     TFT GALVESTON PORTFOLIO, LTD., AS SUCCESSOR IN
      INTEREST FOR TFT #2, LTD., ET AL., 1 PETITIONERS
          v. COMMISSIONER OF INTERNAL REVENUE,
                       RESPONDENT
     Docket Nos. 29995–11, 30001–11,        Filed February 26, 2015.
                   682–12, 1082–12,
                  1175–12, 1180–12,
                  1533–12.

       P received a Notice of Determination Concerning Worker
     Classification and corresponding employment tax liabilities on




 1 Cases   of the following petitioners are consolidated herewith: TFT Gal-

96
(96)    TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                    97


       its own behalf and other such notices as successor in interest
       to various partnerships. The parties dispute whether P was a
       successor in interest under Texas law, and R asserts this
       Court should establish a Federal standard of successor in
       interest as Federal common law. In addition, the status of P’s
       workers for the period involving P is itself at issue. Held: On
       the facts before us, P was not a successor in interest under
       Texas law. Held, further, we do not adopt a Federal common
       law standard of successor in interest. Held, further, P’s
       workers were employees.

  Gary I. Currier, for petitioners.
  Jeremy H. Fetter and Jason D. Laseter, for respondent.
   GOEKE, Judge: These consolidated cases 2 are before us on
petitions for redetermination of employment status filed
pursuant to section 7436. 3 In separate Notices of Determina-
tion Concerning Worker Classification (notices) respondent
determined that for purposes of Federal employment taxes,
the individuals listed in Table 1 attached to the notices
should be legally classified as petitioners’ employees and
thus determined deficiencies in, additions to, and penalties
with respect to petitioner’s Federal employment taxes as fol-
lows: 4

veston Portfolio, Ltd., Successor in Interest to TFT #1, Ltd., docket No.
30001–11; TFT Galveston Portfolio, Ltd., Successor in Interest to TFT #4,
Ltd., docket No. 682–12; TFT Galveston Portfolio, Ltd., docket No. 1082–
12; TFT Galveston Portfolio, Ltd., as Successor in Interest for TFT Cha-
teau Lafitte-WJT, Ltd., docket No. 1175–12; TFT Galveston Portfolio, Ltd.,
as Successor in Interest for TFT Somerset-WJT, Ltd., docket No. 1180–12;
and TFT Galveston Portfolio, Ltd., as Successor in Interest to TFT #3,
Ltd., docket No. 1533–12.
   2 We refer to TFT Galveston Portfolio, Ltd., as petitioner or TFT Gal-

veston Portfolio when referencing docket No. 1082–12 alone regarding
worker classification for the fourth quarter of 2004 and successor in inter-
est. We refer to the partnerships named in the other consolidated cases as
petitioners when referencing docket Nos. 29995–11, 30001–11, 682–12,
1175–12, 1180–12, and 1533–12 regarding worker classification.
   3 Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect for the period at issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
   4 In this case, the Court uses the term ‘‘employment taxes’’ as it is de-

fined by sec. 7436(e) to refer to taxes imposed pursuant to subtitle C of
the Internal Revenue Code, including taxes imposed under secs. 3402 (Fed-
eral income tax withholding), 3102 and 3111 (FICA tax), and 3301 (FUTA
tax). We round all amounts to the nearest dollar.
98                144 UNITED STATES TAX COURT REPORTS                              (96)


                  TFT Galveston Portfolio, Ltd., docket No. 1082–12

                                                  Additions to tax

       Period                                     Sec.         Sec.        Penalty
       ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

     12/31/2004     FICA, ITW        $36,362    $8,182        $9,091       $690
     12/31/2004     FUTA               5,414     1,218         1,354        541


         TFT Galveston Portfolio, Ltd., Successor in Interest to TFT #1, Ltd.,
                                docket No. 30001–11

                                                  Additions to tax

       Period                                     Sec.         Sec.        Penalty
       ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

      3/31/2000     FICA, ITW        $8,817     $1,984        $2,204       $156
      6/30/2000     FICA, ITW         7,300      1,642         1,825        129
      9/30/2000     FICA, ITW         7,988      1,797         1,997        141
     12/31/2000     FICA, ITW         7,926      1,783         1,981        140
     12/31/2000     FUTA              2,759        621           690        276
      3/31/2001     FICA, ITW         7,730      1,739         1,932        137
      6/30/2001     FICA, ITW         8,287      1,865         2,072        146
      9/30/2001     FICA, ITW         8,465      1,905         2,116        151
     12/31/2001     FICA, ITW         7,977      1,795         1,994        143
     12/31/2001     FUTA              2,349        528           587        235
      3/31/2002     FICA, ITW         7,524      1,693         1,881        136
      6/30/2002     FICA, ITW         7,340      1,652         1,835        133
      9/30/2002     FICA, ITW         7,437      1,673         1,859        135
     12/31/2002     FICA, ITW         7,615      1,713         1,904        138
     12/31/2002     FUTA              2,568        578           642        257
      3/31/2003     FICA, ITW         6,882      1,548         1,721        131
      6/30/2003     FICA, ITW         7,121      1,602         1,780        135
      9/30/2003     FICA, ITW         7,554      1,700         1,888        143
     12/31/2003     FICA, ITW         7,511      1,690         1,878        143
     12/31/2003     FUTA              1,865        420           466        187
      3/31/2004     FICA, ITW         7,598      1,710         1,899        144
      6/30/2004     FICA, ITW         7,838      1,763         1,959        149
      9/30/2004     FICA, ITW         8,837      1,988         2,209        168
     12/31/2004     FICA, ITW         2,837        638           709         54
     12/31/2004     FUTA              1,810        407           452        181


       TFT Galveston Portfolio, Ltd., as Successor in Interest for TFT #2, Ltd.,
                                docket No. 29995–11

                                                  Additions to tax

       Period                                     Sec.         Sec.        Penalty
       ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

      3/31/2000     FICA, ITW        $17,667    $3,975        $4,417       $312
      6/30/2000     FICA, ITW         19,286     4,339         4,822        341
      9/30/2000     FICA, ITW         18,009     4,052         4,502        318
     12/31/2000     FICA, ITW         17,014     3,828         4,254        301
     12/31/2000     FUTA               4,298       967         1,075        430
      3/31/2001     FICA, ITW         17,372     3,909         4,343        307
      6/30/2001     FICA, ITW         17,478     3,933         4,370        309
      9/30/2001     FICA, ITW         17,459     3,928         4,365        312
     12/31/2001     FICA, ITW         19,564     4,402         4,891        350
(96)      TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                                99


        TFT Galveston Portfolio, Ltd., as Successor in Interest for TFT #2, Ltd.,
                                 docket No. 29995–11

                                                   Additions to tax

        Period                                     Sec.         Sec.        Penalty
        ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

   12/31/2001        FUTA               3,726        838          931         373
    3/31/2002        FICA, ITW         18,301      4,118        4,575         331
    6/30/2002        FICA, ITW         16,858      3,793        4,215         305
    9/30/2002        FICA, ITW         20,032      4,507        5,008         362
   12/31/2002        FICA, ITW         15,588      3,507        3,897         282
   12/31/2002        FUTA               4,492      1,011        1,123         449
    3/31/2003        FICA, ITW          9,346      2,103        2,337         177
   12/31/2003        FUTA               1,438        324          359         144


        TFT Galveston Portfolio, Ltd., as Successor in Interest to TFT #3, Ltd.,
                                 docket No. 1533–12

                                                   Additions to tax

        Period                                     Sec.         Sec.        Penalty
        ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

    3/31/2000        FICA, ITW        $20,126    $4,528        $5,032       $356
    6/30/2000        FICA, ITW         22,320     5,022         5,580        394
    9/30/2000        FICA, ITW         27,588     6,207         6,897        487
   12/31/2000        FICA, ITW         26,026     5,856         6,507        460
   12/31/2000        FUTA               8,045     1,810         2,011        805
    3/31/2001        FICA, ITW         21,074     4,742         5,268        372
    6/30/2001        FICA, ITW         22,729     5,114         5,682        402
    9/30/2001        FICA, ITW         21,677     4,877         5,419        387
   12/31/2001        FICA, ITW         20,618     4,639         5,155        369
   12/31/2001        FUTA               6,706     1,509         1,676        671
    3/31/2002        FICA, ITW         17,384     3,911         4,346        314
    6/30/2002        FICA, ITW         18,792     4,228         4,698        340
    9/30/2002        FICA, ITW         19,124     4,303         4,781        346
   12/31/2002        FICA, ITW         18,367     4,133         4,592        332
   12/31/2002        FUTA               5,484     1,234         1,371        548
    3/31/2003        FICA, ITW         14,287     3,215         3,572        271
    6/30/2003        FICA, ITW         14,715     3,311         3,677        279
    9/30/2003        FICA, ITW         14,957     3,365         3,739        284
   12/31/2003        FICA, ITW         14,603     3,286         3,651        277
   12/31/2003        FUTA               4,968     1,118         1,242        497
    3/31/2004        FICA, ITW         11,271     2,536         2,818        214
    6/30/2004        FICA, ITW         11,713     2,635         2,928        222
    9/30/2004        FICA, ITW         20,189     4,543         5,047        383
   12/31/2004        FICA, ITW          6,874     1,547         1,718        130
   12/31/2004        FUTA               5,230     1,177         1,308        523


          TFT Galveston Portfolio, Ltd., Successor in Interest to TFT #4, Ltd.,
                                  docket No. 682–12

                                                   Additions to tax

        Period                                     Sec.         Sec.        Penalty
        ended         Type of tax    Amount     6651(a)(1)   6651(a)(2)    sec. 6656

       3/31/2000     FICA, ITW        $14,136    $3,181        $3,534       $250
       6/30/2000     FICA, ITW         19,532     4,395         4,883        345
100             144 UNITED STATES TAX COURT REPORTS                               (96)


        TFT Galveston Portfolio, Ltd., Successor in Interest to TFT #4, Ltd.,
                                docket No. 682–12

                                                 Additions to tax

       Period                                    Sec.         Sec.        Penalty
       ended        Type of tax     Amount    6651(a)(1)   6651(a)(2)    sec. 6656

   9/30/2000        FICA, ITW        14,889      3,350        3,722        263
  12/31/2000        FICA, ITW        14,755      3,320        3,689        261
  12/31/2000        FUTA              4,400        990        1,100        440
   3/31/2001        FICA, ITW        11,724      2,368        2,931        207
   6/30/2001        FICA, ITW        13,868      3,120        3,467        245
   9/30/2001        FICA, ITW        11,202      2,520        2,800        200
  12/31/2001        FICA, ITW        10,913      2,455        2,728        195
  12/31/2001        FUTA              3,752        844          938        375
   3/31/2002        FICA, ITW        10,185      2,292        2,546        184
   6/30/2002        FICA, ITW        10,675      2,402        2,669        193
   9/30/2002        FICA, ITW         8,655      1,947        2,164        157
  12/31/2002        FICA, ITW         9,981      2,246        2,495        181
  12/31/2002        FUTA              3,395        764          849        340
   3/31/2003        FICA, ITW         5,437      1,223        1,359        103
  12/31/2003        FUTA                837        188          209         84


      TFT Galveston Portfolio, Ltd., as Successor in Interest for TFT Chateau
                     Lafitte-WJT., Ltd., docket No. 1175–12

                                                 Additions to tax

       Period                                    Sec.         Sec.        Penalty
       ended        Type of tax     Amount    6651(a)(1)   6651(a)(2)    sec. 6656

   3/31/2003        FICA, ITW       $4,662     $1,049       $1,165         $88
   6/30/2003        FICA, ITW       15,803      3,556        3,951         300
   9/30/2003        FICA, ITW       16,266      3,660        4,067         309
  12/31/2003        FICA, ITW       14,196      3,194        3,549         269
  12/31/2003        FUTA             3,727        839          932         373
   3/31/2004        FICA, ITW       12,906      2,904        3,227         245
   6/30/2004        FICA, ITW       14,503      3,263        3,626         275
   9/30/2004        FICA, ITW       13,267      2,985        3,317         252
  12/31/2004        FICA, ITW        4,402        991        1,101          84
  12/31/2004        FUTA             2,754        620          689         275


      TFT Galveston Portfolio, Ltd., as Successor in Interest for TFT Somerset-
                         WJT., Ltd., docket No. 1180–12

                                                 Additions to tax

       Period                                    Sec.         Sec.        Penalty
       ended         Type of tax    Amount    6651(a)(1)   6651(a)(2)    sec. 6656

   3/31/2003        FICA, ITW       $2,475       $557         $619         $47
   6/30/2003        FICA, ITW        8,721       1,962        2,180        166
   9/30/2003        FICA, ITW        8,997       2,024        2,249        171
  12/31/2003        FICA, ITW        8,007       1,802        2,002        152
  12/31/2003        FUTA             3,034         683          758        303
   3/31/2004        FICA, ITW        8,124       1,828        2,031        154
   6/30/2004        FICA, ITW        8,149       1,833        2,037        155
   9/30/2004        FICA, ITW        9,047       2,036        2,262        172
  12/31/2004        FICA, ITW        3,303         743          826         63
  12/31/2004        FUTA             3,077         692          769        308
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                  101


   After concessions, 5 the issues for decision are: (1) whether
the workers listed in the notice of determination for TFT
Galveston Portfolio, Ltd.’s (TFT Galveston Portfolio) fourth
quarter of the taxable year 2004 were properly classified as
employees for purposes of Federal employment taxes. We
hold that the identified individuals were TFT Galveston Port-
folio’s employees and TFT Galveston Portfolio is liable for the
employment taxes determined with respect to those individ-
uals; (2) whether, in addition to being liable for employment
taxes for the fourth quarter of taxable year 2004, TFT Gal-
veston Portfolio is liable for the Federal employment taxes,
additions to tax, and penalties, as a successor in interest to
TFT #1, Ltd., TFT #2, Ltd., TFT #3, Ltd., TFT #4, Ltd., TFT
Chateau Lafitte-WJT, Ltd., and TFT Somerset-WJT, Ltd. We
hold it is not; and (3) whether TFT Galveston Portfolio is
liable for additions to tax pursuant to section 6651(a)(1) and
(2) and penalties pursuant to section 6656. We hold that it
is so liable.

                          FINDINGS OF FACT

  Some of the facts have been stipulated and are so found.
The parties’ stipulations of facts are incorporated herein by
this reference.
Petitioner’s Organizational Structure
  Petitioner, TFT Galveston Portfolio, and its alleged prede-
cessors, TFT #1, Ltd. (TFT #1); TFT #2, Ltd. (TFT #2); TFT
#3, Ltd. (TFT #3); TFT #4, Ltd. (TFT #4); TFT Chateau
Lafitte-WJT (TFT Chateau Lafitte-WJT); and TFT Somerset-
WJT (TFT Somerset-WJT), are all organized as Texas limited
partnerships. At all relevant times TFT Galveston Portfolio’s
principal office and mailing address was in Tomball, Texas.
  5 TFT  Galveston Portfolio concedes that it is not entitled to treatment
under the Revenue Act of 1978, Pub. L. No. 95–600, sec. 530, 92 Stat. at
2885, as amended, with respect to the workers listed in any of the notices
for the period at issue. Respondent concedes that the workers who per-
formed janitorial and maid services as well as those who performed pool
and fountain maintenance for the apartment complexes, along with a num-
ber of other listed workers, were not employees of petitioners during the
period at issue. Consequently, our decision in docket No. 1082–12 will be
entered under Rule 155.
102        144 UNITED STATES TAX COURT REPORTS             (96)


   During the period at issue TFT #1 comprised one general
partner, TFT Holdings, L.L.C. (TFT Holdings), and one lim-
ited partner, Walter J. Teachworth. From January 1, 2000,
through October 26, 2004, its principal business activity was
the operation of The Ebbtide apartment complex. TFT #1’s
final Form 1065, U.S. Return of Partnership Income,
reported that it was for the period January 1 through
October 31, 2004. No additional Forms 1065 were filed for
TFT #1 after that return. On November 1, 2006, the State
of Texas canceled the certificate of limited partnership for
TFT #1.
   TFT #2 comprised two general partners, TFT Holdings and
Hunters R. Hill, Inc., and two limited partners, Mr.
Teachworth and Henry Hamman. From January 1, 2000,
through February 26, 2003, its principal business activity
was the operation of the Chateau Lafitte apartment complex.
TFT #2’s final Form 1065 reported that it was for the period
January 1 through February 28, 2003. No additional Forms
1065 were filed for TFT #2 after that return. On November
1, 2006, the State of Texas canceled the certificate of limited
partnership for TFT #2.
   On or about February 26, 2003, Mr. Hamman sold his
partnership interest in TFT #2 to Mr. Teachworth, who cre-
ated TFT Chateau Lafitte-WJT to operate the Chateau
Lafitte apartment complex. TFT Chateau Lafitte-WJT com-
prised one general partner, TFT Holdings, and one limited
partner, Mr. Teachworth. From February 26, 2003, through
October 26, 2004, its principal business activity was the oper-
ation of the Chateau Lafitte apartment complex. TFT Cha-
teau Lafitte-WJT’s final Form 1065 reported that it was for
the period January 1 through October 31, 2004. No addi-
tional Forms 1065 were filed for TFT Chateau Lafitte-WJT
after that return. On August 16, 2006, the State of Texas
canceled the certificate of limited partnership for TFT Cha-
teau Lafitte-WJT.
   TFT #3 comprised one general partner, TFT Holdings, and
one limited partner, Mr. Teachworth. From January 1, 2000,
through October 26, 2004, its principal business activity was
the operation of The Seasons Resort apartment complex. TFT
#3’s final Form 1065 reported that it was for the period
January 1 through October 31, 2004. No additional Forms
1065 were filed for TFT #3 after that return. On November
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER        103


1, 2006, the State of Texas canceled the certificate of limited
partnership for TFT #3.
  TFT #4 comprised two general partners, TFT Holdings and
Hunters R. Hill, Inc., and two limited partners, Mr.
Teachworth and Mr. Hamman. From January 1, 2000,
through February 26, 2003, its principal business activity
was the operation of the Somerset Retirement Village apart-
ment complex. TFT #4’s final Form 1065 reported that it was
for the period January 1 through February 28, 2003. No
additional Forms 1065 were filed for TFT #4 after that
return. On October 27, 2004, the State of Texas canceled the
certificate of limited partnership for TFT #4.
  On or about February 26, 2003, Mr. Hamman sold his
partnership interest in TFT #4 to Mr. Teachworth, who cre-
ated TFT Somerset-WJT to operate the Somerset Retirement
Village apartment complex. TFT Somerset-WJT comprised
one general partner, TFT Holdings, and one limited partner,
Mr. Teachworth. From February 26, 2003, through October
26, 2004, its principal business activity was the operation of
the Somerset Retirement Village apartment complex. TFT
Somerset-WJT’s final Form 1065 reported that it was for the
period January 1 through October 31, 2004. No additional
Forms 1065 were filed for TFT Chateau Lafitte-WJT after
that return. On August 16, 2006, the State of Texas canceled
the certificate of limited partnership for TFT Somerset-WJT.
  TFT Galveston Portfolio comprised one general partner,
TFT Portfolio Investments, L.L.C., and one limited partner,
Mr. Teachworth. On October 26, 2004, the four apartment
complexes were conveyed from TFT #1, TFT Chateau Lafitte-
WJT, TFT #3, and TFT Somerset-WJT, respectively, to TFT
Galveston Portfolio. TFT Galveston Portfolio did not
expressly assume the liabilities of the other partnerships.
From October 26 through December 31, 2004, its principal
business activity was the operation of The Ebbtide, Chateau
Lafitte, The Seasons Resort, and Somerset Retirement Vil-
lage apartment complexes (collectively, apartment prop-
erties).
  During the period at issue, Mr. Teachworth was the only
owner of the partnerships who was actively involved in oper-
ating the business. He signed numerous documents on behalf
of TFT Holdings, the listed general partner of TFT #1, TFT
#2, TFT #3, TFT #4, TFT Chateau Lafitte-WJT, and TFT
104        144 UNITED STATES TAX COURT REPORTS           (96)


Somerset-WJT, as its ‘‘manager’’, ‘‘authorized manager’’, and
‘‘sole manager’’, and he was the sole manager of TFT Gal-
veston Portfolio during the period at issue.
Petitioners’ Financial Information
   During the period at issue, petitioners employed Galen
Mansee, a certified public accountant, to perform accounting
services, including gathering of data from apartment man-
agers, payment of all bills approved by Mr. Teachworth, bank
reconciliations, and preparation of tax returns for the part-
nerships and Mr. and Mrs. Teachworth.
   Petitioners maintained and used a commercial checking
account funded entirely by Mr. Teachworth. All expenses for
the apartment properties and all payments to petitioners’
workers were approved by Mr. Teachworth and were made
from that account. Mr. Teachworth provided all the informa-
tion and coding for the general ledger entries prepared by
Mr. Mansee. Following the transfer of the Chateau Lafitte
and Somerset Retirement Village complexes to TFT Chateau
Lafitte-WJT and TFT Somerset-WJT, respectively, Mr.
Mansee continued maintaining the same general ledgers he
had previously used for TFT #2 and TFT #4.
Petitioners’ Workers
  The workers for petitioners during the period at issue fall
within four groups: (1) apartment managers and leasing
agents, (2) security personnel, (3) a maintenance supervisor,
and (4) general maintenance workers. The general mainte-
nance workers performed a variety of tasks including appli-
ance and air conditioning maintenance, cleanup, landscape
maintenance, drywall repairs, painting, roof maintenance,
carpentry, and general miscellaneous maintenance.
  The Apartment Managers
  During the period at issue Mr. Teachworth hired all the
apartment managers. They were not required to submit bids
or fill out any applications before securing their positions.
Nor did the managers sign written agreements for the work
they performed.
  Mr. Teachworth established the management office’s hours
of operation for each of the apartment properties, and he set
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER       105


the hours that the managers were supposed to work. He also
established the monthly salaries that were paid to the apart-
ment managers, along with nominal performance-based
bonuses. Further, the apartment managers were provided
onsite housing and had their utilities expenses paid as part
of their compensation.
   Mr. Teachworth established all the managers’ duties,
leaving them with little to no discretion in how services were
to be performed. They had to consult with Mr. Teachworth
when determining how to handle vacancies at the apartment
properties and had to seek approval to return security
deposits to departing tenants. He established the community
rules and regulations, and the rent for the properties. The
managers could not change policies without his approval.
   Mr. Teachworth provided the apartment managers with
the office supplies and equipment required to perform their
duties. He reimbursed them for expenses they incurred while
performing their duties. He established a petty cash fund,
which he monitored, to purchase office supplies and postage
and for general office use. Finally, he would directly pay any
replacement manager for the time worked in place of the
normal manager.
   Mr. Teachworth supervised all aspects of the apartment
managers’ work. He had to approve the managers’ time off
requests, and he could fire them at any time. During the
period at issue none of the managers worked at any prop-
erties that were not owned by Mr. Teachworth.
  The Maintenance Supervisor
  During the period at issue petitioners employed Jerrell
Adams as the maintenance supervisor for the apartment
properties. In that capacity he performed general repairs and
any required maintenance project. He also supervised all the
other maintenance workers. He was not required to submit
a bid or fill out an application before securing his position.
Mr. Adams did not enter into a written agreement for the
work he performed. He was paid a monthly salary.
  Mr. Teachworth was Mr. Adams’ supervisor with regard to
the services he performed for petitioners. Mr. Teachworth
had to approve any maintenance work and expenditures that
were not routine. During the period at issue Mr. Adams pro-
vided full-time services to petitioners. He averaged around 50
106        144 UNITED STATES TAX COURT REPORTS            (96)


hours per week on the job. Additionally, he was on call 24
hours a day, 7 days a week.
   Mr. Adams was never personally at risk of losing money by
working for petitioners because Mr. Teachworth maintained
accounts with Home Depot, Maintenance Warehouse, and
Chalmers Hardware that were used to purchase materials
and supplies required to perform his job. Additionally, he
was reimbursed for any expenses he incurred performing his
duties as maintenance supervisor. However, Mr. Adams sup-
plied some of his own hand tools and equipment including
saws, a sewer machine, spray rigs, a welder, and scaffolding.
Mr. Teachworth directly paid any replacement maintenance
supervisor for the time worked in place of Mr. Adams.
   In addition to the standard duties Mr. Adams performed
for petitioners, he established a business called Circle A
through which he performed occasional maintenance services
for Exact Realty, a property management company, and for
petitioners during the period at issue. However, the services
provided to petitioners through Circle A were separate and
distinct from the typical services he performed for peti-
tioners.
  The Maintenance Workers
  During the period at issue petitioners employed numerous
maintenance workers for general maintenance of the apart-
ment properties. Those workers were not required to submit
bids or fill out applications before securing their positions.
Nor did they have written agreements for the work they per-
formed. The workers were hired by either the maintenance
supervisor or the apartment managers, but Mr. Teachworth
had the final approval over all hiring decisions. Their hours
were set by Mr. Adams, and they could be fired at any time.
For their work, the maintenance workers were paid an
hourly rate, with Mr. Teachworth having final approval on
that rate.
  The maintenance workers were never personally at risk of
losing money by working for petitioners, because the mate-
rials used in performing their services for petitioners were
provided by Mr. Teachworth. All the maintenance workers
were supervised by Mr. Adams. They mostly worked at the
same apartment complex each day unless one of the com-
plexes had a project requiring more workers.
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER        107


  The Security Workers
   During the tax years 2000 and 2001 The Seasons Resort
apartment complex had security workers. The Somerset
Retirement Village had security workers for all of 2000 and
the first two months of 2001. Mr. Teachworth hired the secu-
rity workers, and they reported to him and the apartment
managers where they worked. Their hours were set by Mr.
Adams and Mr. Teachworth, but the amount they were paid
was determined solely by Mr. Teachworth. None of the secu-
rity workers were off-duty police officers during the period at
issue, and their presence was included in the advertisements
and was a selling point for the apartment complexes.
Federal Tax Filings
   TFT #1, TFT #2, TFT #3, TFT #4, TFT Chateau Lafitte-
WJT, and TFT Somerset-WJT all filed Forms 1065 for the
period at issue. TFT Galveston Portfolio did not. However,
none of the six partnerships filed any Forms 941, Employer’s
Quarterly Federal Tax Return, or Forms 940, Employer’s
Annual Federal Unemployment (FUTA) Tax Return, for the
period at issue. Nor did they file or furnish any Forms 1099–
MISC, Miscellaneous Income, to any of the workers in ques-
tion. Petitioners did not deposit employment taxes for the
relevant periods. Respondent previously audited the Forms
1065 of petitioners for the period at issue, at which time
respondent learned of petitioners’ treating the workers in
question as independent contractors and deducting their
compensation accordingly on Forms 1065. Because the IRS
had not received any Forms 940 and 941 from petitioners,
IRS employees prepared substitutes for returns (SFRs) in
accordance with the authority provided by section 6020(b).
Notices
  On October 11, 2011, respondent issued a notice of deter-
mination to TFT Galveston Portfolio in which he determined
that (1) workers listed in Table 1 attached to the notice were
to be treated as petitioner’s employees, (2) petitioner was not
entitled to relief under the Revenue Act of 1978 (RA ’78),
Pub. L. No. 95–600, sec. 503(a), 92 Stat. at 2885, as
amended, and (3) petitioner was liable for income tax with-
holding, FICA and FUTA taxes, the section 6651(a)(1) and (2)
108         144 UNITED STATES TAX COURT REPORTS            (96)


additions to tax, and the section 6656 penalty for failure to
make deposit of taxes for the period at issue.
   Between September 29 and October 13, 2011, respondent
issued an additional six separate notices of determination to
TFT Galveston Portfolio as successor in interest to TFT #1,
TFT #2, TFT #3, TFT #4, TFT Chateau Lafitte-WJT, and
TFT Somerset-WJT, in which he determined that (1) workers
listed in Table 1 attached to each notice were to be treated
as petitioner’s employees, (2) petitioner was not entitled to
relief under RA ’78 sec. 530(a), and (3) petitioner was liable
for income tax withholding, FICA and FUTA taxes, the sec-
tion 6651(a)(1) and (2) additions to tax, and the section 6656
penalty for failure to make deposit of taxes for the period at
issue.
   Petitioner filed timely petitions challenging the determina-
tions.

                           OPINION

I. Jurisdiction
   Under section 7436(a) this Court has jurisdiction to deter-
mine (1) whether an individual providing services to a ‘‘per-
son’’ is that person’s employee, (2) whether the person, if in
fact an employer, is entitled to relief under RA ’78 sec. 530,
and (3) the correct amount of employment taxes which relate
to the Commissioner’s determination concerning worker
classification. Charlotte’s Office Boutique, Inc. v. Commis-
sioner, 121 T.C. 89, 102–103 (2003), aff ’d, 425 F.3d 1203 (9th
Cir. 2005). Section 7701(a)(1) provides that ‘‘[t]he term ‘per-
son’ shall be construed to mean and include an individual, a
trust, estate, partnership, association, company or corpora-
tion.’’ Respondent issued notices of determination to TFT
Galveston Portfolio determining that the individuals in ques-
tion were TFT Galveston Portfolio’s employees and that TFT
Galveston Portfolio owes employment taxes, additions to tax,
and penalties with respect thereto; and TFT Galveston Port-
folio filed a timely petition in response. Therefore, we have
jurisdiction to hear the challenge to respondent’s determina-
tions.
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                      109


II. Successor in Interest
   The structure of petitioner and the other six partnerships
is, for the most part, uncontested, as demonstrated by the
extensive stipulations of those facts. The issue before the
Court is whether successor liability should be imposed on
TFT Galveston Portfolio as the successor in interest to TFT
#1, TFT #2, TFT #3, TFT #4, TFT Chateau Lafitte-WJT, and
TFT Somerset-WJT. TFT Galveston Portfolio’s liability for
the employment tax, additions to tax, and penalties deter-
mined with respect to TFT Galveston Portfolio as successor
in interest to the other six partnerships will turn on this
decision. 6
   A successor in interest is ‘‘[o]ne who follows another in
ownership or control of property. A successor in interest
retains the same rights as the original owner, with no
change in substance.’’ Black’s Law Dictionary 1570 (9th ed.
2009). Successor liability relies on two policy goals: ‘‘compen-
sating plaintiffs as if the damage-causing business had not
terminated; and preventing the rule of successor liability
from otherwise reducing the free transferability of firms or
their assets.’’ Mark J. Roe, ‘‘Mergers, Acquisitions, and Tort:
A Comment on the Problem of Successor Corporation
Liability’’, 70 Va. L. Rev. 1559, 1561–1562 (1984). The
Government may rely on the successor liability doctrine to
hold a successor corporation liable for the tax debts of its
predecessor. See Atlas Tool Co. v. Commissioner, 614 F.2d
860, 871 (3d Cir. 1980), aff ’g 70 T.C. 86 (1978). Further, if
permitted by State law, successor liability may be asserted
when a partnership transfers its assets to another entity. See
Graham v. James, 144 F.3d 229, 240 (2d Cir. 1998) (‘‘ ‘The
traditional rule of corporate successor liability and the excep-
tions to the rule are generally applied regardless of whether
the predecessor or successor organization was a corporation
or some other form of business organization.’ ’’ (quoting 63
Am. Jur. 2d, Products Liability, sec. 117 (1984))). 7
  6 Respondent  is arguing liability only under the theory of successor in in-
terest and not under sec. 6901, providing for transferee liability, as re-
spondent did not issue notices of transferee liability to TFT Galveston
Portfolio.
  7 See also IRS CCA 200840001 (Oct. 3, 2008) (discussing the IRS’ ability
                                                 Continued
110         144 UNITED STATES TAX COURT REPORTS                   (96)


  A. Application of Federal Common Law
     Respondent argues that because the uniform imposition
and collection of employment taxes is a significant Federal
interest, we should disregard State law and adopt the
broader parameters of Federal common law in determining
successor liability in employment tax cases.
     The application of Federal common law in a novel context
requires ‘‘ ‘a significant conflict between some federal policy
or interest and the use of state law’ ’’. Atherton v. FDIC, 519
U.S. 213, 218 (1997) (quoting Wallis v. Pan Am. Petroleum
Corp., 384 U.S. 63, 68 (1966)). The Supreme Court cautioned
against the creation of Federal common law, noting that
‘‘ ‘cases in which judicial creation of a special federal rule
would be justified * * * are * * * ‘‘few and restricted’’.’ ’’ Id.
at 218 (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651
(1963)). The Court further directed that ‘‘ ‘[w]hether latent
federal power should be exercised to displace state law is pri-
marily a decision for Congress,’ ’’ not the Federal courts. Id.
(quoting Wallis, 384 U.S. at 68).
     We have not found a significant conflict between a Federal
policy or interest and the use of State law that would justify
the adoption of Federal common law in this context.
Respondent contends that ‘‘[t]he uniform imposition and
collection of employment taxes is a significant federal
interest justifying the application of a uniform federal
approach.’’ However, the Supreme Court has specifically
rejected uniformity as a sufficient reason for adopting Fed-
eral common law. See, e.g., Atherton, 519 U.S. at 219–220;
O’Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994); United
States v. Kimbell Foods, Inc., 440 U.S. 715, 728 (1979). Fur-
ther, courts have rejected the application of Federal common
law in tax cases in similar contexts. See, e.g., Commissioner
v. Stern, 357 U.S. 39 (1958); Whelco Indus. Ltd. v. United
States, 526 F. Supp. 2d 819 (N.D. Ohio 2007); Stramaglia v.
United States, 2007 WL 4404185 (E.D. Mich. 2007), aff ’d,
377 Fed. Appx. 472 (6th Cir. 2010).
     As support for his theory, respondent has offered a number
of cases where courts have adopted Federal common law in
determining successor liability. However, these decisions
to collect employment tax from a multimember LLC taxed like a partner-
ship).
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER        111


seem to be grounded in either environmental liability (i.e.,
CERCLA) or labor law (i.e., ERISA) and appear to have little
or no application outside of those contexts. The only case to
which respondent invites our attention involving the applica-
tion of Federal common law successor liability in an employ-
ment tax context is Today’s Child Learning Ctr. Inc. v.
United States, 40 F. Supp. 2d 268 (E.D. Pa. 1998). In that
case, the court held that Today’s Child was the ‘‘mere
continuation and/or successor in interest’’ of the original tax-
payer, Wee Care. However, because the court’s analysis of
the ‘‘Continuation/De Facto Merger/Successor in Interest’’
theories was essentially one inquiry and its use of the term
‘‘successor in interest’’ was not necessary to its decision, we
are not persuaded by its holding. Cf., e.g., Storage & Office
Sys., LLC v. United States, 490 F. Supp. 2d 955, 963–964
(S.D. Ind. 2007) (also distinguishing Today’s Child for pur-
poses of similar Federal common law argument).
   Finally, respondent contends that ‘‘[i]f federal common law
is not applied, it could encourage taxpayers subject to Texas
law to use a similar structure to easily avoid the payment of
employment taxes * * * [thereby] thwarting the Service’s
crucial function of enforcement and collection of federal
employment taxes.’’ Respondent further contends that ‘‘other
states could be persuaded to modify their laws to reject the
de facto merger or mere continuation exceptions and further
frustrate the collection of federal taxes.’’
   Respondent’s fear of the potential for manipulation is
unfounded. None of these concerns are present here, and no
evidence was put forth tending to show that the concerns will
be present. There is no evidence that petitioner’s business
structure was anything other than a valid reorganization.
   More importantly, successor in interest liability is only one
procedure by which the Commissioner may collect taxes from
a successor who received assets from a taxpayer who owed
the taxes. On brief respondent concedes that he could have
potentially applied transferee liability against petitioner
under section 6901 by issuing Notices of Determination Con-
cerning Worker Classification to the other six partnerships,
assessing the resulting liabilities, and then issuing a Notice
of Transferee Liability to TFT Galveston Portfolio. Addition-
ally, respondent could have potentially attempted to collect
directly from Mr. Teachworth as a ‘‘responsible person’’
112           144 UNITED STATES TAX COURT REPORTS                       (96)


under section 6672. Thus, our decision against applying Fed-
eral common law successor rules and holding that TFT Gal-
veston Portfolio is not a successor in interest to the six part-
nerships listed on the notices does not by itself thwart
respondent’s crucial function of collecting Federal employ-
ment taxes. Accordingly, we do not accept respondent’s
suggestion that we adopt a Federal common law to override
Texas law.
  B. Application of State Law
  Successor liability is generally determined by State law.
LiButti v. United States, 178 F.3d 114, 124 (2d Cir. 1999). As
we have discussed above, we do not accept respondent’s
suggestion of applying Federal common law in this case;
therefore we will apply the applicable State law. 8 Because
TFT Galveston Portfolio and its alleged predecessors were all
organized in Texas, we look to Texas law to determine
whether TFT Galveston Portfolio is a successor in interest to
the other partnerships.
  Under Texas law ‘‘a person acquiring property * * * may
not be held responsible or liable for a liability or obligation
of the transferring domestic entity that is not expressly
assumed by the person.’’ Tex. Bus. Orgs. Code Ann. sec.
10.254(b) (West 2012). 9 In a majority of States that have a
similar rule, four well-recognized exceptions impose liability
on an acquiring company. The first is similar to that codified
above in the Texas Business Organizations Code. The three
other exceptions are as follows: (1) when the transaction
amounts to a de facto merger; (2) when the successor is a
mere continuation of the seller company; and (3) when the
transaction is entered into fraudulently to escape liability.
  8 This  Court generally follows State law to determine the legal interests
and rights of the taxpayer. See, e.g., United States v. Mitchell, 403
U.S. 190 (1971); Commissioner v. Stern, 357 U.S. 39 (1958); Morgan v.
Commissioner, 309 U.S. 78 (1940).
  9 The Texas Business Organizations Code was adopted in 2003. See H.B.

No. 1156, 2003 Tex. Sess. Law Serv. ch. 182 (H.B.1156) (Vernon). Its pred-
ecessor contained substantially similar language. See Tex. Bus. Corp. Act,
art. 5.10 (expired Jan. 1, 2010); Ford, Bacon & Davis, LLC v. Travelers
Ins. Co., 635 F.3d 734, 737 (5th Cir. 2011). Because there is no substantive
difference between the statutes, the Court refers to the currently enacted
version of the law for the sake of convenience, and it does not decide which
version of the statute would apply.
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                 113


See, e.g., Lyon v. S. Gas Co. (In re Wright Enters.), 77
Fed. Appx. 356, 366–367 (6th Cir. 2003); Cyr v. B. Offen
& Co., 501 F.2d 1145, 1152 (1st Cir. 1974); Pulis v. U.S. Elec.
Tool Co., 561 P.2d 68, 69 (Okla. 1977). In Texas, however, de
facto mergers are considered to be against public policy. See,
e.g., McKee v. Am. Transfer & Storage, 946 F. Supp. 485,
486–487 (N.D. Tex. 1996); Mudgett v. Paxson Mach. Co., 709
S.W.2d 755, 756–759 (Tex. App. 13th 1986, writ ref ’d n.r.e.).
Texas courts have also refused to apply the doctrine of mere
continuation. See, e.g., Med. Designs, Inc. v. Shannon,
Gracey, Ratliff & Miller, L.L.P., 922 S.W.2d 626 (Tex. Ct.
App. 2d 1996); Mudgett, 709 S.W.2d at 758 (‘‘Certainly if the
de facto merger doctrine is contrary to the public policy of
our state, so must be the mere continuation doctrine.’’).
Lastly, there is some dispute in Texas courts as to whether
Texas recognizes a fraudulent transfer exception to the gen-
eral rule of successor nonliability. See In re 1701 Commerce,
LLC, 511 B.R. 812, 823–825 (Bankr. N.D. Tex. 2014). But see
Ford, Bacon & Davis, LLC v. Travelers Ins. Co., 2010 WL
1417900, at *6 (S.D. Tex. 2010), aff ’d, 635 F.3d 734 (5th Cir.
2011). 10 Thus, in Texas, an acquiring entity is not a suc-
cessor in interest unless it expressly agrees to assume the
liabilities of the other party in the transaction.
   TFT Galveston Portfolio did not expressly assume the
liabilities of the other six partnerships. Accordingly, under
Texas law, TFT Galveston Portfolio is not a successor in
interest to the six partnerships listed on the notices.
III. Classification of Workers
  Sections 3111 and 3301 impose taxes on employers under
the Federal Insurance Contributions Act (FICA) and the Fed-
eral Unemployment Tax Act (FUTA). Section 3101 imposes
on employees under FICA a tax based on their wages paid,
which the employer is required to collect under section 3102.
Under sections 3402 and 3403, employers are liable for with-
holding from their employees’ wages the employees’ shares of
Federal income tax.
  In addition to the successor in interest liabilities,
respondent determined that TFT Galveston Portfolio’s
  10 We find that even if Texas does accept the fraud exception, there is

no evidence to support its application here.
114            144 UNITED STATES TAX COURT REPORTS                     (96)


workers were employees for purposes of employment taxes
and thus that TFT Galveston Portfolio is liable for with-
holding the proper amounts of tax under sections 3101, 3111,
3301, and 3402. TFT Galveston Portfolio challenges respond-
ent’s classification of the individuals listed in the notice of
determination as employees. 11 TFT Galveston Portfolio
maintains that these individuals were independent contrac-
tors and thus it was not responsible for withholding employ-
ment taxes.
  A. Burden of Proof
   We presume that a worker classification determination
made by the Commissioner is correct, but a taxpayer may
rebut that presumption by demonstrating by a preponder-
ance of the evidence that the determination was erroneous.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933);
Boles Trucking, Inc. v. United States, 77 F.3d 236, 239–240
(8th Cir. 1996) (applying this standard to a worker classifica-
tion determination); Ewens & Miller, Inc. v. Commissioner,
117 T.C. 263, 268 (2001).
  B. Common Law Test
  Whether an employer-employee relationship exists in a
particular situation is a question of fact. Weber v. Commis-
sioner, 103 T.C. 378, 386 (1994), aff ’d per curiam, 60 F.3d
1104 (4th Cir. 1995). For the purposes of employment taxes,
the term ‘‘employee’’ includes ‘‘any individual who, under the
  11 Because  we hold that petitioner is not a successor in interest to the
other six partnerships, the following analysis pertains only to the workers
listed on the notice sent to petitioner on October 11, 2011, for the fourth
quarter of tax year 2004. These include Jerry Adams (maintenance super-
visor); Johnny Puentes, Robert Thorpe, Francisco Cedillo, Jaime Rosales,
Roller Delgado, Hector Martinez, Joel Romero, John Russo, Ron Baltrusk,
Francisco Flores, Joshua Wagner, Allen Jacobs, Oscar Loir (collectively,
maintenance workers); Lestie Adams, Kelli Grant, Cheryl Mohr, Jason
Wolfe, Kelli Grant, Christina Gerrior, Kimberly Wilkins, Linda Bradley,
Randi Jensen (collectively, apartment managers).
   With respect to the other names listed on the notice, such as Elizabeth
Bonds, Delores Guamelo, Eric Puentes, Carla Carcano, Maria Martinez,
Karla Carcano, Melinda Ruiz, Anita Jones, and Bobby Harris, respondent
concedes that they were not petitioner’s employees during the period at
issue and payments made to them did not subject TFT Galveston Portfolio
to employment tax liabilities.
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                   115


usual common law rules applicable in determining the
employer-employee relationship, has the status of an
employee’’. Sec. 3121(d)(2); accord sec. 3306(i); Ewens &
Miller, Inc. v. Commissioner, 117 T.C. at 269.
  Section 31.3121(d)–1(c)(2), Employment Tax Regs., defines
the common law 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 per-
  forms 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 accom-
  plished. 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.
  * * *

   In deciding whether a worker is a common law employee
or an independent contractor, this Court considers: (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 that
the parties believed that they were creating. Weber v.
Commissioner, 103 T.C. at 387. All of the facts and cir-
cumstances of each case are considered, and no single factor
is dispositive. Id.
   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 Assocs., P.C. v. Wells, 538
U.S. 440, 448 (2003); Leavell v. Commissioner, 104 T.C. 140,
149 (1995). All that is necessary however, is that the prin-
116        144 UNITED STATES TAX COURT REPORTS             (96)


cipal have the right to control the details of the individual’s
work. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 270.
  C. Analysis
  1. Degree of Control
  The principal’s degree of control over the details of the
agent’s work is one of the most important factors in deter-
mining whether an employment relationship exists. See
Clackamas Gastroenterology Assocs., P.C., 538 U.S. at 448;
Weber v. Commissioner, 103 T.C. at 387. The degree of con-
trol necessary to find employee status varies according to the
nature of the services provided. Weber v. Commissioner, 103
T.C. at 388. When the nature of the work is more inde-
pendent, a lesser degree of control by the principal may still
result in a finding of an employer-employee relationship.
Robinson v. Commissioner, T.C. Memo. 2011–99, aff ’d, 487
Fed. Appx. 751 (3d Cir. 2012).
  TFT Galveston Portfolio, through Mr. Teachworth, con-
trolled nearly every aspect of the work performed by the
apartment managers. He unilaterally established the com-
pensation paid to the managers, and he set their working
hours and duties. In determining how to handle vacancies at
the complexes the managers had to consult with Mr.
Teachworth, and they had to gain his approval to return
security deposits to departing tenants. He set the community
rules and regulations and determined the rent at the prop-
erties, and the managers had no authority to alter the rents
without his approval.
  TFT Galveston Portfolio, through Mr. Teachworth, con-
trolled the work performed by Mr. Adams. Because Mr.
Adams was the maintenance supervisor, his duties included
supervising the various maintenance workers, performing
general repairs and maintenance, and executing large
maintenance projects as needed. Mr. Adams had a small
degree of latitude in his work. However, at trial he testified
that he had to seek approval from Mr. Teachworth before
performing any maintenance job that was not routine or
small. Thus, the discretion allowed to Mr. Adams in per-
forming his work was severely limited.
  The maintenance workers, including those who performed
more specialized or skilled work and those who provided tem-
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER          117


porary services, were all supervised by Mr. Adams. Mr.
Adams, along with the apartment managers, had the
authority, delegated by Mr. Teachworth, to give instructions
to any maintenance worker regarding what to do and how to
do it. Mr. Adams, however, was ultimately responsible for
making sure the maintenance jobs were completed. Addition-
ally, Mr. Adams set the maintenance workers’ hours and, if
needed, could call workers from the various complexes to
come help on a certain project. Ultimately though, all
maintenance projects were subject to the final approval of
Mr. Teachworth.
   To retain the requisite degree of control over an employee,
the employer need not direct the employee’s every move; it
is sufficient if he has the right to do so. Weber v. Commis-
sioner, 103 T.C. at 387–388; see sec. 31.3401(c)–1(b), Employ-
ment Tax Regs. Although some of the workers had some lati-
tude in how they performed their duties, ultimately Mr.
Teachworth was the boss and had final authority on all the
work performed at the properties. Accordingly, this factor
weighs heavily towards a finding that TFT Galveston Port-
folio’s workers were in fact employees and not independent
contractors.
  2. Investment in Facilities and Opportunity for Profit or
     Loss
   The fact that a worker has no investment in the facilities
used in the work is indicative of an employer-employee rela-
tionship. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at
271. Conversely, the fact that a worker provides his or her
own tools generally indicates the worker is an independent
contractor. Id. When workers have no opportunities for profit
or loss, they are more like employees than independent con-
tractors. See D & R Fin. Servs., Inc. v. Commissioner, T.C.
Memo. 2011–252, slip op. at 10.
   The workers had little, if any, financial investment in TFT
Galveston Portfolio’s business, and they were never at risk of
suffering a personal financial loss. The work was all per-
formed on site at the apartment properties. TFT Galveston
Portfolio provided most of the office equipment and supplies
used by the apartment managers and set up a petty cash
fund to cover any incidental expenses incurred. The man-
agers all received fixed salaries, with the exception of a small
118        144 UNITED STATES TAX COURT REPORTS             (96)


performance-based bonus available to some of them. As part
of their compensation, or as a condition of employment, the
managers were provided with on-site housing and had their
utilities expenses paid.
   Mr. Adams, the maintenance supervisor, supplied some of
his own tools and equipment; they were not purchased or
used specifically or exclusively for TFT Galveston Portfolio’s
business. However, this factor alone is not determinative. In
contrast, TFT Galveston Portfolio provided and paid for all
the required maintenance materials through charge accounts
Mr. Teachworth maintained at local hardware stores.
Additionally, any incidental expenses the workers incurred
were reimbursed by Mr. Teachworth.
   Finally, the workers never had an opportunity for financial
profit aside from their salaries. Although the maintenance
workers could increase their earnings through working addi-
tional hours, they could not increase their hourly rate of pay,
which was unilaterally set by Mr. Teachworth. Thus, the
workers were never at risk of personal financial loss due to
the services they provided. Accordingly, this factor weighs
towards a finding that TFT Galveston Portfolio’s workers
were in fact employees and not independent contractors.
  3. Right To Discharge
  TFT Galveston Portfolio, through Mr. Teachworth, had the
right to terminate the service of any of the workers at any
time without financial penalties. The workers could also quit
at any time. At no point did any of the workers enter into
a contract or agreement that would bind TFT Galveston
Portfolio or the workers. Accordingly, this factor weighs
towards a finding that the workers were in fact employees
and not independent contractors.
  4. Workers Part of Petitioner’s Regular Business
  TFT Galveston Portfolio’s sole business activity was the
operation of the apartment properties. The workers all
played a crucial role in its operation and financial success.
The apartment managers’ primary responsibility was to fill
the vacancies, and the financial success of the properties
depended on their maximizing the occupancy of the prop-
erties. The maintenance supervisor and the workers were
tasked with responding to tenants’ maintenance problems
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER        119


and work orders. Thus, the workers all played an integral
role in the business by keeping vacancies to a minimum,
maintaining the physical integrity of the properties, and pro-
viding security, thereby preserving tenant satisfaction. See
Breaux & Daigle, Inc. v. United States, 900 F.2d 49, 53 (5th
Cir. 1990). Accordingly, this factor weighs towards a finding
that the workers were in fact employees and not independent
contractors.
  5. Permanency of Working Relationship
  A transitory work relationship may weigh in favor of inde-
pendent contractor status. Ewens & Miller, Inc. v. Commis-
sioner, 117 T.C. at 273. The evidence tends to show a con-
tinuing relationship between the workers and TFT Galveston
Portfolio. Accordingly, this factor weighs towards a finding
that the workers were in fact employees and not independent
contractors.
  6. The Parties’ Perception of the Relationship
  None of the workers had independent contractor agree-
ments or written contracts. The workers did not submit bids
for services. There is no evidence that any of the workers
advertized their services to the public, nor did they work for
any other companies during the period at issue. Although
Mr. Adams occasionally performed maintenance and repair
work outside of his job with TFT Galveston Portfolio, that
work was done in his spare time and was not part of his full-
time job, where he worked an average of 50 hours per week
and was on call 24 hours a day, 7 days a week. That other
work is not at issue.
  Even if it was Mr. Teachworth’s intention to create a legiti-
mate independent contractor relationship with the workers,
such an intention does not carry much weight when the
common law factors compel a finding that an employer-
employee relationship exists. See Kumpel v. Commissioner,
T.C. Memo. 2003–265, slip op. at 14. Accordingly, this factor
weighs towards a finding that TFT Galveston Portfolio’s
workers were in fact employees and not independent contrac-
tors.
120           144 UNITED STATES TAX COURT REPORTS                       (96)


  7. Conclusion
   After considering the record and weighing all of the fac-
tors, we conclude that the workers were employees during
the period at issue. None of the relevant factors suggest that
the workers were independent contractors, and many of the
factors evidence an employer-employee relationship. For
instance, the workers were all ultimately subject to the direc-
tion and control of Mr. Teachworth. He hired them and set
their hours and wages. They had no financial investment in
the work they performed. They bore no risk of financial loss,
and they did not participate in TFT Galveston Portfolio’s
profits in any way. Finally, the fact that TFT Galveston Port-
folio and Mr. Teachworth did not think they were creating an
employment relationship with the workers is not persuasive
when the common law factors weigh towards an employment
relationship.
   We think these factors sufficiently establish that the
workers were properly classified as employees of TFT Gal-
veston Portfolio. Therefore, we hold TFT Galveston Portfolio
liable for the employment taxes determined for the fourth
quarter of 2004 regarding the employees.
IV. Additions to Tax and Penalties
  A. Burden of Proof
  The Commissioner bears the burden of production with
respect to an individual’s liability for additions to tax and
penalties. See sec. 7491(c). To meet that burden, the Commis-
sioner must produce sufficient evidence indicating that it is
appropriate to impose the penalty. See Higbee v. Commis-
sioner, 116 T.C. 438, 446–447 (2001). However, section
7491(c) does not shift the burden of proof, which remains on
the individual. See Higbee v. Commissioner, 116 T.C. at 446–
447.
  Section 7491(c) is not entirely instructive as to whether the
section imposes the initial burden on the Commissioner when
the taxpayer is an entity that has petitioned this Court
under section 7436. By its terms, section 7491(c) applies only
to the liability of ‘‘any individual’’ for penalties. 12 See Palmer
  12 In contrast, sec. 7491(a), which provides the general rule for shifting

the burden of proof to the Commissioner in certain circumstances, applies
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER                 121


Ranch Holdings Ltd. v. Commissioner, T.C. Memo. 2014–79;
Palm Canyon X Invs., LLC v. Commissioner, T.C. Memo.
2009–288; Santa Monica Pictures, LLC v. Commissioner, T.C.
Memo. 2005–104.
  We need not resolve any potential uncertainty; even if we
assume that respondent has the initial burden of production,
we are satisfied that he has carried it. Therefore, the burden
remains with petitioner to prove the penalty determinations
are incorrect. See Higbee v. Commissioner, 116 T.C. at 446–
447.
  B. Additions to Tax
   Respondent determined that TFT Galveston Portfolio is
liable for additions to tax under section 6651(a)(1) for its
failure to file Forms 940 and 941, for employment taxes, for
the period at issue and under section 6651(a)(2) for failure to
pay the amount of tax shown on the SFRs. Section 6651(a)(1)
imposes an addition to tax for failure to timely file a return
unless the taxpayer shows that such failure was due to
reasonable cause and not willful neglect. 13 Section 6651(a)(2)
imposes an addition to tax for failure to pay the amount of
tax shown on the return on or before the date prescribed
unless the taxpayer can establish that the failure is due to
reasonable cause and not due to willful neglect.
   TFT Galveston Portfolio filed no employment tax return for
the period at issue. Accordingly, we conclude that respondent
produced sufficient evidence to show that the section
6651(a)(1) addition to tax is appropriate. Although the issues
in this case are somewhat technical, TFT Galveston Portfolio
has not produced any evidence demonstrating a good-faith
effort to comply with the law and determine the correct
treatment of the workers. Therefore, we find that the failure
to file was not due to reasonable cause and hold TFT Gal-
veston Portfolio liable for the section 6651(a)(1) addition to
tax.
in ascertaining the liability of a ‘‘taxpayer.’’
  13 The addition to tax is equal to 5% of the amount of the tax required

to be shown on the return if the failure to file is not for more than one
month. An additional 5% is imposed for each month or fraction thereof in
which the failure to file continues, to a maximum of 25% of the tax. The
addition to tax is imposed on the net amount due. Sec. 6651(a)(1), (b);
Cabirac v. Commissioner, 120 T.C. 163, 168 n.9 (2003).
122        144 UNITED STATES TAX COURT REPORTS            (96)


  As stated, TFT Galveston Portfolio did not file an employ-
ment tax return; however, respondent prepared a valid SFR
under section 6020(b). Pursuant to section 6651(g)(2), an SFR
is treated as the taxpayer’s return for purposes of deter-
mining the section 6651(a)(2) addition to tax. Respondent
presented evidence showing that TFT Galveston Portfolio did
not make any tax payments during the period at issue.
Accordingly, we conclude that respondent has produced suffi-
cient evidence to show that the section 6651(a)(2) addition to
tax is appropriate. TFT Galveston Portfolio has not produced
sufficient evidence demonstrating that the failure to pay the
appropriate amount was due to reasonable cause. Therefore,
we hold TFT Galveston Portfolio liable for the section
6651(a)(2) addition to tax.
  C. Penalty Under Section 6656
  If a taxpayer is more than 15 days late in depositing
employment taxes, section 6656 imposes a 10% penalty. Sec.
6656; see also Ewens & Miller, Inc. v. Commissioner, 117 T.C.
at 268. The taxpayer is not liable for the section 6656 pen-
alty if the late deposit was due to reasonable cause and not
due to willful neglect. Sec. 6656(a). TFT Galveston Portfolio
is liable for a penalty under section 6656. Respondent
showed that TFT Galveston Portfolio did not deposit employ-
ment taxes. See Ramirez v. Commissioner, T.C. Memo. 2007–
346 (finding that the IRS met its burden where section
7491(c) undisputedly applied by showing that the employer
made no deposits). TFT Galveston Portfolio did not show that
it had reasonable cause for failing to deposit employment
taxes.
  In reaching our holdings herein, we have considered all
arguments the parties made, and to the extent we did not
mention them above, we conclude they are moot, irrelevant,
or without merit.
(96)   TFT GALVESTON PORTFOLIO, LTD. v. COMMISSIONER       123


  To reflect the foregoing and the settled issues,
                  Decisions will be entered for petitioners in
                docket Nos. 29995–11, 30001–11, 682–12,
                1175–12, 1180–12, and 1533–12.
                  Decision will be entered under Rule 155 in
                docket No. 1082–12.

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