                        T.C. Memo. 2007-222



                      UNITED STATES TAX COURT



         COLORADO MUFFLERS UNLIMITED, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4083-04.               Filed August 13, 2007.



     Dolores Rudd (an officer), for petitioner.

     David A. Conrad and Milan Kim, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   In a Notice of Determination of Worker

Classification (notice of determination) under section 7436,1

respondent determined that nine workers were employees of



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code as in effect for the periods in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                   - 2 -

petitioner during 2000 and 2001 and that petitioner was liable

for Federal Insurance Contributions Act (FICA) taxes, income tax

withholding, and Federal Unemployment Tax Act (FUTA) taxes, the

section 6662 accuracy-related penalty, and the addition to tax

under section 6651(a)(1) in the following amounts:

                                    Taxable period ended 2000
Tax/addition/penalty   Mar. 31     June 30    Sept. 30   Dec. 31          Total

  FICA                 $6,200.18   $6,200.18   $6,200.18   $6,200.18   $24,800.72
  Income tax           11,346.72   11,346.72   11,346.72   11,346.72    45,386.88
  Sec. 6651(a)(1)       4,386.73    4,386.73    4,386.73    4,386.73    17,546.92
  Sec. 6662             3,509.38    3,509.38    3,509.38    3,509.38    14,037.52
  FUTA                    ---         ---         ---       3,337.83     3,337.83
  Sec. 6651(a)(1)         ---         ---         ---         834.46       834.46
  Sec. 6662               ---         ---         ---         667.57       667.57
    Total              25,443.01   25,443.01   25,443.01   30,282.87   106,611.90

                                    Taxable period ended 2001
Tax/addition/penalty   Mar. 31     June 30    Sept. 30   Dec. 31          Total

  FICA                 $6,200.17   $6,200.17   $6,200.17   $6,200.17   $24,800.68
  Income tax           11,346.72   11,346.72   11,346.72   11,346.72    45,386.88
  Sec. 6651(a)(1)       4,386.73    4,386.73    4,386.73    4,386.73    17,546.92
  Sec. 6662             3,509.38    3,509.38    3,509.38    3,509.38    14,037.52
  FUTA                    ---         ---         ---       3,337.83     3,337.83
  Sec. 6651(a)(1)         ---         ---         ---         834.46       834.46
  Sec. 6662               ---         ---         ---         667.57       667.57
    Total              25,443.00   25,443.00   25,443.00   30,282.86   106,611.86

In his pretrial memorandum, respondent conceded that he has

mistakenly applied both the section 6651(a)(1) addition to tax

and the section 6662 accuracy-related penalty to the periods

ended September 30 and December 31, 2000, and March 31, June 30,

September 30, and December 31, 2001, and provided the following

revised numbers:
                                     - 3 -
                                     Taxable period ended 2000
Tax/addition/penalty     Mar. 31    June 30    Sept. 301 Dec. 31            Total

   FICA                 $6,200.18   $6,200.18   $6,200.18   $6,200.18    $24,800.72
   Income tax           11,346.72   11,346.72   11,346.72   11,346.72     45,386.88
   Sec. 6651(a)(1)         ---         ---       4,386.73    4,386.73      8,773.46
   Sec. 6662             3,509.28    3,509.28      ---         ---         7,018.56
   FUTA                    ---         ---         ---       3,337.83      3,337.83
   Sec. 6651(a)(1)         ---         ---         ---         843.33        843.33
     Total              21,056.18   21,056.18   21,056.18   26,114.79     90,160.78
      1
        The entries in the designated column do not add up to the total shown
for the column. Respondent will have to clarify the extent of his concession
in a Rule 155 computation.

                                     Taxable period ended 2001
Tax/addition/penalty     Mar. 31    June 30    Sept. 30   Dec. 311          Total1
                                                                        2
   FICA                 $6,200.17   $6,200.17   $6,200.17   $6,200.17    $24,800.88
   Income tax           11,346.72   11,346.72   11,346.72   11,346.72     45,386.88
   Sec. 6651(a)(1)       4,386.73    4,386.73    4,386.73    4,386.73     17,546.92
   FUTA                    ---         ---         ---       3,337.83      3,337.83
   Sec. 6651(a)(1)         ---         ---         ---         843.33        843.33
     Total              21,933.62   21,933.62   21,933.62   26,958.11     92,758.97
      1
       The entries in the designated columns do not add up to the total shown
for the column. Respondent will have to clarify the extent of his concession
in a Rule 155 computation.
      2
       The entries in this row do not add up to the total shown for the row.
Respondent will have to clarify the extent of his concession in a Rule 155
computation.

      After concessions,2 the issues for decision are:

      (1)   Whether Richard D. Rudd, Sr., Richard D. Rudd, Jr.,

Sherilyn J. Gallegos, George Gallegos III, Sean L. Turner, Gary

W. Neilson, Shanna Rudd, Brian Welling, and Michael L. Steward

(hereinafter the workers) were employees of petitioner during

2000 and 2001; and


      2
      Petitioner does not directly address respondent’s revised
adjustments regarding the sec. 6662 accuracy-related penalty or
the additions to tax under sec. 6651(a) in its briefs.
Therefore, we will deem petitioner to have conceded these
adjustments if we conclude that respondent’s determination
regarding the classification of the workers is sustained. See
Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C. 661,
683 (1989).
                                 - 4 -

     (2)     whether petitioner is entitled to relief under the

Revenue Act of 1978, Pub. L. 95-600, sec. 530, 92 Stat. 2885, as

amended (act section 530).

                           FINDINGS OF FACT

     The parties stipulated some of the facts.     The stipulated

facts are incorporated herein by this reference.     Petitioner’s

principal place of business was in Northglenn, Colorado, when its

petition was filed.     During the periods at issue, petitioner was

a corporation that operated a muffler shop in the State of

Colorado.3

     Petitioner had filed Forms 941, Employer’s Quarterly Federal

Tax Return, and Forms 940, Employer’s Annual Federal Unemployment

(FUTA) Tax Return, and had issued Forms W-2, Wage and Tax

Statement, to its employees for taxable periods ending before

2000.4   However, during 2000, petitioner took the position that it

was no longer required to file Forms 940 and 941 because it had

no employees, and it requested refunds of the taxes reported on

Forms 940 and 941 for 1997 and 1998.     In January 2001, respondent



     3
      During the trial, Ms. Rudd claimed that petitioner had been
dissolved but offered no credible evidence to support her claim.
In contrast, respondent’s revenue agent Beth Nichols testified
that petitioner advertised its business in the Yellow Pages
during the periods at issue and during the audit and that
petitioner was listed, and continues to be listed, in the phone
book.
     4
      Petitioner filed Forms 941 for the periods ended Mar. 31
and June 30, 2000, on which it reported no wages and no tax
liability.
                                - 5 -

refunded $88,000 to petitioner.5    Subsequently, respondent

suspected that the refund was erroneous and began an audit of

petitioner’s employment tax compliance.6    Respondent’s revenue

agent Beth Nichols conducted the audit from approximately spring

2001 to 2003 when respondent issued the notice of determination.

During the examination, Revenue Agent Nichols unsuccessfully

attempted to obtain petitioner’s books and records, including its

bank records, from petitioner’s agent, Dolores Rudd.    After

discovering that petitioner was using bank accounts in other

names, Revenue Agent Nichols summoned the bank records from those

accounts.7    Revenue Agent Nichols analyzed the bank records and

conducted additional investigation of petitioner’s business

activities.    On the basis of her analysis, Revenue Agent Nichols

concluded that petitioner was still in business8 and that



     5
      Petitioner subsequently filed a refund claim for its 1999
employment taxes, which respondent ultimately denied.
     6
      In 2002, the United States instituted legal proceedings
against petitioner for the return of the erroneous refund.
     7
      Respondent summoned bank records for accounts not in
petitioner’s name but in the names of entities traceable to
petitioner and into which petitioner’s receipts were deposited.
Respondent traced activity in those accounts to petitioner’s
business location and attributed the activity to petitioner for
tax purposes.
     8
      Petitioner does not dispute that business activity similar
to petitioner’s regular business activity in 1999 occurred at
petitioner’s business location in 2000 and 2001. Ms. Rudd
testified that at least some of the same workers who performed
services for Colorado Mufflers in 1999 performed similar services
at petitioner’s business location in 2000 and 2001.
                               - 6 -

petitioner was periodically cashing large checks written to cash.9

Because Revenue Agent Nichols had no payroll records for

petitioner for 2000 and 2001, she relied on the best information

available to her--the Forms W-2, 940, and 941 from 1999--to

calculate the wages paid and tax owed by petitioner for 2000 and

2001.

     On November 26, 2003, respondent issued a notice of

determination to petitioner in which he determined that

petitioner had nine workers during 2000 and 2001 whom it should

have treated as employees, that petitioner was not entitled to

relief under act section 530, that petitioner was liable for

income tax withholding, FICA and FUTA tax, the section 6651(a)(1)

addition to tax, and the section 6662 accuracy-related penalty

for each of the periods involved.   Petitioner filed a timely

petition challenging the determinations.

     On January 25, 2006, respondent filed requests for admission

with this Court and mailed a copy to petitioner.   However,

because the certificate of service used an address for petitioner

that was different from the address for petitioner in the Court’s

files, we served a copy of the requests for admission on

petitioner at its address as shown in the Court’s files on

January 30, 2006.   See Rule 90.



     9
      Revenue Agent Nichols testified that in her experience, a
pattern of periodically cashing large checks written to cash
suggested a practice of paying workers in cash.
                               - 7 -

     On February 10, 2006, petitioner filed a motion for a

protective order from respondent’s discovery because “Justice

requires that the Petitioner be protected from annoyance, further

embarrassment, further undue burden and expense at least until

the Respondent provides the proof/evidence of personal

jurisdiction”.   Petitioner’s motion for protective order was

denied on February 22, 2006.

     Under Rule 90(c), respondent’s requests for admission are

deemed admitted unless, within 30 days of service of the request,

the party to whom the request is directed serves upon the

requesting party (1) a written answer specifically admitting or

denying the matter involved in whole or in part, or asserting

that it cannot be truthfully admitted or denied and setting forth

in detail the reasons why this is so, or (2) an objection,

stating in detail the reasons therefor.   Petitioner’s response

was due on March 1, 2006.   Petitioner did not respond to

respondent’s requests for admission by the deadline set forth in

Rule 90(c),10 and consequently, the matters contained therein were

deemed admitted as of March 1, 2006.   See Rule 90(c); Freedson v.




     10
       Petitioner mailed a document to this Court entitled
“Petitioner’s Reply to Respondent’s First Requests for
Admission”, which we received on Apr. 6, 2006. The document had
a certificate of service indicating that it had been sent to
respondent’s counsel more than a month after the deadline
established under Rule 90(c). Consequently, the document was not
filed.
                               - 8 -

Commissioner, 65 T.C. 333, 334 (1975), affd. 565 F.2d 954 (5th

Cir. 1978).   The deemed admissions establish the following:

     ! The nine workers listed in the notice of determination

worked at petitioner’s business location during the years in

issue.

     ! Petitioner hired, supervised, and paid the workers for

their services.

     ! Petitioner dictated when, where, and how the workers

performed their services, and petitioner set their work hours.

     ! Petitioner controlled the amount of time each worker spent

performing services.

     ! Each worker was employed full time by petitioner and was

restricted from working for another employer.

     ! The workers provided services on petitioner’s premises and

used petitioner’s tools, materials, and equipment.

     ! The success or continuation of petitioner’s business

depended upon the performance of the nine workers’ services.

     ! The workers were regularly paid by the hour, week, or

month; they were not paid by job or on commission, nor did they

realize a profit or loss as a result of their services.

     ! Both petitioner and the workers had the right to terminate

the relationship.
                               - 9 -

     ! Petitioner and the workers believed themselves to be

entering into an employment relationship.    They represented to

others that an employment relationship existed.

     We issued a notice setting case for trial to petitioner.

The notice advised petitioner that a trial would be held during

the Denver, Colorado, trial session of this Court beginning on

April 17, 2006.   Included with the notice was our standing

pretrial order, which set forth in considerable detail the

requirements imposed on each party for adequate trial

preparation.   Petitioner did not comply with the standing

pretrial order in that petitioner did not cooperate with

respondent in pretrial preparation, and petitioner did not

exchange trial exhibits with respondent.    Moreover, petitioner

did not produce information and documents in response to

respondent’s discovery requests.     However, petitioner did file a

pretrial memorandum that was filled with arguments that can

fairly be characterized as frivolous and groundless.

                              OPINION

I.   Relief From Deemed Admissions

     Generally, a fact that is deemed admitted under Rule 90 is

conclusively established.   Rule 90(f); see also Sarchapone v.

Commissioner, T.C. Memo. 1983-446.     Rule 90(f) provides, however,

that the Court, on motion, may permit an admission to be

withdrawn or modified if (1) the withdrawal or modification would
                              - 10 -

subserve the presentation of the merits of the case, and (2) if

the party obtaining the admission (respondent in this case) fails

to satisfy the Court that the withdrawal or modification will

prejudice him in prosecuting his case or defense on the merits.

Petitioner did not move for relief from the deemed admissions at

any time before or during trial.   Petitioner requested relief

from the deemed admissions for the first time in its posttrial

brief.

       Petitioner’s agent, Dolores Rudd, who testified for

petitioner at trial, attempted to explain petitioner’s failure to

file a timely response.   The explanation was conclusory and

unconvincing and did not establish the elements for relief

required by Rule 90.   Because we find that respondent reasonably

relied upon the deemed admissions and that withdrawal of the

deemed admissions would not foster presentation of the merits and

would unfairly prejudice respondent, we shall deny petitioner’s

belated request for relief from the deemed admissions.   See

Dahlstrom v. Commissioner, 85 T.C. 812, 819 (1985); Morrison v.

Commissioner, 81 T.C. 644, 649-650 (1983).

II.   Classification of Petitioner’s Workers

      A.   Burden of Proof

      Ordinarily, the Commissioner’s determination is presumed to

be correct, and the taxpayer bears the burden of proving that the

determination is erroneous.   Rule 142(a); Welch v. Helvering, 290
                                - 11 -

U.S. 111, 115 (1933).    This principle applies to the

Commissioner’s determination that a taxpayer’s workers are

employees.     Boles Trucking, Inc. v. United States, 77 F.3d 236,

239-240 (8th Cir. 1996); Allen v. Commissioner, T.C. Memo. 2005-

118.

       In certain circumstances, special statutory rules may apply

to shift the burden of proof to the Commissioner.    See, e.g.,

sec. 7491; act sec. 530(e)(4).11    However, petitioner does not

contend that these provisions affect an allocation of the burden

of proof in this case, and we conclude that they do not apply.

       Petitioner does argue, however, that respondent’s

determinations are arbitrary and capricious and that, therefore,

the burden of proof must shift to respondent.12    See United States

v. Janis, 428 U.S. 433, 441-442 & n.8 (1976) (burden of proof

shifts to Commissioner where determination lacks rational

foundation).    However, petitioner has failed to demonstrate that

respondent acted arbitrarily in this case.    Petitioner’s behavior

during the audit and the pretrial preparation of this case was

characterized by a consistent lack of cooperation and by

considerable obfuscation designed to prevent respondent from


       11
      Subsec. (e) was added to act sec. 530 by the Small
Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1122(a), 110 Stat. 1766.
       12
      Sec. 7491, which authorizes a shift in the burden of proof
if certain requirements are met, applies only to taxes imposed by
subtit. A or B and does not apply to employment taxes imposed by
subtit. C.
                              - 12 -

ascertaining the facts regarding petitioner’s business, business

payroll, and workers.   It appears that petitioner used fictitious

names and/or other companies to hide the nature and extent of its

business activity from respondent during the years at issue.

Respondent’s determinations were necessarily based on the best

information available, including information obtained from a

visit to petitioner’s business location, a review of petitioner’s

Forms W-2, 940, and 941 for prior taxable periods, an analysis of

bank records of petitioner and others, and information obtained

from at least one of petitioner’s suppliers.   We conclude,

therefore, that respondent’s determinations were not arbitrary or

capricious, and the burden of proof remains with petitioner.

     B.   Employment Status

     The employment tax sections of the Internal Revenue Code are

in subtitle C.   Under subtitle C, an employer is obligated to pay

certain taxes imposed on employers and must also withhold from

employees’ wages certain taxes imposed on employees.   Sections

3111 and 3301 impose the employer-level taxes under FICA and

FUTA, respectively.   Section 3101 imposes a FICA tax on

employees, which section 3102 requires the employer to collect.

Section 3402 requires an employer to withhold from employees’

wages the employees’ shares of Federal income tax and to deposit

the amounts withheld with the Internal Revenue Service.    An
                              - 13 -

employer is liable for the amounts required to be withheld if the

employer does not withhold as required.   Sec. 3403.

     For employment tax purposes, the term “employee” includes

“any individual who, under the usual common law rules applicable

in determining the employer-employee relationship,[13] has the

status of an employee”.   Sec. 3121(d)(2); accord sec. 3306(i).

In applying the common law rules, uncertainty should be resolved

in favor of employment.   Breaux & Daigle, Inc. v. United States,

900 F.2d 49, 52 (5th Cir. 1990).



     13
      Secs. 31.3121(d)-1(c)(2) and 31.3306(i)-1(b), Employment
Tax Regs., define an employer-employee relationship as follows:

     Generally such relationship exists when 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.
     In this connection, it is not necessary that the
     employer actually direct or control the manner in which
     the services are performed; it is sufficient if he has
     the right to do so. The right to discharge is also an
     important factor indicating that the person possessing
     that right is an employer. Other factors
     characteristic of an employer, but not necessarily
     present in every case, are the furnishing of tools and
     the furnishing of a place of work, to the individual
     who performs the services. In general, if an
     individual is subject to the control or direction of
     another merely as to the result to be accomplished by
     the work and not as to the means and methods for
     accomplishing the result, he is an independent
     contractor. * * *

See also sec. 31.3401(c)-1(b), Employment Tax Regs. (using
virtually identical language).
                              - 14 -

     In evaluating whether an employment relationship exists

between a business and one of its workers, the courts consider

the following factors to decide whether a worker is a common law

employee or an independent contractor:   (1) The degree of control

exercised by the principal; (2) which party invests in the work

facilities used by the individual; (3) the opportunity of the

individual for profit or loss; (4) whether the principal can

discharge the individual; (5) whether the work is part of the

principal’s regular business; (6) the permanency of the

relationship; and (7) the relationship the parties believed they

were creating.   Ewens & Miller, Inc. v. Commissioner, 117 T.C.

263, 270 (2001); Weber v. Commissioner, 103 T.C. 378, 387 (1994),

affd. per curiam 60 F.3d 1104 (4th Cir. 1995).   All of the facts

and circumstances of each case are considered, and no single

factor is dispositive.   Ewens & Miller, Inc. v. Commissioner,

supra at 270; Weber v. Commissioner, supra at 387.   We consider

the factors below.

     1.   Degree of Control

     While no single factor is dispositive, the degree of control

exercised by the principal over the details of the individual’s

work is one of the most important factors in determining whether

a common law employment relationship exists.   See, e.g.,

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

440, 448 (2003); Leavell v. Commissioner, 104 T.C. 140, 149
                               - 15 -

(1995).   The degree of control necessary to find employee status

varies with the types of services provided by the worker.       Weber

v. Commissioner, supra at 388.    However, the control factor does

not require a supervisor to stand over and direct every move made

by the worker; it is sufficient if the supervisor has the right

to do so.    Id.; see sec. 31.3401(c)-1(b), Employment Tax Regs.

     Deemed admissions confirm that petitioner exercised control

over each of the nine workers.    Petitioner directed when, where,

and how each worker was to perform services.    Petitioner

controlled the manner in which the workers performed.    Petitioner

set each worker’s work hours and controlled the amount of time

each person worked.

     This factor favors an employment relationship.

     2.     Investment in Facilities

     The fact that a worker provides his or her own tools

generally indicates independent contractor status.    Breaux &

Daigle, Inc. v. United States, supra at 53.    Respondent

determined that the workers provided services using petitioner’s

equipment.    The deemed admissions establish that petitioner

supplied the facility, equipment, and parts the workers used to

perform their services.

     This factor favors an employment relationship.
                               - 16 -

     3.   Opportunity for Profit or Loss

     Respondent determined that petitioner paid the workers in

cash every week.   Although Ms. Rudd summarily disputed

respondent’s determination, she provided no credible evidence of

petitioner’s finances and expenditures for 2000 or 2001.    In

contrast, the deemed admissions establish that petitioner paid

the individuals by the hour, week, or month for their services,

that petitioner did not pay the workers by the job or on

commission, and that the workers did not participate in the

profit or loss resulting from their services.

      This factor favors an employment relationship.

     4.   Right To Discharge

     The deemed admissions establish that petitioner had the

right to hire and fire each of the workers.   Petitioner did not

introduce any credible evidence to the contrary.

     This factor favors an employment relationship.

     5.   Petitioner’s Regular Business

     Ms. Rudd testified that the services performed at

petitioner’s location during 2000 and 2001 were the same kind of

services that petitioner offered in 1999.   Petitioner’s regular

business in 1999 was the operation of a muffler shop.     Petitioner
                               - 17 -

hired workers to provide services as part of its regular business

activity.14

     This factor favors an employment relationship.

     6.     Permanency of the Relationship

     The deemed admissions establish that the workers were

employed full time during 2000 and 2001.     In addition, the record

establishes that at least some of the workers had performed

services for petitioner and at petitioner’s location in prior

years.

     This factor favors an employment relationship.

     7.     Relationship the Parties Believed They Were Creating

      The deemed admissions establish that petitioner and the

workers believed they had created an employment relationship and

that petitioner and the workers consistently presented their

relationship as an employment relationship.

     This factor favors an employment relationship.

     8.     Conclusion

     After reviewing the record and weighing the factors, we

conclude that petitioner has failed to prove that respondent’s

determination treating the workers as petitioner’s employees was

in error.




     14
      Ms. Rudd admitted that at least some of the workers
provided services during 2000 and 2001.
                              - 18 -

III. Act Section 530 Relief

     Act section 530 grants relief from the obligation to pay

employment taxes to employers who incorrectly treat wage payments

to employees as payments to independent contractors if certain

requirements are met.   Act section 530(a)(1) provides in relevant

part:

          (1) In general.--If--

          (A) for purposes of employment taxes, the taxpayer
     did not treat an individual as an employee for any
     period * * *, and

          (B) in the case of periods after December 31,
     1978, all Federal tax returns (including information
     returns) required to be filed by the taxpayer with
     respect to such individual for such period are filed on
     a basis consistent with the taxpayer’s treatment of
     such individual as not being an employee,

     then, for purposes of applying such taxes for such
     period with respect to the taxpayer, the individual
     shall be deemed not to be an employee unless the
     taxpayer had no reasonable basis for not treating such
     individual as an employee.

Act section 530(a)(3) limits the relief available under act

section 530(a)(1) by providing that act section 530 relief is not

available if the “taxpayer (or a predecessor)” treated any

individual holding a “substantially similar position as an

employee”.   An employer must satisfy all of the requirements of

act section 530 to qualify for relief under that section.    See

Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263 (2001).

     Petitioner treated all of the workers as employees in 1999,

and petitioner filed Forms W-2, 940, and 941 for 1999 consistent
                               - 19 -

with its treatment of the workers as employees.     Consequently,

petitioner fails to satisfy all of the act section 530

requirements.    Petitioner is not entitled to relief under act

section 530.15

IV.   Section 6673 Penalty

      Section 6673(a)(1) authorizes this Court to require a

taxpayer to pay to the United States a penalty, not to exceed

$25,000, if it appears that the taxpayer has instituted or

maintained a proceeding primarily for delay or that the

taxpayer’s position is frivolous or groundless.     Although

respondent has not asked the Court to impose a penalty under

section 6673(a)(1), the Court may sua sponte impose such a

penalty against a taxpayer.    See Pierson v. Commissioner, 115

T.C. 576, 580-581 (2000).

       In its opening brief, petitioner argued that Forms 940,

941, and W-2 and Form W-4, Employee’s Withholding Allowance

Certificate, are invalid because they lack an Office of

Management and Budget (OMB) number.     Petitioner also listed


      15
      Petitioner argues that respondent failed to provide notice
of act sec. 530 to it as required by act sec. 530(e)(1). Because
in any event petitioner did not satisfy the act sec. 530
requirements before the examination, it was not prejudiced by any
lack of notice. See Nu-Look Design, Inc. v. Commissioner, 356
F.3d 290, 295 (3d Cir. 2004), affg. T.C. Memo. 2003-52.
Moreover, petitioner was informed of act sec. 530 in the notice
of determination of worker classification. See id. (relief under
due process clause not warranted where notice of determination of
worker classification advised taxpayer of safe harbor provisions
of act sec. 530 and procedure for challenging determination).
                              - 20 -

multiple ways respondent’s forms allegedly violated the Paperwork

Reduction Act (PRA).   Petitioner repeatedly failed to cooperate

with respondent because respondent allegedly failed to prove a

delegation of authority, and petitioner repeated the delegation

of authority argument in its reply brief.   Petitioner also argued

that even if the workers in question were its employees, they

received nontaxable income and not wages.   Finally, petitioner

questioned the validity of the notice of determination because it

“did not contain any statutes telling the Petitioner what

statutes created the duty that it must pay someone else’s taxes.”

     The courts have consistently held all of these arguments to

be frivolous and without merit.   See James v. United States, 970

F.2d 750, 753 n.6 (10th Cir. 1992) (rejecting taxpayer’s

arguments regarding invalid OMB numbers and violations of PRA);

Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988)

(rejecting taxpayer’s arguments that wages are not income), affg.

T.C. Memo. 1987-225; Wheeler v. Commissioner, T.C. Memo. 2006-109

(rejecting taxpayer’s arguments regarding validity of notice of

deficiency); Nunn v. Commissioner, T.C. Memo. 2002-250 (rejecting

challenge to Internal Revenue Service jurisdiction over taxpayers

and documents).   We warned petitioner’s agent on at least two

occasions that if petitioner continued to raise frivolous

arguments, we would impose a penalty under section 6673.    After

each warning, petitioner continued to assert its frivolous
                              - 21 -

arguments.   Accordingly, we award a penalty of $3,000 to the

United States.

     To reflect the foregoing,


                                    The decision will be entered

                          under Rule 155.
