                        T.C. Memo. 2005-86



                      UNITED STATES TAX COURT



                 LISA BETH LEVINE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9715-03.                Filed April 14, 2005.


     Lisa Beth Levine, pro se.

     W. Randolph Shump and Pamela J. Arthur Gerlach, for

respondent.



                        MEMORANDUM OPINION


     JACOBS, Judge:   Respondent determined a $2,571 deficiency in

petitioner’s 1999 Federal income tax.    The ultimate issue to be

decided is whether petitioner is entitled to a deduction for her

contribution to her simplified employee pension for 1999.

Resolution of the ultimate issue depends upon whether
                               - 2 -

petitioner’s employment relationship with the U.S. Department of

State (the State Department) from January 1 until November 19,

1999, under two personal service contracts covering that period,

was that of a common law employee of the State Department, as

respondent asserts, or an independent contractor, as petitioner

asserts.   We hold that petitioner’s relationship with the State

Department was that of an independent contractor.1


     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code Rule, and Rule references are to the Tax
Court Rules of Practice and Procedure.

     In her opening brief, petitioner asserted that the burden of
proof should be shifted to respondent because the notice of
deficiency failed to adequately describe the basis for the tax
deficiency as required by sec. 7522(a). In response to an
inquiry of the Court, respondent concedes that sec. 7491(a)
applies in the present case because the examination of
petitioner’s 1999 return began after July 22, 1998, the effective
date of the statute. Respondent also concedes that petitioner
has complied with the substantiation and cooperation requirements
of sec. 7491(a)(2).

     The burden of proof consists of two burdens--the burden of
production (the duty of bringing forward evidence) and the burden
of persuasion (the risk of nonpersuasion). Gerling Intl. Ins.
Co. v. Commissioner, 86 T.C. 468, 476 n.5 (1986). The initial
burden of production requires the taxpayer to introduce evidence
sufficient to establish his/her claim by a preponderance of the
evidence. Helvering v. Taylor, 293 U.S. 507, 514-515 (1935); see
also Pittman v. Commissioner, 100 F.3d 1308, 1317 (7th Cir.
1996), affg. T.C. Memo. 1995-243; Page v. Commissioner, 58 F.3d
1342, 1347-1348 (8th Cir. 1995), affg. T.C. Memo. 1993- 398.
Without regard to any burden-shifting provisions, if the taxpayer
successfully carries the initial burden of production as to a
particular adjustment, the burden of production (but not the
ultimate burden of persuasion) shifts to the Commissioner; i.e.,
the burden of introducing evidence showing an adjustment is
warranted shifts to the Commissioner. Helvering v. Taylor, supra
at 514-515; Berkery v. Commissioner, 91 T.C. 179, 186 (1988),
                                                   (continued...)
                               - 3 -

                            Background

     This case was submitted to the Court fully stipulated

pursuant to Rule 122.   Petitioner resided in Berwyn Heights,

Maryland, when she filed her petition in this case.

A.   Service Provided to the State Department Pursuant to
     Personal Service Contracts

     On June 30, 1998, petitioner entered into a personal service

contract with the State Department to provide full-time services

to the Office of Foreign Buildings Operations (FBO), Office of

Operations and Post Support, Safety Division, as an industrial

hygienist from July 5, 1998, to July 3, 1999.   On July 2, 1999,

petitioner entered into a second personal service contract with

the State Department to provide full-time services as an

industrial hygienist from July 4, 1999, to July 1, 2000.



     1
      (...continued)
affd. without published opinion 872 F.2d 411 (3d Cir. 1989);
Cozzi v. Commissioner, 88 T.C. 435, 443-444, (1987); Jackson v.
Commissioner, 73 T.C. 394, 401 (1979); Westby v. Commissioner,
T.C. Memo. 2004-179.

     In any case in which both parties have satisfied their
burdens of production by offering some evidence, then the party
whose position is supported by the weight of the evidence will
prevail regardless of which party bore the burden of persuasion.
Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005),
affg. T.C. Memo. 2003-212. Consequently, a shift in the burden
of persuasion “has real significance only in the rare event of an
evidentiary tie”. Id.

     In a fully stipulated case such as this, there are no facts
in dispute. Hence we decide this case on the weight of the
evidence without regard to any burden-shifting rule. See
Williams v. Commissioner, 123 T.C. 144 (2004).
                                - 4 -

     The personal service contracts stated that (1) the contracts

were authorized pursuant to 22 U.S.C. secs. 291-301 and (2)

personnel hired under personal service contracts were not

appointed, Federal employees (direct hire employees) as defined

in 5 U.S.C. sec. 2105.   Standard Form 279, Federal Procurement

Data System (FPDS) Individual Action Report, states that the

contractor is a small, woman-owned business.

     The State Department and/or petitioner had the right to

terminate the personal service contracts without cause at any

time with 30 days’ notice.    The State Department could also

terminate the personal service contracts for cause by written

notice from the contracting officer to petitioner.

     1.   Statement of Work

     As an industrial hygienist, petitioner was responsible for

(1) managing, coordinating, and implementing the State

Department’s worldwide industrial hygienist field technical

services program; (2) directing or conducting evaluations and

studies of work environments for health hazards; and (3)

providing specific guidance and assistance to ensure protection

of employees.   Petitioner performed her services according to the

statement of work attached to the personal service contracts.

The statement of work described petitioner’s major duties to be

as follows:

     1. Under the general direction of the senior
     industrial hygienist, implements the Occupational
                                - 5 -

     Health Program to provide a responsive health program.
     Conducts industrial hygiene and environmental health
     inspections worldwide. Writes comprehensive reports
     for the Safety Director, or the Senior Industrial
     Hygienist, with little administrative direction.

     2. Inspects and monitors facilities, processes, or
     activities which may adversely impact employee health
     or the environment. Recommends or implements measures
     to eliminate or alleviate hazards. Writes
     comprehensive and insightful reports based on a
     professional evaluation of data collected during the
     survey.

     3. Evaluates proposals involving toxic chemicals or
     physical agents which may adversely effect employee
     health, public health, or the environment. Recommends
     or implements measures to prevent anticipated hazards
     during construction/renovation projects.

     4. Specifies equipment to protect employees, the
     public, or the environment from toxic chemicals or
     physical agents. Specifies analytical information to
     monitor toxic chemicals or physical agents such as
     radiation, noise and heat stress.

     5. Trains employees in the use, handling and disposal
     of toxic chemicals and physical agents.

     6. Investigates employee suggestions regarding
     industrial hygiene or environmental health hazzards.
     Recommends methods to eliminate or alleviate indoor air
     quality concerns.

     7. Plans and develops a system for monitoring,
     coordination and collating industrial hygiene data
     generated by the industrial hygiene contractor and/or
     in-house resources. Develops an industrial hygiene
     management information system.

     The statement of work described the “Supervisory Controls”

as follows:

          Incumbent   [petitioner] works under broad
     administrative   guidance of the Senior Industrial
     Hygienist, who   makes work assignments in terms of
     projects to be   accomplished and provides statements of
                                - 6 -

     policy and overall scope to guide the incumbent.
     Completed work is considered technically authoritative
     and is normally accepted without significant change.

     Petitioner was responsible for the quality and technical

accuracy of all services and work product delivered under the

personal service contracts.   The Government had the right to

inspect and test all services, and if any of the services

performed did not conform with the contract requirement, the

Government could require petitioner alternatively to (1) perform

the services again in conformity with those requirements or (2)

take necessary action to ensure the conformance of future

performance.

     2.   Contracting Officer and Contracting Officer’s
          Representative

     The personal service contracts were executed by a

contracting officer on behalf of the Government.   Under the

personal service contracts, the contracting officer could

designate a contracting officer’s representative (COR) to take

action for the Contacting Officer under the contracts.    The

designation had to specify the scope and limitations of the

authority delegated.   Under the personal service contracts,

petitioner was directly responsible to the COR.    The COR was to

provide assignments to petitioner, provide policy guidance,

establish general priorities, and outline policy goals and

objectives.    Petitioner was responsible for planning and carrying

out the projects.
                                - 7 -

       The personal service contracts named Stephen Urman as the

COR.    Under Delegations of Authority and Responsibility of

Contracting Officer’s Representative, the contracting officer

authorized Mr. Urman to:    (1) Coordinate with petitioner on all

technical matters, (2) give technical clarification as to the

meaning of the specifications including inspecting, testing, and

acceptance procedures, (3) inspect petitioner’s progress to

assure compliance with the contract terms and conditions, and (4)

perform all functions necessary to accept the products or

services for the Government.    The delegation precluded Mr. Urman

from altering or modifying the personal service contracts.     Upon

completion of petitioner’s work, Mr. Urman was to inspect

petitioner’s work and inform the contracting officer, in writing,

of any deviations from contract requirements.    If there were no

deficiencies, a statement of satisfactory (or better) performance

would be appropriate.    Mr. Urman was to prepare a written

evaluation of petitioner’s performance at the end of the

contract.

       Under the personal service contracts, petitioner was

required to provide the services personally and was not permitted

to reassign or delegate her duties to others.    Petitioner did not

have any employees.

       Petitioner worked with Federal employees and other workers.

Petitioner did not supervise direct hire Government personnel,
                               - 8 -

but she could make recommendations to the COR and coordinate

projects with direct hire personnel.

     3.   Office Space, Compensation, and Benefits

     Petitioner’s services under the personal service contracts

required a valid security clearance.    Petitioner was required to

maintain strict secrecy concerning any information or

documentation she obtained in conjunction with work performed

under the contracts.   The contracts required classified materials

assigned to, or generated by, petitioner to be stored in

appropriate containers in FBO, the State Department, or the

appropriate U.S. Foreign Service Post.

     The personal service contracts required the State Department

to provide to petitioner, to the extent practical, office space,

furniture, telephone, office equipment (including word

processors, computers, typewriters, calculators, copying

machines, etc.), and office supplies that would ordinarily be

used by Government employees doing similar work for the State

Department.   Pursuant to the contracts, petitioner was to work 5

days per week, Monday through Friday, 8 hours per day from 8:30

a.m. to 5:15 p.m., with a 45-minute lunch break, when she worked

at the office location.

     Petitioner performed approximately 40 percent of her

services outside the United States.    Petitioner received
                                - 9 -

reimbursements for travel expenses pursuant to the personal

service contracts.

     Petitioner was paid an annual salary of $67,162 ($32.18 per

hour calculated on a work year of 2,087 hours) under the first

service contract and $69,631 ($33.36 per hour calculated on a

work year of 2,087 hours) under the second contract.

Petitioner’s salary was comparable to that of a Government

employee classified as GS-13, step 7, including the locality pay

differential for the Washington, D.C. area, during the contract

periods.    Petitioner received base rate increases at the same

time and in the same proportion that regular State Department

employees received their wage scale increases during the contract

periods.

     Petitioner was eligible to earn overtime for hours worked in

excess of 40 hours per week and could earn compensatory time in

lieu of overtime.    Petitioner was required to obtain approval by

the COR in advance of working overtime and/or taking compensatory

time.

     Petitioner was entitled to paid leave for official Federal

holidays.    If she worked on a Federal holiday, she was entitled

to payment for overtime, or she could accrue compensatory time.

     Petitioner accrued 4 hours of annual leave and 4 hours of

sick leave each pay period during the contract periods.    Unused

annual and sick leave from the first contract period was
                                - 10 -

transferable to the second contract period.    Under petitioner’s

contracts, accrued annual leave was not carried over in the event

of direct hire.

     Petitioner was entitled to “excused absences” for blood

donations, voting, inclement weather, and military leave.

Petitioner reported her time and attendance to the COR biweekly.

     The personal service contracts required the State Department

to withhold two parts of Social Security (old age/survivors

disability insurance and Medicare) and Federal and State income

taxes from petitioner’s wages.    The contracts required the State

Department to “make the employer’s contribution toward the two

parts of Social Security in behalf of Contractor [petitioner]”.

The State Department issued Forms W-2, Wage and Tax Statement, to

petitioner for years covered by the contract periods.

     Petitioner was entitled to reimbursement of 50 percent of

her actual annual health insurance costs.    Petitioner was

required to submit invoices for reimbursement of health insurance

premiums to the COR on SF-1034, Public Voucher for Purchases and

Services Other Than Personal.    The personal service contracts

stated that under current law, reimbursements of actual

expenditures for health insurance were not reported as gross

income for Federal income tax purposes.    Petitioner was not

covered by the State Department medical program, nor was she

entitled to participate in the Federal Employees Health Benefits
                               - 11 -

Program.    Petitioner was not permitted to enroll in the Immediate

Benefit Plan providing death benefits to Federal employees.

     During the contract periods, petitioner was not permitted to

park in the parking facility reserved for permanent, full-time

employees of the State Department.      Petitioner was not eligible

for (1) “Metrocheks”, although State Department employees within

the definition of 5 U.S.C. sec. 2105 were entitled to that

benefit; (2) performance awards during the contract periods; or

(3) membership in the Federal employees union while employed

under her personal service contracts.

     Petitioner did not make capital investments related to her

personal service contracts during the periods covered by the

contracts.   Petitioner worked exclusively for the State

Department and had no other clients or employers.

     4.     Mr. Urman’s Evaluation Report

     At the end of the term of the first personal service

contract, Mr. Urman submitted a Contractor’s Evaluation

Statement, dated July 1, 1999, wherein he evaluated petitioner’s

performance under the contract.    Mr. Urman stated that petitioner

was responsible for providing onsite and followup service to

overseas posts to help the posts implement effective “SHEM”

programs.    As part of that activity, petitioner had visited 18

posts, prepared reports, and provided followup activities to

ensure that the posts understood and implemented her
                               - 12 -

recommendations.   Mr. Urman noted that petitioner had adapted to

her responsibilities without having the advantage of a mentor or

Mr. Urman’s close supervision.    He rated petitioner’s performance

outstanding and recommended her for future contracts.

B.   Petitioner Released From Second Personal Service Contract
     and Appointed Federal Employee

     On November 19, 1999, the State Department released

petitioner from the second personal service contract and hired

her as a full-time, permanent, appointed, Federal employee as an

industrial hygienist.    Pursuant to the personal service

contracts, petitioner’s service under the contracts did not apply

toward her annual leave accrual rate or retirement credit for

direct hire service.    Petitioner was not paid for any unused

accrued sick leave, and the leave was not carried over as a

credit under her direct hire service.

     Her appointment was subject to completion of a 1-year

probationary period beginning November 11, 1999.    Her service for

purposes of career tenure and FERS/FSPS began November 11, 1999.

C.   Contribution to Simplified Employee Pension, Deduction on
     the 1999 Return, Notice of Deficiency, and Tax Court
     Proceedings

     On March 10, 2000, petitioner made an $8,638 contribution to

her simplified employee pension for 1999.    Petitioner calculated

the contribution on the basis of the income she earned under the

personal service contracts.
                                - 13 -

     Petitioner filed her 1999 Form 1040, U.S. Individual Income

Tax Return with the Philadelphia Service Center of the Internal

Revenue Service on April 15, 2000.       Petitioner reported the

income she received from the State Department under the personal

service contracts as wages in conformity with the Form W-2 issued

by the State Department.   Petitioner deducted the $8,638

contribution to her simplified employee pension on the 1999

return.   Petitioner attached to the 1999 return an explanation of

the contribution to her simplified employee pension.       On that

statement she asserted that the Form W-2 did not accurately

reflect her employment status with the State Department and

stated that she was an independent contractor.

     On June 13, 2003, respondent issued a notice of deficiency

to petitioner for 1999 determining a $2,571 deficiency resulting

from the disallowance of petitioner’s deduction for the $8,638

contribution to her simplified employee pension for 1999.       The

notice of deficiency explained that the deduction for the

contribution to petitioner’s simplified employee pension was not

allowed because petitioner had not established that she was

“entitled to this deduction”.

     Petitioner timely filed a petition in this Court for

redetermination of the deficiency.
                              - 14 -

                            Discussion

A.   Deductibility of Contributions to Simplified Employee
     Pension

     A simplified employee pension is a qualified plan pursuant

to which an employer makes direct contributions to its employees’

individual retirement accounts or individual retirement annuities

as defined under section 408(a) and (b).   Sec. 408(k).    Section

404(a)(8) permits an employer to deduct certain contributions to

a simplified employee pension.    Individuals who have net earnings

from self-employment (as defined in section 1402(a)) are treated

as their own employers under a simplified employee pension plan.

See secs. 401(c)(4), 408(k)(7).   Section 1402(a) defines “net

earnings from self-employment” as the gross income derived by an

individual from any trade or business less deductions

attributable thereto.   Section 1402(c)(2) provides that

performance of services as an employee does not constitute a

trade or business for purposes of self-employment income, except

for certain situations not relevant herein.   See also sec.

1.401-10(b)(3)(i), Income Tax Regs.    Employees include employees

and elected and appointed officials of the Federal Government, as

well as private-sector employees.   Sec. 31.3401(c)-1(a),

Employment Tax Regs.
                               - 15 -

B.   Employee or Independent Contractor

     Petitioner’s entitlement to the deduction at issue hinges

upon the proper classification of her work relationship with the

State Department.

     Petitioner asserts she performed services under the personal

service contracts as an independent contractor.2   Respondent

asserts that petitioner was a common law employee of the State

Department.

     The term “employee” is not defined in the Internal Revenue

Code.    Consequently, whether an individual is an employee for

purposes of section 401(c) is a factual question the answer to

which depends upon the application of common law concepts.      See

Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S.

440, 444-445 (2003); Nationwide Mut. Ins. Co. v. Darden, 503 U.S.

318, 322-323 (1992); Weber v. Commissioner, 60 F.3d 1104,

1110-1111 (4th Cir. 1995), affg. 103 T.C. 378 (1994); Air

Terminal Cab, Inc. v. United States, 478 F.2d 575, 578 (8th Cir.

1973); Profl. & Executive Leasing, Inc. v. Commissioner, 89 T.C.

225, 232 (1987), affd. 862 F.2d 751 (9th Cir. 1988); Burnetta v.

Commissioner, 68 T.C. 387, 397 (1977); Simpson v. Commissioner,



     2
      Petitioner asserts that she cannot be an employee of the
State Department because the personal service contracts specified
that she was not an appointed Federal employee as defined in 5
U.S.C. sec. 2105. We need not address this argument, because we
find that petitioner was an independent contractor and not a
common law employee of the State Department.
                             - 16 -

64 T.C. 974, 984 (1975); Packard v. Commissioner, 63 T.C. 621,

629 (1975); sec. 1.1402(c)-1, Income Tax Regs.

     Relevant factors courts consider to determine whether an

employer/employee relationship exists between the service

provider and the hiring party include:   (1) The hiring party’s

right to control the manner and means by which the work is

accomplished; (2) the skill required; (3) which party furnishes

the equipment used and the place of work; (4) whether the work is

part of the hiring party’s regular business; (5) the worker’s

opportunity for profit or loss; (6) the manner in which the work

relationship may be terminated; i.e., by one or both parties,

with or without notice or explanation; (7) the permanency of the

relationship; (8) the method of payment, whether by time or by

the job; (9) whether the hiring party pays Social Security taxes;

(10) whether the worker receives employee benefits; and (11) the

relationship the parties believe they are creating.   Clackamas

Gastroenterology Associates, P.C. v. Wells, supra at 449-450;

Nationwide Mut. Ins. Co. v. Darden, supra at 323-324; Horner v.

Acosta, 803 F.2d 687, 693 (Fed. Cir. 1986); Spirides v.

Reinhardt, 613 F.2d 826, 832 (D.C. Cir. 1979); Weber v.

Commissioner, 103 T.C. at 387; Profl. & Executive Leasing, Inc.

v. Commissioner, supra at 232; Simpson v. Commissioner, supra at

984-985; see also sec. 31.3401(c)-1(b), Employment Tax Regs.    The

factor generally considered fundamental for resolving the
                              - 17 -

question of whether an individual is an employee is the degree of

control exercised by the person for whom the work is performed

over the individual who renders the services.    Weber v.

Commissioner, 60 F.3d at 1110; Packard v. Commissioner, supra at

629-630; sec. 31.3401(c)-1(b), Employment Tax Regs.    Although the

degree of control is one of great importance, it is not

exclusive.   Bartels v. Birmingham, 332 U.S. 126, 130 (1947) (the

relationship of employer-employee is not determined solely by the

control which the principal may or could exercise over the

details of the service rendered to his business by the worker).

Whether a worker is an employee depends on all of the incidents

of the relationship, and no one factor is determinative.

Clackamas Gastroenterology Associates, P.C. v. Wells, supra at

451; Weber v. Commissioner, 60 F.3d at 1110.

     1.   Degree of Control

      If the person receiving the benefit of a service has the

right to control the manner in which the service is performed,

the person rendering the service may be an employee.    Weber v.

Commissioner, 60 F.3d at 1110; Avis Rent A Car System, Inc. v.

United States, 503 F.2d 423, 429 (2d Cir. 1974).   The degree of

control necessary to find employee status varies with the nature

of the services provided by the worker.   Weber v. Commissioner,

103 T.C. at 388; Reece v. Commissioner, T.C. Memo. 1992-335;

Pulver v. Commissioner, T.C. Memo. 1982-437.    The threshold level
                              - 18 -

of control necessary to find employee status is generally lower

when applied to professional services than when applied to

nonprofessional services.   Weber v. Commissioner, 60 F.3d   at

1110-1111.

     The absence of the need to control should not be confused

with the absence of the right to control.    Air Terminal Cab, Inc.

v. United States, supra at 580.   The right to control is

determinative, and it is not necessary that any control actually

be exercised.   Thus, courts must examine not only the control

exercised by the principal, but also the degree to which the

principal may intervene to impose control.     Radio City Music Hall

Corp. v. United States, 135 F.2d 715, 717 (2d Cir. 1943);

deTorres v. Commissioner, T.C. Memo. 1993-161.

     Section 31.3121(d)-1(c)(2), Employment Tax Regs., describes

the right to control an employee as follows:

     the person for whom services are performed has the
     right to control and direct the individual who performs
     the services, not only as to the result to be
     accomplished by the work but also as to the details and
     means by which that result is accomplished. That is,
     an employee is subject to the will and control of the
     employer not only as to what shall be done but how it
     shall be done. * * *

While the degree of control exercised over the details of the

work is important, the crucial test lies in the right to control

(1) the manner in which the service is to be performed; (2) the

means to be used in its accomplishment; and (3) the result to be
                               - 19 -

obtained.    Matthews v. Commissioner, 92 T.C. 351, 361 (1989),

affd. 907 F.2d 1173 (D.C. Cir. 1990).

     To retain the requisite control over the details of an

individual’s work, the principal need not stand over the

individual and direct every move made by the individual; it is

sufficient if he has the right to do so.    Weber v. Commissioner,

103 T.C. at 388; Profl. & Executive Leasing, Inc. v.

Commissioner, 89 T.C. at 234; Simpson v. Commissioner, 64 T.C. at

985; Gierek v. Commissioner, T.C. Memo. 1993-642.   Similarly, the

principal need not set the employee’s hours or supervise every

detail of the work environment to control the employee.    Gen.

Inv. Corp. v. United States, 823 F.2d 337, 342 (9th Cir. 1987).

     Mr. Urman was the COR to whom petitioner was directly

responsible.   Mr. Urman assigned projects to petitioner, provided

policy guidance, and established general priorities.   Mr. Urman

could not, however, alter or modify the personal service

contracts.   Therefore, Mr. Urman could not assign projects that

required services other than those delineated in the contracts,

change petitioner’s hours, or transfer her to another department.

     Petitioner was responsible for planning and carrying out the

projects delivered under the personal service contracts, with

little administrative direction.   She was responsible for the

quality and technical accuracy of all services and work product.

Petitioner’s completed work was considered technically
                               - 20 -

authoritative and normally accepted without significant change.

Although Mr. Urman had the right to inspect and test all services

petitioner provided, he did not have the right to change her work

product.

     We conclude that the control the Government had over the

details of petitioner’s work is more consistent with a

principal/independent contractor relationship than an

employer/employee relationship.   This factor favors petitioner.

     2.    Special Skill

     If a service requires a special skill to solve a problem,

the specialist called in to solve the problem is likely to be an

independent contractor.    By contrast, a worker hired to perform

the essential, everyday chores of the employer’s operation is

likely to be an employee.    McLaughlin v. Seafood, Inc., 861 F.2d

450 (5th Cir. 1988) (the workers were not specialists called in

to solve a problem, but laborers who performed the essential,

everyday chores of their employer’s operation).

     The State Department was authorized under 22 U.S.C. sec. 296

to contract for petitioner’s services as an expert industrial

hygienist.   The State Department hired petitioner to implement

its occupational health program by providing a responsive health

program; conduct industrial hygiene and environmental health

inspections worldwide; inspect and monitor facilities, processes,

or activities which might adversely affect an employee’s health
                                - 21 -

or the environment; recommend or implement measures to eliminate

or alleviate hazards; specify equipment to protect employees, the

public, or the environment from toxic chemicals or physical

agents; plan and develop a system for monitoring, coordinating,

and collating industrial hygiene data generated by the industrial

hygiene contractor and/or in-house resources; and develop an

industrial hygiene management information system.

     Petitioner wrote comprehensive reports for the safety

director, or the senior industrial hygienist, with little

administrative direction.     Her completed work was considered

technically authoritative and normally accepted without

significant change.   Petitioner was called in to solve a problem.

     This factor supports a finding that petitioner was an

independent contractor.

     3.   Furnishing of Equipment and Facilities

     If the worker has a substantial investment in his/her own

tools, equipment, or facilities, he/she may be an independent

contractor.   Cf. Breaux & Daigle, Inc. v. United States, 900 F.2d

49, 53 (5th Cir. 1990).     If, on the other hand, the worker

performs all work at an office furnished by the

principal/employer, he/she may be an employee.

     The State Department provided petitioner with office space,

furniture, telephone, office equipment (including word

processors, computers, typewriters, calculators, copying
                              - 22 -

machines, etc.), and office supplies that would ordinarily be

used by Government employees doing similar work for the State

Department.   Petitioner worked at the office furnished by the

State Department, except for the periods she spent at foreign

mission sites.   Normally, these circumstances would indicate an

employer-employee relationship.

     With certain limited exceptions, 48 C.F.R. sec. 45.302-1

(2004) requires contractors of Federal agencies to furnish all

facilities in performance of their contracts with the agencies.

Title 48 C.F.R. sec. 45.302-1(a) (2004) permits an agency to

furnish facilities to contractors, inter alia, for support of

industrial preparedness programs and as otherwise authorized by

law or regulation.   Title 48 C.F.R. sec. 45.302-3(a) (2004)

permits an agency to provide facilities to a contractor under a

contract (other than a facilities contract) when, inter alia, the

contract performance period is 12 months or less; the contract is

for services and the facilities are to be used in connection with

the operation of a Government-owned plant or installation; the

contract is for work within an establishment or installation

operated by the Government.   48 C.F.R. sec. 45.302-3(a)(3), (5),

(6) (2004).

     Petitioner’s personal service contracts were for industrial

hygienist services for periods of 12 months and called for

services related to the operation of State Department
                               - 23 -

installations.    Petitioner was responsible for managing,

coordinating, and implementing the State Department’s worldwide

industrial hygienist field technical services program.    She

inspected and monitored State Department facilities worldwide for

health hazards.    She recommended or implemented measures to

eliminate or alleviate hazards and trained employees in the use,

handling, and disposal of toxic chemicals and physical agents.

During the first contract period, petitioner visited 18 posts and

performed approximately 40 percent of her services outside the

United States.    Petitioner’s services required access to

classified information that was required to be kept at the State

Department.   Under these circumstances, we think the State

Department’s providing petitioner with office facilities and

supplies is consistent with treating petitioner as an independent

contractor, as well as, treating her as an employee.    This factor

is neutral.

     4.   Integral Part of the Business

     The State Department’s FBO operates the Foreign Service

properties in foreign countries.    The services petitioner

provided under the personal service contracts were integral to

the State Department’s obligation to ensure the safety of

Government employees who worked in those properties.    Petitioner

did not perform services for other clients.    See Breaux & Daigle,

Inc. v. United States, supra at 53 (financial success of
                                - 24 -

processor of crab meat depended upon crab meat pickers;

therefore, crab meat pickers’ services were integral part of

processor’s business); Air Terminal Cab, Inc. v. United States,

478 F.2d at 581 (taxicab drivers were performing personal

services constituting integral part of taxpayer’s business

operations).   This factor favors respondent.

     5.   Opportunity for Profit or Loss

     If a person performing a service has an opportunity to

profit depending on his management skill, he may be an

independent contractor.     United States v. Silk, 331 U.S. 704,

717-718 (1947).   If a person performing a service undertakes a

substantial cost, for example by employing and paying his own

laborers, he may be an independent contractor.     Id.   Petitioner

had no opportunity for profit or loss.    The amount of pay she

received depended only upon the number of hours she worked.

While petitioner was given a project to complete, the amount she

would earn did not depend upon completion of the project.     This

factor favors respondent.

     6.   Termination of Relationship

     In determining whether an employer-employee relationship

exists, courts consider the manner in which the work relationship

can be terminated; i.e., by one or both parties, at any time,

with or without notice or explanation.     Horner v. Acosta, 803

F.2d at 693; Spirides v. Reinhardt, 613 F.2d at 832; Ewens &
                               - 25 -

Miller, Inc. v. Commissioner, 117 T.C. 263, 273 (2001); Day v.

Commissioner, T.C. Memo. 2000-375.      Usually, the right to

discharge a worker, and the worker’s right to quit, at any time

indicates an employer-employee relationship.     See United States

v. W.M. Webb, Inc., 397 U.S. 179, 193 (1970); Breaux & Daigle,

Inc. v. United States, 900 F.2d at 53; Air Terminal Cab, Inc. v.

United States, 478 F.2d at 581.    The right to discharge without

cause is a factor that should be considered in determining

whether a person is an employee.     Sec. Storage & Van Co. v.

United States, 528 F.2d 1166, 1167 (4th Cir. 1975).

     Both petitioner and the State Department had the right to

terminate the personal service contracts without cause with 30

days’ notice.    The State Department could terminate petitioner’s

services for cause only by written notice from the contracting

officer to petitioner.    The State Department could not discharge

petitioner at any time without notice or explanation.     This

factor favors petitioner.

     7.   Permanency of the Relationship

     A transitory work relationship may point toward independent

contractor status.    Herman v. Express Sixty-Minutes Delivery

Serv., Inc., 161 F.3d 299, 305 (5th Cir. 1998).     Petitioner

performed work under the personal service contracts for a little

over 1 year.    In November 1999, the State Department released

petitioner from the second personal service contract and hired
                                 - 26 -

her as a full-time, permanent, appointed, Federal employee as an

industrial hygienist.     Petitioner’s employment was subject to

completion of a 1-year probationary period beginning November 11,

1999.     Her service for purposes of career tenure and FERS/FSPS

also began November 11, 1999.     Petitioner’s service under the

personal service contracts did not apply toward her annual leave

accrual rate or retirement credit as a Federal employee.

Petitioner was not paid for any unused accrued sick leave, and

the leave was not carried over as a credit under her direct hire

service.

     The relationship created under the personal service

contracts was intended to be a temporary one entered into for a

stated period.     It appears that, in November 1999, the State

Department, impressed with petitioner’s performance, decided to

hire her as an employee.     The length of petitioner’s employment

is consistent with her status as an independent contractor.       Cf.

Lewis v. Commissioner, T.C. Memo. 1993-635 (7-year employment

consistent with employee status).     This factor favors petitioner.

        8.   Method of Payment

        Courts consider whether the worker was paid by time,

indicative of an employee, or by the job, indicative of an

independent contractor.     Petitioner was paid on the basis of a

40-hour week.     She worked 5 days per week, Monday through Friday,

8 hours per day from 8:30 a.m. to 5:15 p.m., with a 45-minute
                               - 27 -

lunch break.   Petitioner reported her time and attendance to Mr.

Urman biweekly.    This factor supports respondent.

     9.    Social Security Taxes

     Another factor courts have considered in determining the

status of workers is whether there was a withholding of taxes and

payment into worker’s compensation and unemployment insurance

funds.    Profl. & Executive Leasing, Inc. v. Commissioner, 862

F.2d 751, 753 (9th Cir. 1988).

     The personal service contracts required the State Department

to withhold two parts of Social Security (old age/survivors

disability insurance and Medicare) and Federal and State income

taxes from petitioner’s wages.     The contracts required The State

Department to “make the employer’s contribution toward the two

parts of Social Security in behalf of Contractor”.     (Emphasis

added.)    That language is appropriate where services are

performed for the Government by an employee of a contractor (here

a small, woman-owned business), and the Government agrees to pay

the contractor-employer’s contribution for the two parts of

Social Security.    The provision is consistent with treating

petitioner as an employee of her own business, as well as

treating her as a State Department employee.    This factor is

neutral.
                               - 28 -

     10.   Employee Benefits

     Receipt of employee benefits is an important factor in

determining whether an employer-employee relationship exists.

Packard v. Commissioner, 63 T.C. at 632.

           a.   Annual Leave

     Petitioner accrued 4 hours of annual leave and 4 hours of

sick leave each pay period during the contract periods.     Unused

annual and sick leave from the first contract period was

transferable to the second contract period.     Petitioner was

entitled to “excused absences” for blood donations, voting,

inclement weather, and military leave.      This factor supports

respondent.

           b.   Retirement Benefits

     Petitioner was not entitled to any retirement benefits.

Moreover, when petitioner was appointed as a direct-hire

employee, her service under the personal service contracts was

not credited toward her retirement credit for direct hire

service.   This factor favors petitioner.

           c.   Health Benefits

     Although petitioner was not entitled to participate in the

State Department medical program or the Federal Employees Health

Benefits Program, she was entitled to reimbursement of 50 percent

of her actual annual health insurance costs.     This factor

slightly favors respondent.
                                 - 29 -

           d.   Other Benefits

     Petitioner was not permitted to enroll in the Immediate

Benefit Plan providing death benefits to Federal employees.

During the contract periods, petitioner was not permitted to park

in the parking facility reserved for permanent, full-time,

employees of the State Department.        Petitioner was not eligible

for (1) “Metrocheks”, although State Department employees within

the definition of 5 U.S.C. sec. 2105 were entitled to that

benefit; (2) performance awards during the contract periods; or

(3) membership in the Federal employees union while employed

under her personal service contracts.         This factor favors

petitioner.

     11.   Relationship the Parties Thought They Created

     Courts have considered the relationship the parties believed

they were creating.     Simpson v. Commissioner, 64 T.C. at 984-985.

     The State Department apparently believed that its

relationship with petitioner for tax purposes was that of

employer-employee.    The State Department withheld Federal income

taxes and FICA taxes from petitioner’s paychecks and issued Forms

W-2, rather than Forms 1099, to petitioner for years covered by

the contract periods.    Moreover, we are mindful that, although

petitioner stated on her return that she was an independent

contractor, she did not pay any self-employment taxes for 1999.

This factor favors respondent.
                              - 30 -

C. Conclusion

     Courts have noted that the determination of whether an

employer/employee relationship existed can be a close question of

fact.   See, e.g., Eren v. Commissioner, 180 F.3d 594, 597 (4th

Cir. 1999) (“Although this is arguably a close case, we cannot

say from these facts that the tax court was clearly erroneous in

finding that FBO had the right to control Eren’s activities.”),

affg. T.C. Memo. 1995-555; Lifetime Siding, Inc. v. United

States, 359 F.2d 657, 659 (2d Cir. 1966) (some evidence indicated

employee status and some pointed toward an independent contractor

status demonstrating “what may be said to have been a close

question of fact”); Serv. Trucking Co. v. United States, 347 F.2d

671, 673 (4th Cir. 1965) (“It cannot reasonably be said that this

record points indisputably to but a single answer. * * * But

analysis of the facts warrants different determinations depending

on the relative weight and significance the fact finder attaches

to various circumstances shown.”).     Some cases examining the

relationship created by a personal service contract entered into

by a Federal agency and a professional, similar to petitioner’s

personal service contracts with the State Department, have

concluded that the contract created an employee/employer

relationship.   See, e.g., Eren v. Commissioner, supra; Marckwardt

v. Commissioner, T.C. Memo. 1991-347; Juliard v. Commissioner,

T.C. Memo. 1991-230; Matt v. Commissioner, T.C. Memo. 1990-209.
                               - 31 -

Other cases have found that the taxpayer was an independent

contractor.   See, e.g., Chin v. United States, 57 F.3d 722 (9th

Cir. 1995); deTorres v. Commissioner, T.C. Memo. 1993-161.

     In Eren v. Commissioner, supra, Mr. Eren was an architect

who worked for the State Department’s FBO from the late 1970s to

at least 1990.   He worked as a project director for the FBO under

personal service contracts beginning in 1984.   From July 1988 to

June 1990, Mr. Eren worked as project director for the

construction of an annex to the U.S. Embassy in Bogota, Colombia.

He performed the essential, everyday chores of the FBO’s

operations of constructing and maintaining embassies.    Mr. Eren

supervised the construction of the annex; he was bound by the

construction documents for the building and could not exceed the

budget.    Mr. Eren’s contract required him to “perform appropriate

functions and obligations in accordance with procedures or other

directives issued by the Contracting Officer or his designee”.

He was required to maintain a daily log and submit monthly

progress reports.   Mr. Eren was not a specialist hired to solve a

problem.   We found that Mr. Eren was an employee of the FBO.   On

appeal, the U.S. Court of Appeals for the Fourth Circuit affirmed

our decision, but noted that it was arguably a close case.

     The case at bar is also a close case, but the totality of

the stipulated facts leads us to conclude that petitioner’s

relationship with the State Department under the personal
                              - 32 -

services contracts materially differs from Mr. Eren’s

relationship with the FBO.   Although petitioner and Mr. Eren were

both professionals, the State Department hired petitioner as a

specialist to evaluate and solve a problem.   She evaluated work

environments for health hazards, recommended and implemented

measures to eliminate those hazards, and developed an industrial

hygiene management information system.   Petitioner’s work was

considered technically authoritative and accepted without

significant change. The State Department had little control over

the means and manner by which petitioner’s work was accomplished.

Petitioner worked under the broad guidance of the COR, who made

assignments and provided statements of policy and overall scope

to guide petitioner.   Petitioner was responsible for planning and

carrying out the projects.   She submitted her evaluations and

recommendations to the COR in comprehensive written reports when

the project was completed; she was not required to maintain daily

logs or submit monthly reports.   In sum, the FBO had more control

over Mr. Eren than the State Department had over petitioner.

     Moreover, petitioner’s work relationship with the State

Department was more transitory than that of Mr. Eren.   Mr. Eren

worked for the State Department under his personal service

contracts for many years, whereas petitioner worked for the State

Department under her personal service contracts for a little over

1 year.
                              - 33 -

     We conclude that petitioner’s relationship with the State

Department under the personal services contracts was that of an

independent contractor.   As such, petitioner is entitled to a

deduction for her contribution to her simplified employee pension

for 1999.

     To reflect the foregoing,


                                      Decision will be entered for

                                 petitioner.
