                              T.C. Memo. 2012-298



                         UNITED STATES TAX COURT



    RICHARD E. BLODGETT, JR., AND ORA L. BLODGETT, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 9449-11.                          Filed October 24, 2012.



      Richard E. Blodgett, Jr., and Ora L. Blodgett, pro sese.

      John R. Mikalchus, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      GOEKE, Judge: Respondent determined a $3,305 deficiency in petitioners’

2008 Federal income tax. The issue for decision is whether certain payments from

the Chelsea Groton Savings Bank (bank) to petitioner Richard Blodgett were

employee wages or self-employment income. For the reasons stated herein, we
                                         -2-

[*2] find that Mr. Blodgett was not an employee of the bank and is therefore liable

for the deficiency in income tax.

                                FINDINGS OF FACT

      Petitioners resided in Connecticut when they filed their petition. They filed a

joint income tax return for the 2008 tax year.

      Mr. Blodgett graduated from college in 1960 and took a job as a mining

engineer in Connecticut. He continued working in the mining industry with various

companies throughout the 1960s and 1970s. Over the years Mr. Blodgett became

involved in his community, serving as president and on the board of directors of the

local Rotary Club.

      One afternoon in February 1977, while Mrs. Blodgett was home alone sitting

at a picnic table in their yard, the president of the Groton Savings Bank1 pulled into

the driveway. The bank president had served with Mr. Blodgett on the board of

directors at the Rotary Club. He was impressed with Mr. Blodgett’s work and

conveyed to Mrs. Blodgett that he wanted Mr. Blodgett to serve on the board

      1
       The Groton Savings Bank later merged with the Chelsea Savings Bank to
become the Chelsea Groton Savings Bank. The bank is a mutual community
savings bank chartered in the State of Connecticut in 1854. A mutual community
savings bank is not a stock-issuing corporation; rather, it is a bank owned by
members of the community who are represented by the bank’s board of corporators.
The bank’s business involves taking deposits and making loans and investments;
however, its earnings accrue entirely to the benefit of its depositors.
                                         -3-

[*3] of trustees at the bank. Upon learning that Mr. Blodgett would not be home

until later that day, the bank president thanked Mrs. Blodgett for her time and asked

if she would relay the message to her husband.

      Later that evening, after Mr. Blodgett returned home from his job at the local

mining mill, Mrs. Blodgett informed him of the bank president’s peculiar visit earlier

that day. Because Mr. Blodgett was relatively unfamiliar with banking practices,

he did not understand why he would be considered for a position on the bank’s

board of trustees. That same evening the bank president returned to speak with Mr.

Blodgett about the position. While hesitant at first, Mr. Blodgett eventually

accepted the offer and was elected a corporator and trustee of the bank on February

17, 1977.

I. Corporators

      As mentioned supra, the bank is owned by members of the community who

are represented by a board of corporators.2 The corporators: (1) oversee the

actions of the board of trustees; (2) establish the bylaws of the bank in compliance

with its State charter and applicable State and Federal laws and regulations; and

(3) may petition for a special meeting of corporators at any time to consider and

act on any corporate subject. They are responsible for annually electing, as

      2
          Corporators operate independently--they are not employees of the bank.
                                          -4-

[*4] needed, new corporators, trustees, and officers.3 Corporators may remove

trustees at any time with or without cause.4 They review the performance of the

board of trustees primarily at the annual meeting of the bank. While the

management of the bank has no control over the actions of the corporators, the

bank’s bylaws provide that a corporator will be removed from his position after

three consecutive unexcused absences from the “Annual Meeting of the Bank”.

There is no mandatory retirement age for corporators. Finally, corporators are paid

a fee for corporator meetings which is set and approved by the board of trustees in

their corporate governance role.

II. The Board of Trustees

      A trustee must be a corporator of the bank. There can be no fewer than 7 and

no more than 15 trustees. Trustees take an oath of office upon their election,

promising to faithfully discharge their duties as trustees, including duties as

committee members, in the best interest of the bank and to the best of their ability.

The bank’s bylaws provide that a trustee shall discharge his duties “in a manner

      3
        Trustees are elected for three-year terms and officers are elected for one-
year terms.
      4
        The number of votes required to remove a trustee is unclear from the record.
Respondent asserts in his pretrial memorandum and on brief that a majority vote is
required to remove a trustee. Nowhere in the record do petitioners object to that
assertion.
                                         -5-

[*5] (s)he reasonably believes to be in the best interest of the corporation.” The

bank treats the work of the board of trustees and individual trustees as its own.

      A. Meetings

      The bank bylaws require at least monthly meetings of the board of trustees;

however, special meetings may be called at any time by the president or the board

of trustees or as otherwise provided in the bylaws. The bank president or the board

of trustees sets the agenda for the meeting. The board of trustees may add to the

agenda of the meeting or at any time hold an executive session without the presence

of the management members of the board of trustees. The bank provides board

members with private meeting rooms, banking publications, and office supplies.

      B. Responsibilities

      The board of trustees operates independently from the management of the

bank. They are not directly involved in the bank’s day-to-day operations. In

compliance with the bank bylaws and applicable State and Federal laws and

regulations, the board of trustees: (1) approves the strategic vision, strategy, and

policies of the bank; (2) supervises the management of the bank; (3) establishes
                                         -6-

[*6] committees of the board of trustees;5 (4) signs certain documents of

performance, consent, and confidentiality; and (5) keeps its work confidential. The

activities of the board of trustees and individual trustees are examined by State and

Federal regulatory authorities for compliance with the bylaws and policies of the

bank, as well as applicable State and Federal laws and regulations.

      C. Compensation

      Trustee’s fees are set and approved by the board of trustees in their corporate

governance role. Trustees are paid a set retainer fee plus additional set fees for: (1)

board of trustees meeting attendance; (2) committee meeting attendance; and (3)

special duties on the board. For example, the following fees, as applicable, were

paid to trustees during 2009 and 2010: (1) monthly retainer--$850; (2) board

meeting fee--$1,000; (3) lead director board meeting fee--$1,300; (4) secretary

board meeting fee--$1,100; and (5) committee meeting fee--$800.

      D. Continuing Education

      The bank conducts yearly mandatory training and pays for continuing

education for trustees in compliance with bank policy and applicable State and

Federal laws and regulations.


      5
        The board of trustees establishes additional committees not mandated by
State or Federal law in compliance with the bank bylaws.
                                         -7-

[*7] E. Insurance and Benefits

      The bank covers trustees with a trustee liability indemnification insurance

policy. Moreover, the bank bylaws provide indemnification and reimbursement to

trustees, as well as officers and employees, for “reasonable expenses necessarily

incurred by him/her in connection with the defense or reasonable settlement of any

action, suit, or proceeding in which (s)he is made a party by reason of her/his being

or having been a trustee, officer or employee of the corporation”.

      The bank provides trustees with life insurance, disability insurance, and

retirement benefits;6 however, the bank does not provide trustees with health

insurance. Mr. Blodgett is fully vested in the bank’s trustee retirement plan from

which he receives a monthly pension check. He makes no contributions to his IRA,

or to any other pension, profit-sharing, or retirement plans, by using earnings from

the bank.

III. Mr. Blodgett’s Role

      Mr. Blodgett has continued to live in the community served by the bank

since initially being elected a trustee in 1977. He was reelected by the corporators

      6
        The bank has a mandatory retirement age for trustees, although they may
resign at any time upon written notice to the bank. Upon retirement a trustee
receives a defined monthly pension check for a defined number of years. The
trustee’s retirement plan is separate and distinct from the bank’s “employee defined
benefit plan”.
                                          -8-

[*8] as a trustee every three years until his retirement from his trustee position on

August 5, 2011.

      Before his retirement, Mr. Blodgett’s duties as trustee averaged fewer than 20

hours per month. His service on various committees of the board of trustees over

the years included a position as chairman of the audit committee. He has not held

himself out as a contractor to any person, bank, or organization for any services or

products, nor has he supplied any services or products as a contractor or under

contract to any person, bank, or organization. Mr. Blodgett did not claim any tax

deductions for business expenses as a corporator or trustee--the bank paid all

expenses.

      Mr. Blodgett’s primary relationship with the bank was as a member of the

board of trustees. He never received any financial services from the bank.7 Mr.

Blodgett currently serves without fee as a member of the board of trustees of the

bank’s philanthropic foundation, and he continues to serve as a corporator,

receiving an annual fee of $100.




      7
       Mr. Blodgett has never received a loan or made a deposit with the bank,
although he does maintain a safe deposit box for which he pays $20 annually.
                                        -9-

[*9] IV. The Notice of Deficiency

      Mr. Blodgett served as a corporator and trustee of the bank in 2008.8 The

bank issued Mr. Blodgett a Form 1099-MISC, Miscellaneous Income, reporting

“nonemployee compensation” of $26,750 for his trustee services.9 Petitioners

reported the “nonemployee compensation” on line 21 of their timely filed 2008 joint

income tax return as “other income”; however, they did not report or pay any

associated self-employment tax.10 Respondent issued a notice of deficiency to

petitioners for the 2008 tax year determining a deficiency in income tax of $3,305

arising from petitioners’ failure to pay self-employment tax associated with Mr.

Blodgett’s trustee compensation.




      8
       Aside from his services provided to the bank, Mr. Blodgett was retired in
2008. His primary employment before retiring in 1991 was as a mining engineer for
U.S. Silica Co.
      9
       The bank classifies members of the board of trustees as independent
contractors.
      10
         Petitioners have reported Mr. Blodgett’s income from his position as trustee
as “other income” not subject to self-employment tax every year since Mr. Blodgett
began his job as trustee. The 2008 tax year is the first year respondent has decided
to challenge petitioners’ classification.
                                        - 10 -

[*10]                                OPINION

        Section 140111 imposes a tax on the self-employment income of every

individual. The term “self-employment income” means the net earnings from self-

employment derived by an individual during any taxable year. Sec. 1402(b). The

term “net earnings from self-employment” means the gross income derived by an

individual from any trade or business carried on by such individual less the

deductions attributable thereto. Sec. 1402(a). The term “trade or business”, when

used with reference to self-employment income or net earnings from self-

employment, has the same meaning as when used in section 162; however, the term

“trade or business” does not include services performed by an individual as an

employee. Sec. 1402(c)(2).

        Under section 3121(d)(2), the term “employee” includes any individual who

has the status of an employee under the common law. Paragraphs (1), (3), and (4)

of section 3121(d) describe other individuals who are considered employees

regardless of their status under the common law. Individuals described in those

paragraphs are commonly referred to as “statutory” employees. Joseph M. Grey

Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 126 (2002), aff’d, 93 Fed.

        11
       Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                          - 11 -

[*11] Appx. 473 (3d Cir. 2004). One such category of statutory employees consists

of officers of corporations. Sec. 3121(d)(1). Section 31.3121(d)-1(b), Employment

Tax Regs., limits that category as follows:

             (b) Corporate officers.--Generally, an officer of a corporation is
      an employee of the corporation. However, an officer of a corporation
      who as such does not perform any services or performs only minor
      services and who neither receives nor is entitled to receive, directly or
      indirectly, any remuneration is considered not to be an employee of the
      corporation. A director of a corporation in his capacity as such is not
      an employee of the corporation.

      Respondent contends that Mr. Blodgett’s trustee duties are “substantially

similar” to and serve the same “essential purpose” as the duties performed by a

director on a board of directors at another bank. As a result, respondent asserts that

members of the board of trustees should be classified for employment tax purposes

in exactly the same manner as members of a board of directors are classified--as

independent contractors under section 31.3121(d)-1(b), Employment Tax Regs.

Therefore, respondent concludes, Mr. Blodgett’s earnings from his services as a

trustee should be subject to self-employment tax.

      Conversely, petitioners argue that there are substantial differences between

a director and a trustee; primarily, that: (1) trustees act on behalf of the

community while directors act on behalf of the shareholders; (2) trustees are not

burdened with “Securities and Exchange Commission laws and regulations that
                                         - 12 -

[*12] apply to stock corporations”; and (3) trustees stand for election every three

years by corporators while directors stand for election annually by shareholders.

Petitioners believe these differences are enough to distinguish a director from a

trustee for purposes of section 31.3121(d)-1(b), Employment Tax Regs. Rather,

petitioners believe Mr. Blodgett’s position is more analogous to that of an officer of

the bank, similar to a president or vice president.

      The parties have not found any statute, regulation, IRS ruling, or caselaw

that specifically characterizes the income earned from being a trustee on a board of

trustees of a community savings bank as income from self-employment or as

income from being an employee.12 For the following reasons, we follow section

      12
        Respondent fails to cite a single case where we have applied sec.
31.3121(d)-1(b), Employment Tax Regs., to conclude that a director is not an
employee; however, respondent cites Rev. Rul. 72-86, 1972-1 C.B. 273, for the
proposition that a bank trustee is not an employee.

       We are not bound by revenue rulings, and, applying the standard enunciated
by the Supreme Court in Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), the
weight (if any) that we afford them depends upon their persuasiveness and the
consistency of the Commissioner’s position over time. Taproot Admin. Servs., Inc.
v. Commissioner, 133 T.C. 202, 208-209 (2009), aff’d, 679 F.3d 1109 (9th Cir.
2012).

       The revenue ruling respondent cites addresses whether directors (not bank
trustees) are in a trade or business under sec. 162. Moreover, respondent has failed
to identify any case citing Rev. Rul. 72-86, supra, since its publication nearly 40
years ago. For the foregoing reasons, we do not find Rev. Rul. 72-86, supra, to be
                                                                          (continued...)
                                         - 13 -

[*13] 31.3121(d)-1(c), Employment Tax Regs., and apply our common law rules to

determine whether Mr. Blodgett was an employee of the bank.

      First, section 3121(d) and its accompanying regulations are very specific in

defining statutory employees.13 While a director and a trustee are analogous in

many ways, section 3121(d) and its accompanying regulations implicitly provide for

an analysis of our common law rules in the multitude of circumstances where

individuals do not fall within one of the statutory definitions of an employee. See

sec. 31.3121(d)-1(a)(2), Employment Tax Regs.

      Second, if an employer-employee relationship exists, the parties’

designation or description of the relationship as anything other than that of

employer and employee is immaterial. Jacobs v. Commissioner, T.C. Memo.

1993-570; sec. 31.3121(d)-1(a)(3), Employment Tax Regs. Respondent has failed

to cite a single case where a taxpayer’s title as director determined his employment


      12
        (...continued)
persuasive in this case.
      13
        For example, sec. 3121(d)(3)(A) defines an employee as “any individual
* * * who performs services for remuneration for any person * * * as an agent-driver
or commission-driver engaged in distributing meat products, vegetable products,
bakery products, beverages (other than milk), or laundry or drycleaning services, for
his principal”. Furthermore, sec. 31.3121(d)-1(d)(3)(ii), Employment Tax Regs.,
distinguishes a life insurance salesman from a general insurance salesman. We are
hesitant to find that a trustee is the same as a director when sec. 3121(d)(3)(A)
seems to distinguish the milkman from the pizza delivery person.
                                        - 14 -

[*14] classification. In Jacobs the taxpayer was a director, officer, and shareholder

of several corporations. While we recognized that a director, in his capacity as such,

is not an employee under section 31.3121(d)-1(b), Employment Tax Regs., we went

on to note that “whether a director of a corporation is also an employee depends

primarily on whether the director performs services for the corporation that ‘are not

directorial in nature’ and on whether those services are performed in an employee

capacity.” In other words, we looked beyond the taxpayer’s job title of director and

considered the facts and circumstances of his position in concluding that his services

were performed in his capacity as an employee. In addition to our preceding

analysis, we applied our common law rules and found that the taxpayer was an

employee.

      Finally, section 31.3121(d)-1(a)(2), Employment Tax Regs., explains that if

an individual is an employee under the common law analysis, he is an employee

whether or not he falls within one of the statutory employee categories. For the

foregoing reasons, we do not decide whether a trustee is the same as a director for

purposes of section 31.3121(d)-1(b), Employment Tax Regs. Rather, we apply our

common law rules in making our determination.
                                        - 15 -

[*15] I. Common Law Employees

      The Commissioner’s determinations are presumptively correct, and

taxpayers bear the burden of proving that those determinations are erroneous.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). This principle

applies to the Commissioner’s determination that a taxpayer is an employee. See

Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263, 268 (2001). If an employer-

employee relationship14 exists, its characterization by the parties as some other




      14
       Sec. 31.3121(d)-1(c)(2), Employment Tax Regs., defines 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 to 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. * * *
                                         - 16 -

[*16] relationship is of no consequence. Sec. 31.3121(d)-1(a)(3), Employment Tax

Regs.

        For purposes of employment taxes, the term “employee” includes “any

individual who, under the usual common law rules applicable in determining the

employer-employee relationship, has the status of an employee”. Sec. 3121(d)(2).

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. Ewens & Miller,

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

        This Court considers 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 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 of the parties believed they were creating.15 Id. at 270; Weber v.

        15
         In addition to addressing these common law factors, petitioners discuss
factors listed in Internal Revenue Service Publication 937, Employment Taxes, and
Publication 15-A, Supplement to Publication 15 (Circular E), Employer’s Tax
Guide, in arguing that Mr. Blodgett should be classified as an employee of the bank.
                                                                        (continued...)
                                        - 17 -

[*17] Commissioner, 103 T.C. 378, 387 (1994), aff’d, 60 F.3d 1104 (4th Cir. 1995).

No one factor dictates the outcome; rather, we must look at all the facts and

circumstances of each case. Weber v. Commissioner, 103 T.C. at 387.16

      A. Degree of Control

      The “right to control” is the crucial test to determine the nature of a working

relationship. Id. The degree of control is of great importance, though not

exclusive. Id. An employer-employee relationship exists when the principal

retains the right to direct the manner in which the work is to be done, controls the

methods to be used in doing the work, and controls the details and means by which

the desired result is to be accomplished. Ellison v. Commissioner, 55 T.C. 142,

152-153 (1970). To retain the requisite control over the details of an individual’s


      15
         (...continued)
Internal Revenue Service publications though “aimed at explaining existing tax law
to taxpayers” do not have the force of law. Taylor v. United States, 57 Fed. Cl.
264, 266 (2003). “The authoritative sources of Federal tax law are the statutes,
regulations, and judicial decisions; they do not include informal IRS publications.”
Miller v. Commissioner, 114 T.C. 184, 195 (2000). Furthermore, many of the
considerations in Publications 937 and 15-A are embodied in our common law
factor test. Accordingly, we do not specifically address petitioners’ Publication 937
and 15-A arguments.
      16
       Moreover, the Court of Appeals for the Second Circuit, to which this case
would be appealable, considers many of the same or similar factors when classifying
a worker as an employee or an independent contractor. See Aymes v. Bonelli, 980
F.2d 857, 861 (2d Cir. 1992); see also Avis Rent-a-Car System v. United States,
503 F.2d 423, 429 (2d Cir. 1974).
                                         - 18 -

[*18] work, the principal need not stand over the individual and direct every move

made by the individual; it is sufficient if the principal has the right to do so. Weber

v. Commissioner, 103 T.C. at 388.

      Petitioners argue that trustees are controlled by the corporators, the charter

and bylaws, and Government regulators; however, our “right to control” test focuses

on the principal’s right to control the worker. The principal is the “person for whom

services are performed”. See sec. 31.3121(d)-1(c)(2), Employment Tax Regs. The

bank hires trustees to perform various oversight services; therefore, the bank is the

principal. While banking regulations may impose onerous restrictions on the

banking industry, trustees do not perform services on behalf of bank regulators.

Accordingly, we do not consider the restrictions imposed by bank regulators when

conducting our “right to control” analysis.

      The bank is owned by members of the community, who are represented by

corporators. Corporators oversee the trustees, and the trustees “supervise” the

bank’s management. Corporators also establish the bank’s bylaws and have the

power to elect and remove trustees. Trustees operate independently from the

bank’s management. Accordingly, only the corporators could theoretically

“control” the trustees; however, we believe the corporators’ right to remove a

trustee is significantly tempered for the following reasons: (1) all trustees are
                                        - 19 -

[*19] corporators; (2) any corporator not a trustee (because of reaching the

mandatory retirement age) generally meets only once a year to review the bank’s

performance; (3) no corporator could unilaterally remove a trustee--trustees may be

removed only by vote; and (4) there is no indication in the record that a trustee was

ever removed by the corporators. Accordingly, we do not believe the corporators

had any meaningful control over the trustees. Therefore, this factor strongly

supports a finding that Mr. Blodgett was not an employee of the bank.

      B. Investment in Facilities

      The fact that a worker provides his or her own tools generally indicates

independent contractor status. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at

271-272 (citing Breaux & Daigle, Inc. v. United States, 900 F.2d 49, 53 (5th Cir.

1990)). In addition, maintenance of a home office is consistent with independent

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

Commissioner, T.C. Memo. 1993-635. If, on the other hand, the worker performs

all work at an office furnished by the principal, he may be an employee. Levine v.

Commissioner, T.C. Memo. 2005-86. The bank provides board members with

private meeting rooms, banking publications, and office supplies. Mr. Blodgett did

not have a home office or provide any of his own supplies. This factor weighs in

favor of classifying him as an employee.
                                        - 20 -

[*20] C. Opportunity for Profit or Loss

      The opportunity for profit or loss indicates nonemployee status. Simpson v.

Commissioner, 64 T.C. 974, 988 (1975); Rosato v. Commissioner, T.C. Memo.

2010-39. 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. Unites States v. Silk, 331 U.S. 704, 717-718 (1947). Mr. Blodgett’s

compensation depended primarily on the number of meetings he attended--he had no

opportunity for profit or loss. This factor weighs in favor of classifying Mr.

Blodgett as an employee.

      D. Principal’s Right To Discharge

      Employers typically have the right to terminate employees at will. Ellison v.

Commissioner, 55 T.C. at 155. As discussed supra, while corporators could remove

a trustee by vote, there were significant impediments to doing so. We believe this

factor supports a finding that Mr. Blodgett was not an employee of the bank.

      E. Principal’s Regular Business

      Performing work that is part of the principal’s regular business is indicative of

employee status. Simpson v. Commissioner, 64 T.C. at 989; Rosato v.

Commissioner, T.C. Memo. 2010-39. The bank’s regular business involved taking
                                        - 21 -

[*21] deposits and making loans and other investments. Trustees were not directly

involved in the bank’s day-to-day operations, but they were generally responsible

for approving the strategic vision and policy matters. Petitioners argue that the

trustees’ “oversight” function furthered the regular business of the bank. Neither

party cites any case regarding this factor. We do not believe the trustees’ work is

part of the bank’s regular business. The bank’s trustees perform an intermittent

oversight function--they are not involved in the daily operations of taking deposits

and making loans. This factor does not support a finding that Mr. Blodgett was an

employee.

      F. 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. Respondent argues that

Mr. Blodgett has a transitory relationship with the bank because trustees were

elected to three-year terms and corporators could remove trustees by vote.

Petitioners believe a trustee’s three-year appointment supports a finding of an

employer-employee relationship because the bank’s management, who are

considered employees of the bank, are elected only to one-year terms.
                                        - 22 -

[*22] As discussed supra, there were significant impediments to removing a trustee.

Furthermore, we are hesitant to find Mr. Blodgett’s trustee position to be transitory,

not only because Mr. Blodgett was reelected to his trustee position every 3 years for

over 30 years, but also because the bank’s management, who are employees, are

appointed only to one-year terms. Accordingly, this factor weighs in favor of

classifying Mr. Blodgett as an employee.

      G. Relationship the Parties Believed They Were Creating

      Courts have considered the relationship the parties believed they were

creating. Simpson v. Commissioner, 64 T.C. at 984-985. Mr. Blodgett attests that

when he joined the bank in 1977 he was told by the bank president to treat his

compensation as regular income.17 Mr. Morelli, the current vice president and chief

financial officer of the bank, testified that he had been employed by the bank for 20

years and that the trustees had been classified as independent contractors “as far as I

can remember”. He also testified that the bank consulted certified public

accountants in determining that trustees were not employees of the bank.

      Mr. Blodgett never received a Form W-2, Wage and Tax Statement, nor did

he ever have Social Security tax withheld from his trustee compensation; rather, he


      17
        While we do not question Mr. Blodgett’s credibility, there is no evidence in
the record supporting this assertion.
                                        - 23 -

[*23] received a Form 1099-MISC reporting his trustee income as nonemployee

compensation. We believe the foregoing indicates that the bank did not intend to

create an employer-employee relationship. See, e.g., Eren v. Commissioner, T.C.

Memo. 1995-555, aff’d, 180 F.3d 594 (4th Cir. 1999). Moreover, Mr. Blodgett

knew or should have known that the bank did not consider him an employee.

Accordingly, this factor does not weigh in favor of classifying Mr. Blodgett as an

employee.

      H. Additional Consideration

      Section 31.3121(d)-1(b), Employment Tax Regs., provides that a director is

not an employee. Bank trustees and directors are both primarily responsible for

setting, monitoring, and/or approving the company’s general objectives and

policies.18 As discussed supra, while we do not decide whether a bank trustee is the

same as a director under section 31.3121(d)-1(b), Employment Tax Regs., we

believe the substantial similarities between the two in these circumstances support a

finding that Mr. Blodgett was not an employee of the bank.



      18
        The parties agree that the primary differences between the roles of trustees
and directors are: (1) trustees act on behalf of the community while directors act on
behalf of shareholders, and (2) trustees have less responsibility than directors. We
do not believe either of these differences provides a meaningful distinction for
purposes of our common law factor analysis.
                                        - 24 -

[*24] III. Conclusion

      While there are three factors weighing in favor of classifying Mr. Blodgett as

an employee and four factors weighing in favor of classifying Mr. Blodgett as an

independent contractor, the degree of control that the principal exercises over the

worker is the crucial test in making the employer-employee determination. See

Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 448 (2003);

Rosato v. Commissioner, T.C. Memo. 2010-39. Furthermore, the substantial

similarities between Mr. Blodgett’s role and the role of a director strongly favor a

finding that Mr. Blodgett was not an employee of the bank. Giving due

consideration to the totality of the facts presented, we conclude that Mr. Blodgett

was not an employee of the bank and is therefore liable for the deficiency in income

tax for the 2008 tax year.

      In reaching our holding herein, we have considered all arguments made by the

parties, and, to the extent not mentioned above, we conclude they are moot,

irrelevant, or without merit.

      To reflect the foregoing,


                                                       Decision will be entered

                                                 for respondent.
