                        T.C. Memo. 2011-212



                      UNITED STATES TAX COURT



WILLIAM EDWARD SCHRAMM AND STELLA LOGAN SHERROUSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8938-09.                 Filed August 30, 2011.



     William Edward Schramm and Stella Logan Sherrouse, pro sese.

     Caroline R. Krivacka, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:   Respondent determined a $3,913 deficiency in

petitioners’ 2006 Federal income tax.1   After a concession by




     1
      The deficiency was determined on the basis of respondent’s
erroneous calculation of petitioners’ gross income.
                               - 2 -

respondent, the amount of the deficiency in dispute is

approximately $700.   The issues for decision are:   (1) Whether

William Edward Schramm (petitioner) was a statutory employee2 of

Nova Southeastern University (NSU) during the taxable year 2006;

and (2) whether petitioners are entitled to deduct claimed

business expenses of $2,785.63 pertaining to petitioner’s

employment with NSU on Schedule C as profit or loss from a

business, or whether such expenses should be reported on Schedule

A as itemized deductions for taxable year 2006.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code as amended, and all Rule references are

to the Tax Court Rules of Practice and Procedure.

                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     At the time the petition was filed, petitioners resided in

Tennessee.

     Petitioner was an adjunct professor at NSU during 2006 and

taught online courses in economics.    From 1999 to 2007 petitioner

taught 4 to 12 online courses per year for NSU.   NSU and

petitioner entered into a separate employment contract with


     2
      The term “statutory employee” means an individual described
in sec. 3121(d)(3). A common law employee cannot be a statutory
employee.
                                - 3 -

regard to each course that petitioner taught.     During 2006 the

period of each contract was 6 weeks.     As a condition of his

employment, NSU required petitioner to follow various employment

policies, including a sexual harassment policy, a drug policy,

and a conflict of interest policy.      NSU paid petitioner a fixed

amount for each course that he taught.     In 2006 petitioner

received $20,000 from NSU.

     NSU provided petitioner with a syllabus for each course he

taught that specified the material that was to be covered.

Petitioner prepared another more detailed syllabus to set forth

specifics regarding the class, such as the assignments and

examinations.   Petitioner established his own work hours and was

able to perform his work from any location via a computer with an

Internet connection.    However, NSU set the course dates, which

established the period within which petitioner’s classes were to

begin and conclude.    NSU also supplied the Web site interface

that was used for each course petitioner taught and the services

necessary to register and enroll students in the courses.

Following the completion of a course, petitioner was required to

submit to NSU a report that included an evaluation of his

students’ learning.

     NSU issued petitioner a Form W-2, Wage and Tax Statement,

relating to his employment with the university during 2006.      On

the Form W-2, NSU did not check box 13 to indicate that
                                - 4 -

petitioner was a statutory employee.    NSU withheld Federal income

taxes and employment taxes from the wages it paid to petitioner

during the 2006 taxable year.

     On or about January 3, 2007, petitioner wrote to NSU

requesting clarification of his employment status with the

university.    On January 8, 2007, NSU’s payroll manager, Linda

Trosper (Ms. Trosper), sent him a letter advising him that NSU

classifies all of its adjunct professors, including petitioner,

as employees and not as statutory employees or independent

contractors.    NSU’s decision regarding the classification of

employees was in conformity with an SS-8 ruling3 the Internal

Revenue Service (IRS) issued on June 10, 2003, regarding another

adjunct professor who taught online courses at NSU.    In that SS-8

ruling, the IRS determined that the adjunct professor was a

common law employee and, therefore, was not a statutory employee.

In her letter to petitioner, Ms. Trosper indicated that she

agreed with the IRS’ decision in the SS-8 ruling to classify

adjunct professors as employees.

     On their 2006 Federal income tax return, petitioners

reported the amounts petitioner received from NSU as business

income on Schedule C, Profit or Loss From Business, rather than



     3
      Form SS–8, Determination of Worker Status for Purposes of
Federal Employment Taxes and Income Tax Withholding, is used by a
firm or worker to request a determination or ruling letter
regarding a worker’s Federal employment tax status.
                                 - 5 -

on line 7 of the return as wages, salaries, tips, etc.    In

addition, petitioners claimed business expenses on Schedule C

totaling $2,785.63, which were related to petitioner’s employment

with NSU.

                                OPINION

     An individual performing services as an employee may deduct

expenses incurred in the performance of services as an employee

as miscellaneous itemized deductions on Schedule A, Itemized

Deductions, to the extent the expenses exceed 2 percent of the

taxpayer’s adjusted gross income.    Secs. 62(a)(2), 63(a), (d),

67(a) and (b), 162(a).   Itemized deductions may be limited under

section 68 and may have alternative minimum tax implications

under section 56(b)(1)(A)(i).

     An individual who performs services as an independent

contractor is entitled to deduct expenses incurred in the

performance of services on Schedule C and is not subject to

limitations imposed on miscellaneous itemized deductions.      A

statutory employee under section 3121(d)(3)(D) is not an employee

for purposes of section 62 and may deduct business expenses on

Schedule C.   See Rosemann v. Commissioner, T.C. Memo. 2009-185;

see also Rev. Rul. 90-93, 1990-2 C.B. 33.

     Petitioners argue that petitioner was an independent

contractor or statutory employee in 2006 and is thereby entitled

to deduct business expenses on Schedule C.    Respondent contends
                                - 6 -

that petitioner was a common law employee in 2006 and that his

unreimbursed employee expenses are thus properly reportable on

Schedule A, subject to the 2-percent-of-adjusted-gross-income

limitation.

     An individual qualifies as a statutory employee under

section 3121(d)(3) only if the individual is not a common law

employee pursuant to section 3121(d)(2).   See Ewens & Miller,

Inc. v. Commissioner, 117 T.C. 263, 269 (2001); Rosemann v.

Commissioner, supra.   Section 3121(d)(2) provides that an

“employee” is “any individual who, under the usual common law

rules applicable in determining the employer-employee

relationship, has the status of an employee”.   Because an

individual qualifies as a statutory employee only if the

individual is not a common law employee, we will first decide

whether petitioner was a common law employee of NSU.

Common Law Employee

     “Although the income tax treatment of a taxpayer’s trade or

business expense deductions under section 62(a) depends on

whether the taxpayer is ‘[performing] * * * services * * * as an

employee’, subtitle A of the Internal Revenue Code does not

define ‘employee’”.    Rosato v. Commissioner, T.C. Memo. 2010-39.

Under these circumstances, we apply common law rules to determine

whether the taxpayer is an employee.    Weber v. Commissioner, 103
                              - 7 -

T.C. 378, 386 (1994), affd. 60 F.3d 1104 (4th Cir. 1995); Rosato

v. Commissioner, supra.

     Whether an individual is an employee must be determined on

the basis of the specific facts and circumstances involved.

Profl. & Exec. Leasing, Inc. v. Commissioner, 89 T.C. 225, 232

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

Commissioner, 64 T.C. 974, 984 (1975).   Relevant factors include:

(1) The degree of control exercised by the principal; (2) which

party invests in the work facilities used by the worker; (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; (7) the relationship the parties believed they

were creating; and (8) the provision of employee benefits.    See

Avis Rent A Car Sys., Inc. v. United States, 503 F.2d 423, 429

(2d Cir. 1974); Ewens & Miller, Inc. v. Commissioner, supra at

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

facts and circumstances of each case, and no single factor is

determinative.   Ewens & Miller, Inc. v. Commissioner, supra at

270; Weber v. Commissioner, supra at 387.   Although the

determination of employee status is to be made by common law

concepts, a realistic interpretation of the term “employee”

should be adopted, and doubtful questions should be resolved in

favor of employment in order to accomplish the remedial purposes
                                 - 8 -

of the legislation involved.     Breaux & Daigle, Inc. v. United

States, 900 F.2d 49, 52 (5th Cir. 1990); see Donald G. Cave A

Profl. Law Corp. v. Commissioner, T.C. Memo. 2011-48.

     1.    Degree of Control

     The degree of control that the principal exercises over the

worker has been referred to as the crucial test in making the

determination.     See Clackamas Gastroenterology Associates, P.C.

v. Wells, 538 U.S. 440, 448 (2003); Rosato v. Commissioner,

supra.    The degree of control necessary to find employment status

varies with the nature of the services provided by the worker.

Weber v. Commissioner, supra at 388; Potter v. Commissioner, T.C.

Memo. 1994-356.     To retain the requisite degree of control, the

principal need not actually direct or control the manner in which

the services are performed; it is sufficient if the principal has

the right to do so.     Weber v. Commissioner, supra at 388; Potter

v. Commissioner, supra; sec. 31.3401(c)-l(b), Employment Tax

Regs.     Where the inherent nature of the job mandates an

independent approach, a lesser degree of control exercised by the

principal may result in a finding of an employer-employee status.

See Potter v. Commissioner, supra; Bilenas v. Commissioner, T.C.

Memo. 1983–661 (finding that an untenured college professor who

taught on a course-by-course basis was a common law employee of

the university).
                                 - 9 -

       It is clear that the inherent nature of petitioner’s

position as an adjunct professor calls for him to follow an

independent approach in teaching his classes.    However, we

believe that NSU either exercised appropriate control over

petitioner or had the authority to exercise it in a manner

sufficient to render him an employee of the university.     For each

course petitioner taught, NSU dictated the textbook that he was

required to use, the subjects that had to be covered, and the

duration of the course.     In addition, NSU managed the enrollment

of students and supplied the Web site interface used to

facilitate instruction in online courses.    NSU also required

petitioner to follow several of its employment policies,

including those dealing with sexual harassment, drug use, and

conflicts of interest.     It is also of great significance that NSU

regarded petitioner as an employee rather than as an independent

contractor.     See Bilenas v. Commissioner, supra.   Although NSU

did not supervise the minute details of petitioner’s work, we

find that it did exercise the requisite degree of control

necessary to establish an employer-employee relationship with

him.    This factor weighs heavily in favor of a finding that

petitioner was a common law employee of NSU.

       2.   Investment in Facilities

       The fact that a worker provides his or her own tools, or

owns a vehicle that is used for work, is indicative of
                              - 10 -

independent contractor status.   Ewens & Miller, Inc. v.

Commissioner, 117 T.C. at 271.   In addition, maintenance of a

home office is consistent with independent contractor status,

although alone it does not constitute sufficient basis for a

finding of independent contractor status.   Colvin v.

Commissioner, T.C. Memo. 2007-157, affd. 285 Fed. Appx. 157 (5th

Cir. 2008); Lewis v. Commissioner, T.C. Memo. 1993-635.

     NSU bears the cost of maintaining a staff for recruitment,

registration, and recordkeeping related to students, and it

provides the servers and support required to maintain the online

classroom.   Petitioner’s investment is not substantial,

consisting of a computer and office supplies, maintenance of an

Internet connection, and the use of a portion of his home as an

office.   Petitioner’s investment in facilities was insubstantial

and, thus, insufficient to render him an independent contractor.

As a result, we find that this factor is supportive of

petitioner’s classification as a common law employee.

     3.   Opportunity for Profit or Loss

     The opportunity for profit or loss indicates nonemployee

status.   Simpson v. Commissioner, supra at 988; Rosato v.

Commissioner, T.C. Memo. 2010-39.   Petitioner lacked significant

opportunity for profit or loss because the amount of pay he

received depended only upon the number of classes he taught.     See

Potter v. Commissioner, supra.   The amount petitioner received
                                - 11 -

for teaching a course was not subject to fluctuation and was paid

to him in exchange for his working within predetermined starting

and ending dates, which were not subject to change.     The fact

that the wages petitioner received were not subject to change and

that the duration of the classes was fixed left him with no more

than a negligible risk of loss.    When a worker’s risk of loss is

negligible, this factor weighs in favor of a determination of

employee status.   See Colvin v. Commissioner, supra.    The greater

risk of profit or loss remained with NSU, whose revenue

necessarily fluctuated on the basis of the number of students

enrolled relative to the costs involved in running a university.

     4.    Right To Discharge

     The employment relationship between NSU and petitioner is

governed by a separate contract established for each class

section he taught.    Copies of the employment contracts were not

made a part of the record before the Court.    Therefore, we cannot

determine with certainty whether the contracts provided the

university with the express right to terminate petitioner’s

employment at any time.    However, employers typically have the

right to terminate employees

at will.    Ellison v. Commissioner, 55 T.C. 142, 155 (1970);

Colvin v. Commissioner, supra.    Furthermore, because the parties

entered into a contract for each specific course, NSU could have

ended its long-term relationship with petitioner by electing not
                              - 12 -

to renew the contracts for further courses.     In addition,

petitioner has failed to provide any evidence to indicate that

NSU would be liable for breach of contract if it chose to

terminate the relationship before the contract expired.     As a

result, we find that this factor supports the finding that

petitioner was a common law employee.

     5.   Work Is Part of Principal’s Regular Business

     Where work is part of the principal’s regular business, it

is indicative of employee status.      Simpson v. Commissioner, 64

T.C. at 989; Rosato v. Commissioner, supra.     As an educational

institution, NSU’s regular business involves the education of

students and the evaluation of their work.     Petitioner was hired

to further NSU’s regular business, in that he taught specific

courses and then evaluated the students’ learning in each course.

Petitioner’s services were clearly an important part of NSU’s

primary business.   Therefore, we find that this factor supports

petitioner’s classification as a common law employee.

     6.   Permanency of Relationship

     Permanency of a working relationship is indicative of an

employer-employee relationship.     Rosemann v. Commissioner, T.C.

Memo. 2009-185.   In contrast, a transitory work relationship may

weigh in favor of independent contractor status.      Ewens & Miller,

Inc. v. Commissioner, 117 T.C. at 273.
                                - 13 -

       Petitioner was employed by NSU from 1999 to 2007 and taught

4 to 12 online courses per year during that period.      Although NSU

and petitioner entered into a separate employment contract with

regard to each course that petitioner taught, petitioner

maintained a consistent employment relationship with NSU over a

period of many years.    Petitioner and NSU’s decision to

continually renew petitioner’s contract for more courses

indicates that a certain level of stability and continuity

existed in their employment relationship.      Although the

contractual arrangement between the parties did not create an

explicit permanent employment relationship, the relationship in

practice was continuing in nature.       Therefore, we find that this

factor weighs in favor of petitioner’s being classified as an

employee.    Furthermore, even if we were to determine that this

factor supported petitioner’s classification as an independent

contractor, it alone would not be sufficient to preclude a

finding that he was an employee at NSU on the basis of the other

factors examined.    See Potter v. Commissioner, T.C. Memo. 1994-

356.

       7.   Relationship the Parties Thought They Created

       The record indicates that petitioner and NSU considered

their relationship to be that of an employer and an employee.

NSU withheld Federal income taxes and employment taxes from the

wages it paid to petitioner.     The withholding of taxes is
                                - 14 -

consistent with a finding that an individual is a common law

employee.     Rosato v. Commissioner, T.C. Memo. 2010-39; Lewis v.

Commissioner, T.C. Memo. 1993-635.       In addition, NSU issued

petitioner a Form W-2 for the tax year in question on which it

did not check box 13 to indicate an intention to classify

petitioner as a statutory employee.      Furthermore, NSU’s payroll

manager personally informed petitioner that the university

classified him as a common law employee, before petitioners filed

their Federal income tax return.

     Altogether it is clear that the parties believed that they

had established an employer-employee relationship.      This factor

weighs in favor of petitioner’s being treated as a common law

employee.

     8.     Provision of Employee Benefits

     Benefits such as health insurance, life insurance, and

retirement plans are typically provided to employees by an

employer.     Weber v. Commissioner, 103 T.C. at 393-394.

Petitioner contends that NSU offers such benefits to other

categories of workers, but it neither offered nor provided them

to petitioner.     However, aside from his testimony at trial,

petitioner offered no evidence to substantiate his contention.

As a result, while we find that this factor supports petitioner’s

status as an independent contractor, we decline to place much

weight on it in making our ultimate determination, on account of
                               - 15 -

the lack of evidence in the record.     See Potter v. Commissioner,

supra.

     On the basis of a careful consideration of the foregoing

factors, in the light of the facts and circumstances particular

to this case, we hold that petitioner was a common law employee

of NSU for the taxable year 2006.

     Furthermore, because we have found that petitioner was a

common law employee of NSU during 2006, we also hold that he was

not a statutory employee under section 3121(d)(3).    See Ewens &

Miller, Inc. v. Commissioner, 117 T.C. at 269.

Petitioners’ Deductions

     An individual may deduct unreimbursed employee business

expenses as miscellaneous itemized deductions on Schedule A,

but only to the extent that the expenses exceed 2 percent of the

individual’s adjusted gross income.     See secs. 62(a), 67(a) and

(b), 162(a).   A statutory employee may deduct business expenses

incurred on Schedule C and thereby avoid the Schedule A

limitation.    Rosemann v. Commissioner, supra.   Because we have

held that petitioner was a common law employee and not a

statutory employee of NSU during the 2006 taxable year,

petitioners’ claimed business expenses of $2,785.63 must be

reported on Schedule A as miscellaneous itemized deductions and,
                             - 16 -

thus, are deductible only to the extent that they exceed 2

percent of petitioners’ adjusted gross income.

      To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
