                               T.C. Memo. 2012-50



                         UNITED STATES TAX COURT



                QUNNIA SHANTEL HATCH, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19685-09.                        Filed February 23, 2012.



      Qunnia Shantel Hatch, pro se.

      Joel D. McMahan, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      PARIS, Judge: On May 18, 2009, respondent sent to petitioner a notice of

deficiency determining a deficiency in Federal income tax for taxable year 2007 of
                                           -2-

$1,966. The issues for decision are whether petitioner is liable for the deficiency in

Federal income tax relating to $4,451 of unreported income for the tax year at issue

and whether petitioner is liable for a penalty under section 66731 for instituting or

maintaining proceedings primarily for delay and for maintaining a frivolous position.



                                 FINDINGS OF FACT

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

petition was filed, petitioner lived in Florida.

       During 2007 petitioner worked part time for North South Florida Rehab, Inc.

(North South), in addition to her full-time job. North South hired petitioner on an

as-needed basis. There was no written contract signed between the parties.

Petitioner believed that she was an employee on the basis of documents representing

the relationship between herself and North South. However, North South

considered her an independent contractor.

       Petitioner typically performed clerical duties, including inputting of data,

filing, and billing. North South paid petitioner using corporate checks and provided

her a Form 1099-MISC, Miscellaneous Income, for tax purposes. No


       1
        All section references are to the Internal Revenue Code in effect for the tax
year at issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure, unless otherwise indicated.
                                            -3-

income tax was withheld from the payments, and North South did not extend to her

benefits that it offered its employees.

      Petitioner timely filed her 2007 Federal income tax return and did not include

the payments from North South in her income. Respondent sent to petitioner a

notice of deficiency determining that petitioner failed to include in income the

nonemployee compensation paid to her by North South. The notice of deficiency

also determined that petitioner failed to pay self-employment tax on the

nonemployee compensation; however, respondent has conceded this issue.

                                          OPINION

      Petitioner concedes that she received $4,451 of income from North South.

She argues that the income she received was not taxable income within the meaning

of the law, as she was an employee of North South, and that North South should not

have issued her a Form 1099-MISC.2 Alternatively, petitioner argues that the

amounts paid by North South were a tax-free contribution to her.


      2
        Sec. 31(a)(1) provides to an employee a credit against the employee’s
income tax obligation with respect to her wages for “[t]he amount withheld as tax
under chapter 24”. Sec. 1.31-1(a), Income Tax Regs., limits the credit to “[t]he tax
deducted and withheld at the source upon wages under chapter 24”. Further, the
credit is provided to the employee if the tax has been actually withheld at the source
even if the tax has not been paid by employer to the Government. Id. The sec.
31(a)(1) credit is not available to petitioner as she was not treated as an employee
by North South and North South never actually withheld any amounts from her
wages.
                                         -4-

      Section 61 provides that gross income includes all income from whatever

source derived, specifically including compensation for services. Sec. 61(a)(1).

Compensation is further defined to include wages, salaries, and bonuses. Sec. 1.61-

2(a)(1), Income Tax Regs. Exclusions from income exist if the taxpayer can

establish a specific legislative authorization to exclude income from taxation and are

a matter of legislative grace. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).

      Petitioner argued that she was an employee and should not have been issued a

Form 1099-MISC. However, given that respondent conceded the self-employment

tax issue, it makes no difference whether the wages were earned in the context of

being an employee or a contractor. Petitioner conceded that she received the

amounts at issue from North South in exchange for her services; therefore, she has

gross income from compensation.

      Petitioner also argues that because she was an employee, the amount should

be excluded from income as a nontaxable contribution to her from North South.

Petitioner has not demonstrated that she was an employee for 2007. Additionally,

even if she was an employee, the amounts are still taxable. Section 102(a) provides

that gross income does not include the value of property acquired by gift, bequest,

or inheritance. However, amounts “transferred by or for an employer to,
                                          -5-

or for the benefit of, an employee” are not excludible from income. Sec. 102(c).

Only in “exceptional” circumstances is a transfer between an employer and an

employee considered a gift. Commissioner v. Duberstein, 363 U.S. 278, 287

(1960). The legislative history of section 102 indicates that a gift may be made by

an employer to an employee if it is exclusively for personal reasons, if it is entirely

unrelated to the employment relationship, and if it reflects no anticipation of

business benefit. See S. Rept. No. 99-313, at 47-49 (1986), 1986-3 C.B. (Vol. 3)

1, 47-49. There is no evidence that the amounts paid to petitioner are anything other

than wages paid for the clerical services she performed and thus are not excludible

from income.

      Section 6673(a) authorizes the Tax Court to impose a penalty not in excess of

$25,000 on a taxpayer for proceedings instituted primarily for delay or in which the

taxpayer’s position is frivolous or groundless. Respondent has moved for

imposition of such a penalty because of petitioner’s lack of cooperation and

numerous filings with the Court. Petitioner submitted a large number of documents

in efforts to explain her position to the Court. While a section 6673 penalty is not

appropriate at this time, the Court warns petitioner that continuing to advance

groundless arguments or accusations may result in penalties in the future.
                                           -6-

         In reaching these holdings, the Court has considered all arguments made and,

to the extent not mentioned, concludes that they are moot, irrelevant, or without

merit.

         To reflect the foregoing and the concessions of the parties,


                                                                Decision will be entered

                                                       under Rule 155.
