death benefit transforms an accident policy into a life insurance

policy, chapter 26.1-36 provides a definition of accident and

health insurance that encompasses the provision of death

benefits, as follows:   "'Accident and health insurance policy'

includes any contract policy insuring against loss resulting from

sickness or bodily injury, or death by accident, or both."    N.D.

Cent. Code sec. 26.1-36-02 (1995) (emphasis added).   Thus, North

Dakota law contemplates that accident policies may contain death

benefits.    This feature does not result in their classification

as life insurance policies.   We conclude that petitioner sold
                                - 17 -

accident or health insurance, not life insurance, under North

Dakota law.    Accordingly, petitioner was not a full-time life

insurance salesman within the meaning of section 3121(d)(3)(B)

and is not entitled to statutory employee status.

Common-Law Employee or Independent Contractor

     Petitioners next argue that petitioner was an independent

contractor under the common-law standards, while respondent

argues that petitioner was an employee.    We agree with

petitioners.    In order to decide whether an individual is an

employee or an independent contractor, we consider the entire

situation and the special facts and circumstances of each case.

Simpson v. Commissioner, 64 T.C. 974, 985 (1975).     No one factor

is controlling.    Id.   Nonetheless, the factor on which we focus

(as do the parties) is control.    We consider control actually

asserted over the details of an alleged employee’s performance

and also the degree to which an alleged employer may intervene to

impose such control.     Butts v. Commissioner, T.C. Memo. 1993-478,

affd. per curiam 49 F.3d 713 (11th Cir. 1995); see Radio City

Music Hall Corp. v. United States, 135 F.2d 715, 717 (2d Cir.

1943); deTorres v. Commissioner, T.C. Memo. 1993-161.

     Respondent presents many factors that, according to

respondent, demonstrate control by Combined over petitioner.      We

have encountered almost all of these factors in Butts v.

Commissioner, supra, and its progeny, Smithwick v. Commissioner,

T.C. Memo. 1993-582, affd. per curiam sub nom. Butts v.
                               - 18 -

Commissioner, 49 F.3d 713 (11th Cir. 1995); Mosteirin v.

Commissioner, T.C. Memo. 1995-367; Lozon v. Commissioner, T.C.

Memo. 1997-250; and also in Feivor v. Commissioner, T.C. Memo.

1995-107.   In the Butts line of cases, the taxpayers were

insurance agents, so-called neighborhood office agents, for

Allstate.   In Feivor, the taxpayer was a district manager for an

insurance company.    We held that the taxpayer in each case was an

independent contractor.    We reach the same result in the instant

case, and for the same reasons:    the circumstances, as a whole,

do not demonstrate a sufficient amount of control by Combined to

find that petitioner was an employee of the company.    In

particular, Combined did not exert control over the manner and

means in which petitioner carried out his responsibilities.     See

Hathaway v. Commissioner, T.C. Memo. 1996-389.

     Petitioner was a district manager; although he sold some

insurance, he was primarily engaged in the duties of a district

manager.    We have found that district managers, on average,

earned only about 30 percent of their income from commissions on

sales, and we believe that at least 70 percent of petitioner’s

duties involved recruiting, hiring, training, and supervising of

insurance agents.

     Petitioner had extensive control over the manner and means

of the performance of his responsibilities as district manager.

He had very little supervision.    He reported only weekly to his

superiors and almost never received feedback from them on the
                               - 19 -

particular performance of his job.      He relied on his own methods

for recruiting, the only control being over the language of the

advertisements that he placed.   He decided who would be hired

and, in fact, used stricter qualifications to select insurance

agents than Combined itself required.     He trained insurance

agents in his own way, following only the broad outlines of the

training course.

     Moreover, he was responsible for most of his own business

expenses.    He paid for half the advertising and travel costs and

all of his remaining expenses, including a secretary, office

equipment, and supplies.   There was a risk he could lose money.

He, in fact, did have net losses for some of the months in which

he worked.   Respondent argues that he never had a loss at the end

of any year; the fact that he was successful does not mean he was

an employee rather than an independent contractor.     Since he was

primarily compensated by means of override commissions on his

agents’ sales, his remuneration depended upon his skill at

managing this sales force effectively and efficiently.     Because

Combined ceded to petitioner the ability to substantially affect

his agents' compensation (by giving them routes offering greater

or lesser remunerative opportunities), petitioner, not Combined,

had substantial effective control over the agents within his

supervision.

     Petitioner also sold insurance to a limited extent.

Respondent makes much of the scripted sales talk that petitioner
                               - 20 -

was required to use when selling insurance, and it is true that

one of several factors we relied on in Butts v. Commissioner,

supra, was the lack of a “‘canned’ sales method”.    However, there

is no evidence that Combined ever fired insurance agents merely

for straying from the scripted sales talk; indeed, there is

evidence that Combined's senior management acquiesced in

departures from the scripted presentation so long as products

were not misrepresented.    In any event, petitioner’s supervisory

activities constituted a much larger proportion of his work than

sales.

     Petitioner was required by the language of the Contract to

abide by rules and regulations of Combined and by directions of

Combined’s authorized personnel.   However, in Feivor v.

Commissioner, supra, we found the taxpayer to be an independent

contractor notwithstanding the fact that he entered into an

agreement that obligated him to abide by company regulations and

provisions contained in the district manager’s manual and to

recruit, train, supervise, and motivate agents subject to the

direction of the company.   Moreover, in the instant case the

record reveals that petitioner routinely devised his own manner

and means of reaching results without regard to Combined’s

written guidelines, and Combined’s senior management acquiesced

in such departures.

     The only significant difference between the instant case, on

the one hand, and the Butts line of cases and Feivor, on the
                              - 21 -

other, is that in the latter cases the company in question

required the taxpayer to maintain an office, while there was no

such requirement in the instant case.   However, we believe that

as a practical matter petitioner was required to maintain an

office in order to maintain communications with his agents and

for storage of materials.   Likewise, he required the services of

a secretary to keep up with the paperwork entailed in supervising

his agents and submitting results of their sales to Combined.

This sort of investment evidences independent contractor status.

     Considering the entire record in this case, we find that

petitioner was an independent contractor rather than an

employee.6

Benefits and Self-Employment Tax

     In an amendment to his answer, respondent asserted that, in

the event we find that petitioner was an independent contractor,

petitioners are liable for self-employment tax.   Petitioners do

not address the question of self-employment tax on brief, and we

find that petitioners are liable for self-employment tax.7    See

sec. 1402.   However, petitioners may, to the extent permitted by


     6
       Because we have found that petitioner was an independent
contractor, it is unnecessary for us to consider petitioners’
argument that petitioner could not be an employee because the
Fair Labor Standards Act requires employees to be paid the
minimum wage, and it was possible that petitioner would receive
substantially less than the minimum wage.
     7
       Of course, had petitioners’ statutory employee claim
prevailed, petitioners would not be required to pay self-
employment tax. Sec. 3121(d)(3)(B).
                             - 22 -

section 6521, offset self-employment taxes with taxes paid

erroneously under section 3101.   Lozon v. Commissioner, T.C.

Memo. 1997-250.

     Further, respondent asserted in his amendment to answer, and

argues on brief, that in the event we find that petitioner was an

independent contractor, petitioners must include in income

contributions by Combined and pretax contributions by petitioner

into pension and profit-sharing plans and also insurance premiums

and health care costs paid by Combined.8   Petitioners offer no

argument on this point and instead concede on brief that they

must include in income contributions to pension and profit-

sharing plans and payments by Combined of insurance premiums and

health care costs:

          The Respondent correctly observes that if Wickum
     is found to be an independent contractor then there
     will have to be a recalculation for the relevant years,
     in order to include in his gross income some benefits
     which, if he is found to be a statutory employee, would
     not be taxed. The amounts of the benefits involved are
     the subject of a supplemental stipulation between the
     parties hereto, and are not disputed. * * *


Thus, we need not, and do not, address the question of whether

the reclassification of a taxpayer as an independent contractor

requires the inclusion in income of contributions to employee


     8
       Respondent concedes that, had petitioners’ statutory
employee claim prevailed, petitioners would not be required to
include the contributions to pension and profit-sharing plans in
income.
                              - 23 -

benefit plans or of payments of insurance premiums and health

care costs.9

Accuracy-Related Penalties and Addition to Tax

     Respondent determined that petitioners were liable for

accuracy-related penalties under section 6662(a) for the years in

issue.   Petitioners argue that they are not liable for accuracy-

related penalties because they reasonably relied on their

attorney in choosing statutory employee status on their returns.

Reliance on a professional may relieve a taxpayer from the

accuracy-related penalty where the reliance is reasonable.    ASAT,

Inc. v. Commissioner, 108 T.C. 147 (1997).    On the basis of the

entire record in this case, we find that petitioners’ reliance on

the tax attorney was reasonable.   Accordingly, petitioners are

not liable for the accuracy-related penalties for the years in

issue pursuant to section 6662(a).

     Respondent also determined that petitioners were liable for

an addition to tax for the year 1990 for failure to file under

section 6651.   Petitioners offered no evidence explaining their

failure to timely file their 1990 return.    Thus, petitioners are

liable for the addition to tax for the year 1990 under section

6651(a)(1) in an amount to be computed under Rule 155.

     9
       In Lozon v. Commissioner, T.C. Memo. 1997-250, the same
question arose with respect to contributions to pension and
profit-sharing plans. In that case, we found that the
Commissioner had conceded that the plans in question were
qualified and that, under sec. 83(e)(2), the taxpayers were not
required to include the contributions in income.
                        - 24 -

To reflect the foregoing,


                                 Decision will be entered

                            under Rule 155.
