                         T.C. Memo. 2005-173



                       UNITED STATES TAX COURT



TRANSPORT LABOR CONTRACT/LEASING, INC. & SUBSIDIARIES, Petitioner
                                v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 1188-01.                  Filed July 14, 2005.



     Michael I. Saltzman, Kathleen Pakenham, and Todd C. Simmens,

for petitioner.

     Jack Forsberg, Gary R. Shuler, Jr., and Eric Johnson, for

respondent.



                  SUPPLEMENTAL MEMORANDUM OPINION


     CHIECHI, Judge:   This case is before us on petitioner’s


     *
      This Supplemental Memorandum Opinion supplements our prior
Opinion in Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. 154 (2004).
                                - 2 -

motion for reconsideration of the Court’s Opinion in this case

(petitioner’s motion for reconsideration) set forth in 123 T.C.

154 (2004) (Transport Labor I) and petitioner’s motion to vacate

or revise the Court’s decision in this case (petitioner’s motion

to vacate).   The Court held in Transport Labor I that the limita-

tion imposed by section 274(n)(1)1 (section 274(n)(1) limitation)

applied to the amounts (per diem amounts) that petitioner’s

wholly owned subsidiary Transport Leasing/Contract, Inc. (TLC),

paid during each of the taxable years at issue to certain truck

drivers in order to cover the amounts that they spent for food

and beverages.2

                              Background

     We incorporate herein by reference the findings of fact set

forth in Transport Labor I.    We repeat here the facts helpful in

understanding the discussion that follows.

     TLC was a driver-leasing company that leased one or more

truck drivers to small and mid-sized independent trucking compa-

nies which used such truck drivers to transport goods and mer-




     1
      All section references are to the Internal Revenue Code in
effect for the taxable years at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
     2
      We shall refer to such expenses as food and beverage ex-
penses. See Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. 154, 155 n.4 (2004).
                               - 3 -

chandise.3   Prior to the times such trucking companies entered

into driver-leasing arrangements with TLC (described below), they

had generally made payments only to their respective over-the-

road4 truck drivers who worked for them that were intended to

cover the amounts that such truck drivers spent for food and

beverage expenses while traveling away from home.

     During the years at issue, the number of trucking company

clients to which TLC leased driver-employees ranged from 100 to

300, with most such companies located in Minnesota, Montana, and

Pennsylvania.5   As of the time of trial in this case, TLC leased

a total of 5,563 driver-employees to a total of 453 trucking

company clients.

     In soliciting business, TLC’s sales representatives ex-

plained to prospective trucking company clients the advantages

that they would realize from leasing driver-employees from TLC.

A principal advantage of leasing driver-employees from TLC

related to TLC’s ability to obtain cost-effective workers’

compensation insurance, especially in States where trucking

     3
      We shall refer to each trucking company that leased one or
more truck drivers from TLC as a trucking company client and to
each truck driver whom TLC leased to a trucking company client as
a driver-employee.
     4
      The term over-the-road means that the length of travel
required a truck driver to stay away from home overnight.
     5
      During the years at issue, the number of truck drivers that
each trucking company client leased from TLC ranged from 1 to 50.
                                   - 4 -

company clients were paying substantial amounts to obtain such

insurance.       Generally, the premium rates for workers’ compensa-

tion insurance on truck drivers were significantly higher than

premium rates for most other occupations.       As a result, workers’

compensation insurance was a major expense for trucking compa-

nies.       In soliciting a trucking company’s business, TLC’s sales

representatives explained that TLC was able to obtain workers’

compensation insurance in the private market at comparatively low

premium rates because of the large number of driver-employees on

whom it obtained such insurance.

        When TLC was successful in attracting a trucking company as

a client, TLC and that trucking company entered into a contract

entitled “TLC Exclusive Lease Agreement” (exclusive lease agree-

ment), which set forth the agreement between them with respect to

the leasing by such trucking company of driver-employees from

TLC.6       When each trucking company entered into an exclusive lease

agreement with TLC, such trucking company terminated the employ-

ment arrangement that it previously had with all of its truck

drivers.

        6
      Each exclusive lease agreement was a standard TLC form
contract. There were no agreements between TLC and any trucking
company client regarding TLC’s leasing driver-employees to such
trucking company client other than the agreement set forth in the
exclusive lease agreement. The material provisions of each
exclusive lease agreement remained unchanged throughout the
taxable years at issue except for the factor (discussed below)
used to compute the lease fee that each trucking company client
owed TLC.
                                - 5 -

     TLC retained the sole and absolute authority to hire each

driver-employee and to terminate each driver-employee’s employ-

ment with TLC.   Each truck driver whom TLC hired as a driver-

employee played an integral role in TLC’s business of leasing

driver-employees to its trucking company clients.

     Before TLC hired a truck driver as a driver-employee, such

truck driver had to pass TLC’s screening and approval process

that it used to determine whether to hire such truck driver.     (We

shall refer to the screening and approval process that TLC used

to determine whether to hire a truck driver as TLC’s screening

and approval process.)    TLC’s screening and approval process was

designed to determine a truck driver’s fitness to serve as a

driver-employee of TLC.

     As required by each exclusive lease agreement, TLC used its

best efforts (e.g., by advertising) to, and did, recruit driver-

employees.   TLC hired approximately 25 percent of its driver-

employees through its own recruitment efforts.

     Each trucking company client also located and referred

prospective driver-employees to TLC.    If a trucking company

client located a truck driver whom it wanted TLC to hire, the

trucking company client interviewed such truck driver, had him or

her complete an application provided by TLC, and forwarded that

completed application to TLC.   TLC subjected any such truck

driver to TLC’s screening and approval process.    TLC rejected 10
                               - 6 -

to 15 percent of the truck drivers whom its trucking company

clients referred to it.   TLC hired approximately 75 percent of

its driver-employees through referrals of trucking company

clients.

     TLC had the right to, and did, direct and control the work

and conduct of each driver-employee.    TLC exercised that right

through, inter alia, the driver-employee contract and the driver-

employee handbook (discussed below).    TLC required each driver-

employee whom it hired to sign a document entitled “DRIVER

EMPLOYEE CONTRACT” (driver contract).    Each driver contract

provided instructions for each driver-employee that required each

driver-employee, inter alia, to attend at least two safety

meetings per year, not to be under the influence of alcohol while

performing services for TLC, not to consume illegal drugs, to

complete any paperwork required by TLC or its affiliates, and not

to allow any personal, legal, or financial problems, including

attitude, to interfere with the performance of services for TLC.

If a driver-employee failed to comply with those instructions,

TLC could terminate such driver-employee’s employment.

     When TLC hired each driver-employee, TLC gave such driver-

employee a truck driver handbook (TLC driver handbook).    The TLC

driver handbook, which was incorporated into and made part of the

driver contract, contained TLC’s detailed instructions that it

required each driver-employee to follow with respect to, inter
                              - 7 -

alia, fueling the trucks, starting the trucks’ engines, hooking

up the trucks to trailers, parking the trucks, driving the trucks

to achieve maximum fuel savings, braking the trucks, operating

trucks in cold weather, departure times of the trucks, and

loading the cargo on and unloading it off the trucks.7   Thus, TLC

had the right to, and did, direct and control each driver-em-

ployee as to the operation and the loading and unloading of the

truck of the trucking company client that leased such driver-

employee from TLC and as to the details and means by which that

operation and that loading and unloading were to be accomplished.

     Both before and after entering into an exclusive lease

agreement with TLC, each trucking company client:   (1) Owned or

leased the trucks, semitrailers, terminals, and other equipment

and facilities used in its trucking business; (2) obtained the

customers whose goods and merchandise it transported by truck;

(3) performed dispatching functions with respect to each driver-

employee by giving such driver-employee his or her route assign-

ments, directing each driver-employee as to the loads assigned to

him or her and as to the times by which such driver-employee had

to deliver those loads, and relaying any instructions of its

customers relating to such loads; (4) was responsible for the

payment of tolls, fuel, repairs, and scale fees incurred during

     7
      The TLC driver handbook consisted of approximately 50 pages
covering the various matters with respect to which TLC gave
detailed instructions to each driver-employee.
                               - 8 -

the transport of such goods and merchandise;   and (5) had the

authority to determine whether to permit a driver-employee whom

TLC leased to it to take any vacation days.    TLC did not own any

interest in, had no rights in the profits of, and had no respon-

sibility for the losses of the business of any trucking company

client.

     TLC sponsored certain employee benefits for its driver-

employees, including:   (1) A section 401(k) plan; (2) a section

125 flexible benefit plan; (3) group or individual health insur-

ance; (4) a $5,000 group term life insurance policy; and (5) the

option of purchasing additional group term life insurance.    TLC

paid the premiums and any administrative costs associated with

the $5,000 group term life insurance policy.   TLC bore the

administrative costs but no other costs associated with the

various other employee benefits that it sponsored for its driver-

employees.   Each driver-employee paid such other costs through

payroll deductions.8

     Pursuant to each exclusive lease agreement, each trucking

company client had the right to decline using a particular

driver-employee whom TLC wanted to lease to it.   While TLC was


     8
      Certain trucking company clients paid at least part of the
premiums associated with the health insurance plan that TLC
sponsored for the driver-employees whom TLC leased to them. In
such instances, TLC paid the trucking company client’s share of
such health insurance premiums and charged such premiums to the
trucking company client.
                                 - 9 -

leasing a driver-employee to a trucking company client, TLC had

the right to lease that driver-employee to another trucking

company client and thereby assign additional projects to such

driver-employee.

     If a trucking company client no longer wanted or needed the

services of a particular driver-employee, TLC did not continue

leasing such driver-employee to that trucking company client.    In

that event, TLC attempted to lease such driver-employee to

another trucking company client.    TLC frequently was successful

in reassigning a driver-employee from one trucking company client

that no longer wished to use such driver-employee to another

trucking company client.   TLC also reassigned to another trucking

company client any driver-employee who no longer wished to work

with a particular trucking company client to which TLC had

assigned such driver-employee.    If a driver-employee refused such

reassignment, TLC treated him or her as having voluntarily

terminated his or her employment with TLC and contested any

unemployment claims that such driver-employee filed.9

     Each of TLC’s driver-employees who was engaged in over-the-

road trucking paid for food and beverage expenses while traveling

away from home.    TLC generally made payments of per diem amounts

to each such driver-employee that TLC intended to cover such food

     9
      Because of the large number of driver-employees and the low
rate of successful claims, TLC usually paid the minimum rate
imposed by the applicable State Unemployment Tax Act (SUTA).
                              - 10 -

and beverage expenses.   TLC did not pay any per diem amounts to a

driver-employee whom it leased to a trucking company client who

was not engaged in over-the-road trucking for that client.

     At the end of each payroll period,10 each trucking company

client mailed or sent by facsimile to TLC a batch control form

(batch report) with respect to such period.   For each payroll

period, the batch report that each trucking company client

submitted to TLC showed for each driver-employee whom TLC leased

to such trucking company client, inter alia, (1) a lump sum

amount (batch report lump sum amount) from which TLC was to

determine the gross wages11 and any per diem amounts to which

each driver-employee was entitled but which was not broken down

into such component parts;12 (2) the total amount of expenses for

     10
      Pursuant to the exclusive lease agreement, each trucking
company client had the right to select the payroll period for all
driver-employees whom TLC leased to such trucking company client.
     11
      We shall refer to the gross amount of wages to which a
driver-employee was entitled, prior to any reduction for such
driver-employee’s share of Federal and State employment taxes,
Federal and State income taxes withheld, and payroll deductions
for employee benefits (e.g., health insurance, a sec. 401(k)
plan, or a sec. 125 flexible benefit plan), as gross wages.
     12
      Pursuant to each exclusive lease agreement, each trucking
company client, and not TLC, selected the method used in calcu-
lating the batch report lump sum amount for each driver-employee
whom TLC leased to such trucking company client. Virtually all
of TLC’s trucking company clients selected a cents-per-mile or a
percentage-of-load-gross-revenue basis as the applicable method.
Neither the batch report nor any other document that a trucking
company client submitted to TLC showed the breakdown of the batch
report lump sum amount between gross wages and any per diem
                                                   (continued...)
                               - 11 -

gas, tolls, repairs, and other road expenses for which such

trucking company client (a) made cash advances (advances)13

and/or (b) was obligated to make reimbursements to such driver-

employee (reimbursable expenses); (3) any miscellaneous credits

or deductions (e.g., for the costs of health insurance that such

trucking company client agreed to pay); (4) any vacation days

that such trucking company client permitted such driver-employee

to take;14 and (5) the number of days such driver-employee was

away from home.

     TLC determined what portion of the batch report lump sum

amount constituted gross wages and what portion, if any, consti-

tuted per diem amounts to which each driver-employee was enti-

tled.15   In order to make that determination, TLC applied to each

batch report lump sum amount with respect to each driver-employee

a percentage (per diem percentage).     In most cases, the per diem

percentage was 34 percent; in some cases, the per diem percentage

     12
      (...continued)
amounts.
     13
      Except for such advances, no trucking company client made
any payments to a driver-employee.
     14
      If the batch report indicated that the trucking company
client permitted a driver-employee whom TLC leased to it to take
any vacation days, TLC paid no per diem amounts to such driver-
employee for any such days.
     15
      The exclusive lease agreement was silent as to (1) any per
diem amounts that TLC was to pay to a driver-employee to cover
such driver-employee’s food and beverage expenses while traveling
away from home and (2) the limitation imposed by sec. 274(n)(1).
                              - 12 -

ranged from zero to 33 percent.

     Upon receipt of a batch report, TLC inputted the information

contained in that batch report into its computer system and,

based on that information and other information in its computer

system (e.g., the per diem percentage, applicable employment tax

rates, Federal and State income tax withholding), computed with

respect to each driver-employee gross wages, any per diem

amounts, Federal and State income taxes withheld, the driver-

employee share of employment taxes,16 payroll deductions for

employee benefits, and net wages.17    Per diem amounts are not

wages for purposes of computing employment taxes, Federal and

State income tax withholding, and workers’ compensation insurance

premiums.   TLC determined each driver-employee’s gross wages by

reducing the batch report lump sum amount for such driver-em-

ployee by any per diem amounts that TLC determined for such

driver-employee.

     With respect to each driver-employee, for each payroll

period TLC was obligated to, and did, pay such driver-employee

     16
      We shall refer to any tax liabilities imposed on either
the employer or the employee with respect to a driver-employee’s
gross wages under the Federal Insurance Contribution Act (FICA),
the Federal Unemployment Tax Act, or SUTA as employment taxes.
     17
      We shall refer to the net amount of wages to which a
driver-employee was entitled, after any reduction for such
driver-employee’s share of Federal and State employment taxes,
Federal and State income taxes withheld, and payroll deductions
for employee benefits (e.g., health insurance, a sec. 401(k)
plan, or a sec. 125 flexible benefit plan), as net wages.
                             - 13 -

his or her net wages and any per diem amounts,18 regardless of

whether the trucking company client to which TLC leased such

driver-employee paid TLC the lease fee (discussed below).      TLC

generally paid such net wages and any per diem amounts to each

driver-employee on the day after TLC received a batch report.

(We shall refer to TLC’s obligation with respect to each driver-

employee for each payroll period to pay to each such driver-

employee such aggregate amount of net wages and any per diem

amounts as well as its obligation to pay the employer’s share of

employment taxes, withhold and pay the driver-employee’s share of

employment taxes, withhold and pay Federal and State income

taxes, make daily electronic funds transfers of the appropriate

amounts of such taxes to the Internal Revenue Service (IRS) and

appropriate State agencies, and pay workers’ compensation insur-

ance premiums as TLC’s payroll obligation.)

     Pursuant to each exclusive lease agreement, each payroll

period each trucking company client paid TLC a lease fee (lease

fee) that was not broken down into component parts.19   Each

     18
      The aggregate amount of each driver-employee’s net wages
and any per diem amounts that such driver-employee was entitled
to receive was increased by the amount of any reimbursable
expenses for which a trucking company client was obligated to
reimburse such driver-employee and decreased by the amount of any
advances that a trucking company client paid to such driver-
employee.
     19
      Pursuant to each exclusive lease agreement, the aggregate
amount of the batch report lump sum amount with respect to each
                                                   (continued...)
                             - 14 -

exclusive lease agreement set forth a factor (factor)20 to which

TLC and each trucking company client agreed and which such client

was to multiply by the batch report lump sum amount in order to

calculate the lease fee that such client owed to TLC for each

driver-employee whom TLC leased to such client.

     The factor to which TLC and each trucking company client

agreed was intended to produce a lease fee sufficient to cover:

(1) The batch report lump sum amount with respect to each driver-

employee whom TLC leased to such trucking company client; (2) the

employer’s share of employment taxes on the gross wages to which

each such driver-employee was entitled; (3) workers’ compensation

insurance premiums attributable to the gross wages earned by each

such driver-employee; (4) other expenses that TLC incurred as

costs of earning such lease fee, e.g., expenses for sales repre-

sentatives and managers, legal and accounting services, and other

     19
      (...continued)
driver-employee was multiplied by the applicable factor (dis-
cussed below) to calculate the lease fee that each trucking
company client owed TLC.
     20
      Pursuant to the exclusive lease agreement, TLC had the
right to modify the factor in the event Federal and State employ-
ment tax rates and/or workers’ compensation insurance rates
changed. From time to time, TLC modified the factor that it
charged each trucking company client in order to reflect changes
in TLC’s workers’ compensation insurance premiums. TLC and each
trucking company client also had the right to modify the factor
if, inter alia, the information that TLC collected from a truck-
ing company client in order to substantiate the per diem amounts
that TLC paid to the driver-employees whom it leased to such
client changed (e.g., if a trucking company client reduced its
over-the-road trucking business).
                             - 15 -

overhead; and (5) TLC’s profit (profit).

     The factor was a flat rate that ranged from 1.15 to 1.25.

The factor was not broken down into component parts.    Conse-

quently, no trucking company client knew how much of the factor

to which TLC and such trucking company client agreed was intended

to cover each of the various expenses associated with TLC’s

driver-leasing business (e.g., gross wages, any per diem amounts,

the employer’s share of employment taxes, workers’ compensation

insurance, and compensation of persons who performed services for

TLC other than TLC’s driver-employees).

     The batch report that each trucking company client submitted

to TLC each payroll period included each trucking company cli-

ent’s computation of the lease fee to which TLC was entitled

under the terms of the exclusive lease agreement.   In order to

calculate the amount of such lease fee payable to TLC for each

payroll period, each trucking company client increased the amount

of the lease fee to which TLC was entitled by (1)(a) the total

amount of the reimbursable expenses due to each driver-employee

whom TLC leased to such trucking company client and (b) any

miscellaneous additions or carryover credits and reduced that sum

by (2)(a) the total amount of advances that such trucking company

client paid to each driver-employee whom TLC leased to it and

(b) any miscellaneous subtractions or debit balances.    (We shall

refer to the amount of the lease fee payable each payroll period
                               - 16 -

to TLC by each trucking company client after such additions and

subtractions as the payroll period net lease fee due.)

       Each trucking company client generally paid TLC the payroll

period net lease fee due, as reflected in the batch report, on

the day on which TLC issued a check to each driver-employee for

such driver-employee’s net wages and any per diem amounts.       Each

trucking company client paid such payroll period net lease fee

due by wire transfer or direct deposit into an account of TLC.

TLC did not maintain separate accounts for the funds received

from its respective trucking company clients.    As discussed

above, for each payroll period TLC was obligated to, and did, pay

such driver-employee his or her net wages and any per diem

amounts, regardless of whether the trucking company client to

which TLC leased such driver-employee paid TLC the net lease fee

due.

       For the calendar years 1993, 1994, 1995, and 1996, TLC sent

a form letter (per diem letter) to each trucking company client,

which set forth the total of all per diem amounts that TLC paid

to the driver-employees whom it leased to such trucking company

client during the preceding calendar year.    The per diem letter

for calendar year 1993 (sent to each trucking company client

early in calender year 1994) stated in pertinent part:

       Our billings to you include amounts paid, on your
       behalf, to our drivers, for road expenses; often re-
       ferred to as per diem. The amounts billed are of
       course, reduced by the amounts you paid directly to the
                             - 17 -

     drivers in the form of “advances”, frequently an amount
     approximating an allowable per diem.

     As required by tax law and part of our service, we have
     tabulated the per diems to be used in your tax return
     preparation. As payer of these amounts, you must
     afford them special treatment under the 20% reduction
     provision of Internal Revenue Code Section 274(n). You
     should take this into account when preparing your tax
     returns for your business and may want to forward a
     copy of this letter to your tax advisor.

     The amount of per diem you paid to drivers, or which we
     partially paid on your behalf during 1993, was * * *
     [total of per diem amounts.21]

     Petitioner filed consolidated Form 1120, U.S. Corporation

Income Tax Return (Form 1120), as the parent corporation of a

group of affiliated corporations for each of petitioner’s taxable

years 1993, 1994, 1995, and 1996.   Schedule K, Other Information,

included as part of each of those Forms 1120 showed business

activity as “leasing” and product or service as “employees”.

Form 851, Affiliations Schedule, included as part of those Forms

1120 showed TLC’s business activity as “leasing”.

     On October 27, 2000, respondent sent a notice of deficiency



     21
      The per diem letters for the calendar years 1994, 1995,
and 1996 were identical to the per diem letter for calendar year
1993 except that the reference to “20% reduction” was changed to
“50% percent reduction” in order to reflect changes made to sec.
274(n)(1) by the Omnibus Budget Reconciliation Act of 1993 (OBRA
1993), Pub. L. 103-66, sec. 13209(a), 107 Stat. 469. In this
connection, prior to its amendment by OBRA 1993, sec. 274(n)(1)
limited a deduction for food or beverages to 80 percent of the
amount otherwise allowable (80-percent limitation). For taxable
years that began after Dec. 31, 1993, sec. 274(n)(1) limits a
deduction for food or beverages to 50 percent of the amount
otherwise allowable (50-percent limitation).
                              - 18 -

(notice) to petitioner.   In that notice, respondent determined,

inter alia, that the section 274(n)(1) limitation applied to the

per diem amounts that TLC paid to its driver-employees.

     Respondent sent a notice to each of the following trucking

company clients of TLC in which respondent determined that each

such trucking company client had a deficiency in Federal income

tax (tax) for one or more taxable years22 arising out of such

trucking company client’s failure to take into account the

section 274(n)(1) limitation23 and with respect to which each

such trucking company client commenced proceedings in the Court,

as follows:

          Trucking Company Client        Case at Docket No.
     John and Kimberly Kohler                  1026-01
       (NBS Trucking)
     Joseph and Barbara Hix                    1062-01
       (Joe Hix Trucking)
     Blachowske Truck Line, Inc.               1107-01
     Jones Brothers Trucking, Inc.             1149-01
     Lake State Transport, Inc.                1286-01
     Schak Trucking Inc.                       1287-01
     Donald Fiereck and Beverly                1346-01
      Beumer-Fiereck (Parkway Auto
      Transport)

     Respondent conceded the above-referenced cases.     The Court


     22
      The record did not disclose the taxable year(s) to which
the respective notices issued to certain of TLC’s trucking
company clients pertained.
     23
      In the instant case, the 80-percent limitation applies to
taxable years ended Aug. 31, 1993, and Aug. 31, 1994, and the 50-
percent limitation applies to taxable years ended on or after
Aug. 31, 1995.
                              - 19 -

entered stipulated decisions in such cases, which reflected such

concessions.

                            Discussion

Petitioner’s Motion for Reconsideration

     In support of petitioner’s position that the Court should

grant petitioner’s motion for reconsideration, petitioner ad-

vances the following arguments:   (1) The Court erred in conclud-

ing that respondent impeached the testimony of Gary Ankerfelt

(Mr. Ankerfelt); (2)(a) the Court did not consider the

precedential effect of Beech Trucking Co. v. Commissioner, 118

T.C. 428 (2002) (Beech Trucking Co.), and (b) the factors used in

determining whether a person is an employer or an employee24 that

the Court applied in Transport Labor I were inconsistent with the

common-law employment factors applied by the Court in Beech

Trucking Co.; and (3)(a) in finding certain facts, the Court gave

improper weight to certain evidence, and (b) in determining

whether TLC was the employer25 of certain truck drivers whom it

leased to certain trucking companies, the Court gave improper

weight to certain facts that the Court found in Transport Labor

I.   Respondent opposes petitioner’s motion for reconsideration.


     24
      For convenience, we shall refer to the factors used in
determining whether a person is an employer or an employee as the
common-law employment factors.
     25
      We accord the term “employer” the same meaning as the term
“common-law employer”. For convenience, we shall use only the
term “employer”.
                               - 20 -

     The granting of a motion for reconsideration rests within

the discretion of the Court.     Estate of Quirk v. Commissioner,

928 F.2d 751, 759 (6th Cir. 1991), affg. in part and remanding in

part T.C. Memo. 1988-286; Klarkowski v. Commissioner, 385 F.2d

398, 401 (7th Cir. 1967), affg. T.C. Memo. 1965-328; see Con-

cordia Coll. Corp. v. W.R. Grace & Co., 999 F.2d 326, 330 (8th

Cir. 1993).   A motion for reconsideration will be denied unless

unusual circumstances or substantial error is shown.     Estate of

Quirk v. Commissioner, supra; Alexander v. Commissioner, 95 T.C.

467, 469 (1990), affd. without published opinion sub nom. Stell

v. Commissioner, 999 F.2d 544 (9th Cir. 1993); Vaughn v.

Commissioner, 87 T.C. 164, 167 (1986).

     With respect to petitioner’s argument that the Court incor-

rectly concluded that respondent impeached the testimony of Mr.

Ankerfelt, petitioner asserts:

          The Opinion incorrectly concluded that Gary
     Ankerfelt’s credibility was impeached because the
     affidavit he submitted in a workers’ compensation case
     involving Hix Trucking, a TLC customer, was contrary to
     his testimony at trial. A witness may be impeached
     only by a prior inconsistent statement. Here, however,
     Mr. Ankerfelt made no prior inconsistent statement; his
     testimony was consistent with his prior statement.
     * * * In any event, Mr. Ankerfelt’s testimony was
     credible; his testimony on every point was corroborated
     by other witnesses.

On the record before us, we reject petitioner’s argument.

     At the trial in this case, Mr. Ankerfelt testified with

respect to TLC’s role in hiring, firing, and assigning projects
                              - 21 -

to its driver-employees:   (1) TLC exercised only an advisory role

in hiring each driver-employee; (2) without exception, the

trucking company client made the decision to terminate any

driver-employee whom TLC leased to it; and (3) while TLC was

leasing a driver-employee to a trucking company client, TLC had

no right to lease that driver-employee to another trucking

company client and thereby assign additional projects to such

driver-employee (collectively, Mr. Ankerfelt’s disputed trial

testimony).   Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 185-186.     Respondent introduced into

the record an affidavit (Mr. Ankerfelt’s affidavit) that Mr.

Ankerfelt made under oath in Hix v. Minn. Workers’ Comp. Assigned

Risk Plan, 520 N.W.2d 497 (Minn. Ct. App. 1994).    In that affida-

vit, Mr. Ankerfelt swore under oath, inter alia:

     TLC recruits, screens and hires the employee-drivers
     that it leases to Joe Hix Trucking and other trucking
     companies. TLC places advertisements to locate such
     drivers and makes all hiring decisions. A lessee
     [trucking company client] has no authority to require
     TLC to hire a particular driver.

          * * * TLC has sole authority to determine the
     assignment of a driver.

          * * * TLC retains the sole right to discharge and
     fire any of its drivers-employees. When a lessee no
     longer desires to lease a TLC driver-employee, the TLC
     driver-employee returns to TLC for assignment to an-
     other lessee.

     The above-quoted statements from Mr. Ankerfelt’s affidavit

are inconsistent, or sufficiently inconsistent, with Mr.
                               - 22 -

Ankerfelt’s disputed trial testimony.    Consequently, the Court in

Transport Labor I found that respondent impeached Mr. Ankerfelt’s

disputed trial testimony.26   Transp. Labor Contract/Leasing, Inc.

& Subs. v. Commissioner, supra at 186.    In addition, the Court in

Transport Labor I found that “respondent also raised other

questions about the reliability of Mr. Ankerfelt’s testimony that

TLC exercised only an advisory role in hiring each

driver-employee.”   Id.   Respondent called as a witness Beverly

Fiereck (Ms. Fiereck), the president of Parkway Auto Transport

(Parkway), one of TLC’s trucking company clients.27     Id.   Ms.

Fiereck, whom the Court found to be credible, id., testified that

TLC, and not Parkway, decided whether or not to hire a truck

driver whom Parkway referred to it.     Id.   As a result of the

foregoing, the Court did not rely on Mr. Ankerfelt’s testimony to

support petitioner’s position that TLC was not the employer of



     26
       Petitioner contends that, in order to use Mr. Ankerfelt’s
affidavit to impeach him, the Court must find Mr. Ankerfelt’s
affidavit to be credible. Petitioner’s contention is wrong. The
impeachment of Mr. Ankerfelt’s disputed trial testimony arises
from its inconsistency with Mr. Ankerfelt’s affidavit and does
not require that the Court find either Mr. Ankerfelt’s disputed
trial testimony or Mr. Ankerfelt’s affidavit to be credible.
See, e.g., Estate of Shafer v. Commissioner, 80 T.C. 1145, 1157
n.18 (1983), affd. on other grounds 749 F.2d 1216 (6th Cir.
1984).
     27
      The parties stipulated that the testimony of any person
representing Parkway is to be considered representative of the
testimony that would be given by any persons representing other
trucking company clients of TLC if they had been called to
testify at the trial in this case.
                                - 23 -

each driver-employee.28

     With respect to petitioner’s argument that in Transport

Labor I the Court did not consider the precedential effect of

Beech Trucking Co., petitioner asserts:

          The Court made a “manifest error of law” when it
     failed to follow the binding precedent of Beech Truck-
     ing Co. v. Commissioner, 118 T.C. 428 (2002), in accor-
     dance with the Court’s ruling in Boyd v. Commissioner,
     122 T.C. 305 (2004). * * *

          In Boyd v. Commissioner, the Court described the
     [sic] “the analysis and reasoning” in Beech Trucking
     Co. as precedent binding on this Court under the doc-
     trine of stare decisis. * * *

On the record before us, we reject petitioner’s assertion.

     As the Court stated in Transport Labor I, the determination

of whether an individual is an employer is a fact-intensive

inquiry.   Id. at 184.    Application of the common-law employment

factors may produce different results in different cases that may

appear to be facially similar.    For example, in Weber v.

Commissioner, 60 F.3d 1104 (4th Cir. 1995), affg. 103 T.C. 378

(1994), application of the common-law employment factors resulted

in a finding that a Methodist minister was the employee of the

United Methodist Church.    In contrast, in Alford v. United

States, 116 F.3d 334 (8th Cir. 1997), and Shelley v.


     28
      To the extent other witnesses whom the Court found to be
credible and reliable testified regarding matters about which Mr.
Ankerfelt also testified, the Court based its findings upon the
testimony of such other witnesses, as well as on the parties’
stipulations of fact and documentary evidence in the record, and
not on Mr. Ankerfelt’s testimony.
                             - 24 -

Commissioner, T.C. Memo. 1994-432, application of the common-law

employment factors resulted in findings that an ordained minister

holding credentials in the Assemblies of God Church and a

minister of the International Pentecostal Holiness Church,

respectively, were not employees of their respective religious

organizations.

     The facts of the instant case are materially distinguishable

from the facts in Beech Trucking Co.   The Court in Beech Trucking

Co. v. Commissioner, 118 T.C. at 441, 442 n.16, concluded:

     In the instant case, the evidentiary basis for
     analyzing the relevant common law factors is relatively
     sparse, owing largely to petitioner’s [Arthur Beech,
     the tax matters person for Beech Trucking Company]
     failure to introduce in evidence or otherwise establish
     the precise terms of any lease agreement, employment
     agreement, or contract between Beech Trucking and ATS
     [driver-leasing company]. Nor does the record contain
     the drivers’ employment contracts. Moreover, the
     record does not always clearly distinguish the roles of
     Beech Trucking and ATS with respect to the drivers’
     activities. We infer that their roles were to some
     degree blurred, especially taking into consideration
     that [Ed] Harvey, who owned [alone] ATS, also owned 26
     percent of Beech Trucking, and that petitioner, who was
     president and 55-percent owner of Beech Trucking, was
     an employee of ATS.

        *        *      *       *       *       *       *

          Most of the pertinent testimony regarding the
     Beech Trucking drivers’ activities came from
     petitioner. As previously noted, petitioner was both
     president of Beech Trucking and an employee of ATS
     * * * [and] his testimony often employed, ambiguously,
     first-person plural pronouns. * * *

The Court also concluded in Beech Trucking Co. that the record

was “unclear as to the extent of any business ATS might have had
                              - 25 -

apart from the services it provided Beech Trucking.”   Id. at 443.

     In contrast to the record before the Court in Beech Trucking

Co., the Court in Transport Labor I had a complete, extensive,

and clear record upon which to base its findings and conclusions

and which included the exclusive lease agreement, the driver

contract, the TLC driver handbook, and the testimony of

representatives of various trucking company clients and TLC.     In

addition, there was no evidence, and petitioner does not contend,

(1) that petitioner or TLC had any overlapping personnel with any

trucking company client, (2) that petitioner or TLC owned any

interest in any trucking company client, or (3) that any owner of

a trucking company client owned an interest in petitioner.29     Cf.

id. at 430-431.   Moreover, in contrast to ATS, which insofar as

the record in Beech Trucking Co. revealed had only one trucking

company as a client, viz., Beech Trucking Company, id. at 443,

during the years at issue TLC had between 100 and 300 trucking

company clients, Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 156.   It is mere speculation on the

part of petitioner to assume that if the facts in Beech Trucking

Co. had been virtually the same as the facts in the instant case,

which they are not, the Court in Beech Trucking Co. nevertheless

would have evaluated the common-law employment factors in the


     29
      TLC was a wholly owned subsidiary of petitioner. Transp.
Labor Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at
155.
                               - 26 -

same manner as it did, would not have considered any common-law

employment factors other than those that it considered, and would

have found that Beech Trucking Company was the employer of the

truck drivers whom it leased from ATS.

       Beech Trucking Co. is materially distinguishable from the

instant case and not binding on the Court with respect to the

questions presented here.    Petitioner is wrong in asserting that

Boyd v. Commissioner, 122 T.C. 305 (2004), holds to the contrary.

There was no dispute in Boyd v. Commissioner, supra, that the

trucking company there involved (Continental) was the employer of

the truck drivers who drove its trucks and that such trucking

company was subject to the section 274(n)(1) limitation.    Id. at

307.    The sole issue in Boyd was the validity and effect of Rev.

Procs. 94-77, 1994-2 C.B. 825, 96-28, 1996-1 C.B. 686, and 96-64,

1996-2 C.B. 427, that are not at issue in the instant case.     In

determining the validity and effect of those revenue procedures

in Boyd, the Court indicated that it would apply “the analysis

and reasoning” that Beech Trucking Co. applied in determining the

validity and effect of those same revenue procedures.    Id. at

311-312.    In so stating, the Court in Boyd was not referring to

the Court’s discussion in Beech Trucking Co. with respect to the

common-law employment factors.

       With respect to petitioner’s argument that the Court used

certain common-law employment factors in Transport Labor I that
                              - 27 -

were inconsistent with the common-law employment factors that the

Court used in Beech Trucking Co., petitioner asserts:

     the Court did not apply some of the factors used in
     Beech Trucking, restated factors used in Beech Trucking
     in a materially different way, and added a factor
     inapplicable to three-party transactions. The Court’s
     Opinion also uses a different analysis of the factors
     than the Court did in Beech Trucking. * * *

On the record before us, we reject petitioner’s assertion.

     The list of common-law employment factors that the Court set

forth in Beech Trucking Co. was nonexhaustive.   Schwieger v. Farm

Bureau Ins. Co., 207 F.3d 480, 484 (8th Cir. 2000); Beech

Trucking Co. v. Commissioner, 118 T.C. at 440.   Petitioner does

not cite, and we have not found, any authority that precluded the

Court in Transport Labor I, in determining whether TLC was the

employer of each driver-employee whom it leased to each trucking

company client, from considering common-law employment factors in

addition to those on which the Court relied in Beech Trucking Co.

and from not giving the same weight to certain factors on which

the Court relied in Beech Trucking Co.

     With respect to petitioner’s argument that the Court in

Transport Labor I “restated factors used in Beech Trucking in a

materially different way”, petitioner asserts that the Court in

Transport Labor I erred in considering the “sponsorship of * * *

employee benefits” rather than the “provision of employee

benefits”.   Petitioner’s assertion erroneously assumes that the

Court intended a substantive difference when it used the phrase
                                  - 28 -

“sponsorship of * * * employee benefits” in Transport Labor I,

and not the phrase “provision of employee benefits” that it used

in Beech Trucking Co.

     In Transport Labor I, the Court found that TLC sponsored

certain employee benefits for its driver-employees, including:

(1) A section 401(k) plan; (2) a section 125 flexible benefit

plan; (3) group or individual health insurance; (4) a $5,000

group term life insurance policy; and (5) the option of

purchasing additional group term life insurance.      Transp. Labor

Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 169.

The Court also found:      (1) TLC paid the premiums and any

administrative costs associated with the $5,000 group term life

insurance policy; (2) TLC bore the administrative costs but no

other costs of the section 401(k) plan, the section 125 flexible

spending plan, and the group or individual health insurance; and

(3) each driver-employee paid such other costs through payroll

deductions.30     Id.   Only benefit plans established by an employer

for the benefit of such employer’s employees qualify for certain

favorable tax treatment.      See, e.g., secs. 401(a), (k), 125(a),

(d), 79(a).     Regardless of whether the phrase “sponsorship * * *

of employee benefits” or “provision of employee benefits” was

used, the fact remains that TLC established certain benefit plans

for its driver-employees that could have qualified for such


     30
          See supra note 8.
                             - 29 -

favorable tax treatment only if TLC were the employer of such

driver-employees.

     With respect to petitioner’s argument that the Court in

Transport Labor I “restated factors used in Beech Trucking in a

materially different way”, petitioner also asserts that in Beech

Trucking Co. the Court found that if a relationship31 between a

truck driver and a trucking company is “of indefinite duration”,

such trucking company is the employer of such truck driver.    In

this connection, petitioner contends:

          Here, substantial evidence proved that the
     employment relationship between the trucking companies
     and the drivers existed before TLC’s involvement with
     the trucking companies. The Lease Agreement had no
     effect on the duration of the drivers’ relationship
     with the trucking companies because the drivers
     continued to work in the business of the trucking
     companies. * * *

On the record before us, we reject petitioner’s assertion.



     31
      As the Court indicated in Transport Labor I, petitioner
did not explain on brief, and does not explain in its motion for
reconsideration, what it means when it argues that the “relation-
ship” between a trucking company and its drivers was of indefi-
nite duration. Transp. Labor Contract/Leasing, Inc. & Subs. v.
Commissioner, 123 T.C. at 195. We presume that petitioner means
that, after a trucking company entered into an exclusive lease
agreement with TLC, each driver who previously worked for such
trucking company continued to perform services for such company
pursuant to the employment arrangement with such company that
existed before it entered into such lease agreement with TLC. We
reject any such argument. The parties stipulated, and the Court
in Transport Labor I found, that, when each trucking company
entered into an exclusive lease agreement with TLC, such trucking
company terminated the employment arrangement that it had with
all of the truck drivers who previously worked for such trucking
company. Id. at 159.
                              - 30 -

     The facts of the instant case do not support petitioner’s

assertion that the exclusive lease agreement “had no effect on

the duration of the drivers’ relationship” with a trucking

company where TLC leased such drivers as driver-employees of TLC

to such trucking company as TLC’s trucking company client.    To

the contrary, the exclusive lease agreement had a dramatic effect

on such driver’s employment relationship.    As discussed above, if

a truck driver had previously performed services for a trucking

company and if such trucking company became a client of TLC by

entering into an exclusive lease agreement with TLC, such truck

driver’s employment arrangement with such trucking company was

terminated.   Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, supra at 159.   After a trucking company became a

client of TLC and terminated the employment arrangement with any

truck driver who had previously performed services for such

trucking company, TLC had the sole and absolute authority to

determine whether to hire such truck driver as a driver-employee.

Id. at 164.   TLC exercised that authority by, inter alia,

requiring a truck driver, regardless of whether a trucking

company client referred such driver to TLC as an applicant for

the position of TLC’s driver-employee, to pass TLC’s screening

and approval process before TLC decided whether to hire such

truck driver as a driver-employee.     Id.

     If TLC decided to hire a truck driver who had previously
                             - 31 -

performed services for a trucking company client and if TLC

leased such truck driver to such trucking company client, two new

relationships involving such truck driver began:   (1) A new

relationship between TLC and such truck driver as a driver-

employee of TLC; and (2) a new relationship between such trucking

company client of TLC and such truck driver as a driver-employee

of TLC whom TLC leased to such trucking company client.   The

relationship between TLC and a truck driver as a driver-employee

was separate and distinct from the relationship between such

trucking company client of TLC and such truck driver as a driver-

employee of TLC whom TLC leased to such trucking company client.

In addition, both of those new relationships were separate and

distinct from any employment arrangement that a truck driver

might have had with a trucking company before such trucking

company became a trucking company client of TLC.

     Petitioner did not persuade us at trial, and does not

persuade us in petitioner’s motion for reconsideration, that the

duration of any employment relationship that may have existed

between a truck driver and a trucking company before TLC decided

to hire such truck driver as a driver-employee and before such

trucking company became a client of TLC should be aggregated with

the duration of the relationship between such trucking company

client of TLC and such driver-employee where TLC leased such

driver-employee to such trucking company client.   Any employment
                              - 32 -

arrangement that may have existed between such a truck driver and

such a trucking company was terminated when such trucking company

became a trucking company client of TLC.   The duration of any

such employment relationship was not helpful to the Court in

determining whether TLC was the employer of such truck driver

where TLC decided to hire such truck driver as its driver-

employee and leased such driver-employee to such trucking company

client.   That is why, on the facts presented in the instant case,

the Court found in Transp. Labor Contract/Leasing, Inc. & Subs.

v. Commissioner, 123 T.C. at 195:

          In the instant case, it is the nature, and not the
     duration, of the relationship between a driver-employee
     and TLC and the relationship between a driver-employee
     and a trucking company client that determines whether
     TLC or such trucking company client is the employer of
     such driver-employee. [Emphasis added.]

     In contrast to the instant case, the Court in Beech Trucking

Co. did not have before it a situation where the employment

arrangement between a truck driver and Beech Trucking Company was

terminated when Beech Trucking Company decided to become a client

of ATS.   In addition, insofar as the record in Beech Trucking Co.

revealed, the functions performed by ATS (the driver-leasing

company) and Beech Trucking Company with respect to the truck

drivers were to some degree blurred.   Beech Trucking Co. v.

Commissioner, 118 T.C. at 441.   As the Court in Beech Trucking

Co. understood the arrangement between Beech Trucking Company and

ATS, truck drivers hired to drive for Beech Trucking Company were
                              - 33 -

to drive, apparently for an indefinite period, equipment owned by

Beech Trucking Company, which had final authority to fire them.

Id. at 431. That is why the Court in Beech Trucking Co. stated

that “the relationship between the drivers and Beech Trucking was

apparently of indefinite duration.”    Id. at 442.

     With respect to petitioner’s argument that the Court in

Transport Labor I “added a factor inapplicable to three-party

transactions”, petitioner asserts that “In a three-party

arrangement it is expected that the leasing company will treat

the drivers as employees for purposes of employment taxes, such

as FUTA and FICA taxes.”   On the record before us, we reject

petitioner’s assertion.

     Petitioner’s assertion that in a “three-party arrangement it

is expected that the leasing company will treat drivers as

employees for purposes of employment taxes” is not supported by

the record in the instant case.   The record in Transport Labor I

established facts relating to TLC, its trucking company clients,

and its driver-employees, but did not establish facts relating to

expectations in “three-party arrangements” generally.

     In the instant case, if, as petitioner asserts, a trucking

company client expected TLC to treat each driver-employee as an

employee for employment taxes purposes, it was because such

trucking company client expected that TLC would be the employer

for all purposes.   In that connection, the Court in Transp. Labor
                                 - 34 -

Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 193,

stated:

     With respect to each driver-employee, for each payroll
     period TLC was obligated to, and did, pay such driver-
     employee his or her net wages and any per diem amounts
     as well as the employer’s share of employment taxes,
     withhold and pay the driver-employee’s share of
     employment taxes, withhold and pay Federal and State
     income taxes, make daily electronic funds transfers of
     the appropriate amounts of such taxes to the IRS and
     appropriate State agencies, and pay workers’
     compensation insurance premiums.

     The obligations to pay the employer’s share of employment

taxes, to withhold and to pay the employee’s share of employment

taxes, and to withhold and to pay Federal income tax with respect

to an employee’s wages are obligations generally imposed upon an

employer.     Secs. 3102(a), 3111(a), 3301, 3402, 3403.     TLC’s

undertaking and satisfying the obligations to withhold and to pay

FICA taxes,32 other employment taxes, and Federal income tax with

respect to each driver-employee’s wages evidenced that TLC was

the employer of each driver-employee.     See Kirk v. Harter, 188

F.3d 1005, 1008 (8th Cir. 1999); Birchem v. Knights of Columbus,

116 F.3d 310, 313 (8th Cir. 1997); Wilde v. County of Kandiyohi,

15 F.3d 103, 105-106 (8th Cir. 1994).

     In addition, with respect to petitioner’s assertion that TLC

was the employer of each driver-employee for all purposes except

the section 274(n)(1) limitation because TLC was what petitioner



     32
          See Levine v. Commissioner, T.C. Memo. 2005-86.
                             - 35 -

refers to as a so-called administrative employer of each driver-

employee, petitioner does not cite, and we have not found, any

authority that supports petitioner’s suggestion that an entity

may selectively be the employer for purposes of withholding

and/or paying employment and Federal income tax but not for other

purposes such as the section 274(n)(1) limitation.

     With respect to petitioner’s argument that, in finding

certain facts, the Court in Transport Labor I gave improper

weight to certain evidence, petitioner asserts:

          The Court’s reliance on the Lease Agreement,
     Driver Handbook, and Driver’s Contract also is contrary
     to Beech Trucking. As Beech Trucking noted, it is
     well-established that “[a] contract purporting to
     create an employer-employee relationship is not
     controlling where application of the common law factors
     to the facts and circumstances indicates the absence of
     such a relationship.” * * *

          Furthermore, the Court gave too much weight to the
     Driver Handbook. The Handbook only described ordinary
     activities carried out by truck drivers that were
     either recitations of Department of Transportation
     requirements, obvious to a licensed truck driver, or
     merely advisory, not mandatory. While TLC may have had
     written policies aimed at reducing workers’
     compensation claims, there is no evidence that TLC
     controlled the work of the drivers through those
     policies. [Citations omitted.]

On the record before us, we reject petitioner’s assertion.

     A contract purporting to create an employer-employee

relationship is not controlling where application of the common-

law employment factors to the facts and circumstances indicates

the absence of such a relationship.   Profl. & Executive Leasing,
                              - 36 -

Inc. v. Commissioner, 89 T.C. 225, 233 (1987), affd. 862 F.2d 751

(9th Cir. 1988).   Petitioner does not cite, and we have not

found, any authority which requires the Court to ignore a

contract that designates a person as the employer of certain

individuals where the totality of the facts and circumstances

surrounding such person, such individuals, and one or more third

persons who use the services of one or more of such individuals

is not inconsistent with such a contract.    In Transport Labor I,

petitioner failed to show that the totality of the facts and

circumstances surrounding TLC, each driver-employee, and each

trucking company client was inconsistent with the exclusive lease

agreement under which each such trucking company client used the

services of one or more of such driver-employees.

     As an illustration, the exclusive lease agreement provided

in pertinent part that TLC “shall in its absolute discretion,

hire * * * Lessor’s [TLC’s] employees”.     Transp. Labor

Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 160.

The Court in Transport Labor I found that TLC retained the sole

and absolute authority to hire each driver-employee.        Id. at 164.

The record in the instant case established:    (1) Before TLC hired

a truck driver as a driver-employee, such truck driver had to

pass TLC’s screening and approval process, which was designed to

determine a truck driver’s fitness to serve as a driver-employee

of TLC; (2) TLC hired approximately 25 percent of its driver-
                               - 37 -

employees through its own recruitment efforts; and (3) TLC

rejected 10 to 15 percent of the truck drivers whom its trucking

company clients referred to it.     Id.   In Transport Labor I,

petitioner failed to show that the totality of the facts and

circumstances with respect to the hiring of each driver-employee

was inconsistent with the exclusive lease agreement.

     As a further illustration, the exclusive lease agreement

provided in pertinent part that TLC shall “direct the work and

conduct” of each driver-employee.    The Court in Transport Labor I

found that TLC had the right to, and did, direct and control each

driver-employee as to the operation and the loading and unloading

of the truck of the trucking company client that leased such

driver-employee from TLC and as to the details and means by which

that operation and that loading and unloading were to be

accomplished.   Id. at 168.   TLC exercised that right through,

inter alia, the driver contract that TLC required each driver-

employee to sign and the TLC driver handbook, which was

incorporated into and made part of that driver contract.     In

Transport Labor I, petitioner failed to show that the totality of

the facts and circumstances with respect to the control exercised

over each driver-employee was inconsistent with the exclusive

lease agreement.

     As a final illustration, the exclusive lease agreement

provided in pertinent part that TLC “shall in its absolute
                               - 38 -

discretion, * * * fire * * * Lessor’s [TLC’s] employees”.     Id. at

160.    The Court in Transport Labor I found that TLC retained the

sole and absolute authority to terminate each driver-employee’s

employment with TLC.    Id. at 164.   The record in the instant case

established:    (1) If a trucking company client no longer wanted

or needed the services of a particular driver-employee, TLC did

not continue leasing such driver-employee to that trucking

company client but instead attempted to lease such

driver-employee to another trucking company client; and (2) TLC

also reassigned to another trucking company client any

driver-employee who no longer wished to work with a particular

trucking company client to which TLC had assigned such

driver-employee.    Id. at 169-170.   In Transport Labor I,

petitioner failed to show that the totality of the facts and

circumstances with respect to the termination of each driver-

employee’s employment was inconsistent with the exclusive lease

agreement.

       With respect to petitioner’s assertion that the Court in

Transport Labor I “gave too much weight” to the TLC driver

handbook and the driver contract, not only does that assertion

ignore that the Court is “the trier of the facts, the judge of

the credibility of witnesses and of the weight of the evidence,

and the drawer of appropriate inferences”, Hamm v. Commissioner,

325 F.2d 934, 938 (8th Cir. 1963), affg. T.C. Memo. 1961-347, it
                              - 39 -

disregards that TLC had the right to, and did, direct and control

each driver-employee as to the operation and the loading and

unloading of the truck of the trucking company client that leased

such driver-employee from TLC and as to the details and means by

which that operation and that loading and unloading were to be

accomplished, Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 168.   The TLC driver handbook, which

was incorporated into and made part of the driver contract,

contained TLC’s detailed instructions that it required each

driver-employee to follow with respect to, inter alia, fueling

the trucks, starting the trucks’ engines, hooking up the trucks

to trailers, parking the trucks, driving the trucks to achieve

maximum fuel savings, braking the trucks, operating trucks in

cold weather, departure times of the trucks, and loading the

cargo on and unloading it off the trucks.33   Id.   Each driver

contract provided other instructions for each driver-employee.

Such instructions required that each driver-employee was, inter

alia, to attend at least two safety meetings per year, not to be

under the influence of alcohol while performing services for TLC,

not to consume illegal drugs, to complete any paperwork required


     33
      The record does not support petitioner’s assertion that
the TLC driver handbook contained only instructions that were
recitations of Department of Transportation requirements or that
were obvious to a licensed truck driver. Even if the record
supported petitioner’s assertion, TLC required its driver-employ-
ees to follow the instructions in the TLC driver handbook.
                                 - 40 -

by TLC or its affiliates, and not to allow any personal, legal or

financial problems, including attitude, to interfere with the

performance of services for TLC.      If a driver-employee failed to

comply with such instructions, TLC could terminate such driver-

employee’s employment.     Id.   at 165-166.

     The Court in Transport Labor I found that the driver

contract and the TLC driver handbook, which was incorporated into

and made part of the driver contract, evidenced that TLC had the

right to, and did, control the work and conduct of each driver-

employee.   Id. at 188.    Consequently, the Court gave appropriate

weight to such evidence.

     With respect to petitioner’s argument that, in finding

certain facts, the Court in Transport Labor I gave improper

weight to certain evidence, petitioner advances several

additional assertions with respect to certain common-law

employment factors, which we address below.

     Right To Control Driver-Employee

     Petitioner contends that the Court in Beech Trucking Co.

found that Beech Trucking Company controlled the truck drivers

whom ATS leased to it because Beech Trucking Company performed

certain dispatching functions with respect to such truck drivers.

Petitioner asserts that the Court in Transport Labor I should

have found that each trucking company client controlled each

driver-employee whom TLC leased to such trucking company client
                               - 41 -

because such trucking company client performed dispatching

functions with respect to such driver-employee similar to the

dispatching functions that Beech Trucking Company performed.         On

the record before us, we reject petitioner’s assertion.

       The Court in Transport Labor I found that during the taxable

years at issue each trucking company client performed dispatching

functions with respect to each driver-employee whom TLC leased to

such trucking company client by giving each driver-employee his

or her route assignments, directing each driver-employee as to

the loads assigned to him or her and as to the times by which

such driver-employee had to deliver those loads, and relaying any

instruction of its customers relating to such loads (sometimes

hereinafter referred to collectively as the trucking company

client dispatching functions).      Id. at 167.   The Court also found

that each trucking company client’s performing such dispatching

functions did not give such trucking company client control over

each driver-employee within the meaning of section

31.3121(d)-1(c)(2) of the Employment Tax Regulations.       Id. at

188.    The Court found in Transport Labor I that the dispatching

functions that each trucking company client performed were

necessary for the operation of such trucking company client’s

trucking business.    Id. at 167.   That is to say, in order for a

trucking company client to operate its trucking business

successfully, such trucking company client had to give each
                              - 42 -

driver-employee his or her route assignments, direct each driver-

employee as to the loads assigned to him or her and as to the

times by which such driver-employee had to deliver those loads,

and relay to each driver-employee any instruction of its

customers relating to such loads.

     In contrast, in order for TLC to operate its driver-leasing

business successfully, TLC had to direct and control the work and

conduct of its driver-employees in order to, inter alia, minimize

workers’ compensation claims of such driver-employees.   A

principal advantage for a trucking company of leasing driver-

employees from TLC, as opposed to employing truck drivers

directly, related to TLC’s ability to obtain cost-effective

workers’ compensation insurance for TLC’s driver-employees.     Id.

at 158.   In order to minimize workers’ compensation claims and

thereby enable TLC to maintain cost-effective workers’

compensation insurance, TLC had to, and did, control the work and

conduct of each driver-employee.    If TLC had not controlled the

work and conduct of each driver-employee so as to minimize

workers’ compensation claims, its workers’ compensation insurance

expense would have increased substantially, thereby negating a

principal advantage for a trucking company in leasing driver-

employees from TLC, instead of employing truck drivers directly.

     As discussed above, each exclusive lease agreement provided

in pertinent part that TLC had the right to, and did, exercise
                              - 43 -

control over the work and conduct of each driver-employee, id. at

168, and that TLC exercised that right through, inter alia, the

TLC driver handbook and the driver contract, id. at 188.     The

Court in Beech Trucking Co. did not have evidence before it, such

as the exclusive lease agreement, the driver contract, and the

TLC driver handbook that was incorporated into and made part of

the driver contract, which would have enabled the Court in Beech

Trucking Co. to have found facts such as those the Court found in

Transport Labor I.   It is mere speculation on the part of

petitioner to assume that if the facts in Beech Trucking Co. had

been virtually the same as the facts in the instant case, which

they are not, the Court in Beech Trucking Co. nevertheless would

have found that Beech Trucking Company controlled the work and

conduct of the truck drivers whom it leased from ATS because of

the dispatching functions that Beech Trucking Company performed

with respect to such truck drivers.

     With respect to whether TLC controlled the work and conduct

of each driver-employee, petitioner asserts:

     the Court overlooked the testimony of Ardell DeBerg,
     TLC’s CEO and former sales representative. Mr. DeBerg
     testified that in all important respects, the control
     of the trucking company over the drivers was unchanged
     by the Lease Agreement. In other words, the control of
     the trucking companies over the drivers when the
     drivers were indisputably employees of the trucking
     companies did not change after TLC took over
     administrative functions.

On the record before us, we reject petitioner’s assertion.
                              - 44 -

     Ardell DeBerg (Mr. DeBerg), TLC’s chief executive officer at

the time of the trial in the instant case and TLC’s sales

representative during the years at issue, gave the testimony that

petitioner cites with respect to the statement that “TLC becomes

the employer.”   That statement appeared in a form letter that Mr.

DeBerg, as TLC’s sales representative, sent to prospective

clients.   Mr. DeBerg testified (Mr. DeBerg’s testimony):

     TLC becomes the employer. What I used to explain was
     an issue for the trucking company owner normally was
     but they’re my employees. What are my employees going
     to think if now you become the employer. That was
     usually an issue for them.

          I would explain to them that there’s really two
     kinds of employers. There’s the administrative
     employer, which that’s what we are. We take care of
     all the tax deposits, the tax returns for the
     employees, the work comp insurance, and then there’s
     the physical employer, which you remain the physical
     employer. You tell them -- well, the phrase we used to
     use was, The worse thing that can happen is nothing
     changes.

          What I used to use quite often was: In order to
     be an employer, you need to be an attorney, you need to
     be an accountant, you need to be a priest and a shrink
     sometimes. Lean on us to be the attorney and the
     accountant, and we handle all that back room work for
     you, but you’re still the boss. You handle the day-to-
     day tasks, so the worst thing that can happen is
     nothing changes. The employee doesn’t really -- we’re
     pretty invisible. [Reproduced literally.]

     Contrary to petitioner’s assertion, the Court in Transport

Labor I did not overlook the testimony of Mr. DeBerg.   Petitioner

chooses to focus on the portion of Mr. Deberg’s testimony where

he stated:   “You handle the day-to-day tasks, so the worst thing
                              - 45 -

that can happen is nothing changes.    The employee doesn’t really

-- we’re pretty invisible.”   The Court considered Mr. DeBerg’s

statement “the worst thing that can happen is nothing changes” to

be a sales pitch and, as such, gave it no weight.

     The Court considered Mr. DeBerg’s testimony concerning each

trucking company client’s handling “the day-to-day tasks” to be a

reference to the dispatching functions that each trucking company

client performed.   Such interpretation is shared by petitioner.

In petitioner’s memorandum in support of petitioner’s motion for

reconsideration, petitioner points to testimony by Ms. Fiereck

and George Erger, a former employee of Parkway, that Parkway

continued to perform trucking company client dispatching

functions after Parkway entered into the exclusive lease

agreement with TLC as corroborating Mr. DeBerg’s testimony that

each trucking company client continued to handle the “day-to-day

tasks”.   As discussed above, the Court in Transport Labor I found

that each trucking company client’s performing the trucking

company client dispatching functions did not give such trucking

company client control over each driver-employee within the

meaning of section 31.3121(d)-1(c)(2) of the Employment Tax

Regulations.   Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 188.
                                - 46 -

     Hiring of Each Driver-Employee

     Petitioner asserts:

     Ms. Schrupp also testified that TLC’s involvement in
     hiring was limited to an advisory role; TLC did
     administrative screening and performed a DOT-required
     background check “so that [TLC could] advise the client
     if this is a good prospect for them.” * * *

On the record before us, we reject petitioner’s assertion.

     Ms. Schrupp’s testimony that TLC’s involvement in hiring was

limited to an advisory role (Ms. Schrupp’s testimony with respect

to hiring) was given with respect to a one-page marketing

brochure.     During the taxable years at issue, Ms. Schrupp worked

in payroll and sales and marketing support.     Ms. Schrupp would

not have been in the best position to observe TLC’s hiring

procedures.     Ms. Schrupp’s testimony with respect to hiring was

inconsistent with:     (1) The testimony of Ms. Fiereck, whom the

Court found to be credible, id. at 186, that “the relationship

that they [TLC] had was for the hiring and firing or termination

of that driver”;34 (2) TLC’s screening and approval process,

which each truck driver had to pass before TLC decided whether to

hire such truck driver as a driver-employee; (3) the parties’

stipulation that TLC hired approximately 25 percent of its

driver-employees through its own recruitment effort, thereby

rejecting petitioner’s assertion that TLC’s involvement in the

hiring of each driver-employee was limited to an advisory role;

     34
          See supra note 27.
                                - 47 -

(4) Ms. Fiereck’s testimony that 10 to 15 percent of truck

drivers referred to TLC were rejected by TLC, thereby rejecting

petitioner’s assertion that TLC’s involvement in the hiring of

each driver-employee was limited to an advisory role; and (5) the

exclusive lease agreement that TLC entered into with each

trucking company client, which provided in pertinent part that

TLC had the sole and absolute authority to hire each driver-

employee.35

     The evidence supporting a finding that TLC had the sole and

absolute authority to hire each driver-employee substantially

outweighed Ms. Schrupp’s questionable testimony that TLC

exercised only an advisory role in the hiring of each driver-

employee.     Consequently, the Court did not rely on such testimony

of Ms. Schrupp.

     Right To Assign Additional Projects to Each Driver-Employee

     Petitioner asserts:

     There is no evidence that TLC reassigned drivers while
     they were working for the trucking companies. In fact,
     the parties agreed that “[i]n practice, TLC did not
     reassign a Driver once the Driver was assigned to a
     Trucking Company without permission from the Trucking
     Company.” * * * Moreover, respondent presented no
     evidence that drivers were ever reassigned. Again, the
     Opinion elevates the form of the Lease Agreement over
     the substance of the actual relationship.


     35
      As discussed above, petitioner failed to show in Transport
Labor I that the totality of the facts and circumstances sur-
rounding TLC, each driver-employee, and each trucking company
client was inconsistent with the exclusive lease agreement.
                              - 48 -

On the record before us, we reject petitioner’s assertion.

     Petitioner’s assertion that “There is no evidence that TLC

reassigned drivers while they were working for the trucking

companies” is not supported by the record.    The Court in

Transport Labor I found that TLC “reassigned to another trucking

company client any driver-employee who no longer wished to work

with a particular trucking company client to which TLC had

assigned such driver-employee.”   Transp. Labor Contract/Leasing,

Inc. & Subs. v. Commissioner, 123 T.C. at 170.    The record

contained batch reports that have a column titled “Reassign

Date”, and certain of those batch reports reflected the dates on

which certain driver-employees were reassigned from certain

trucking company clients.   TLC’s practice of not reassigning a

driver-employee once such driver-employee was assigned to a

trucking company client which desired to lease such driver-

employee and for which such driver-employee wanted to work was

merely a sound business practice by TLC.     Id. at 190.   TLC, like

any business, was interested in accommodating, to the extent

feasible, the requests of its trucking company clients.      Id.

     Assuming arguendo that the record had established that TLC

never reassigned any driver-employee, petitioner is wrong in

asserting that TLC must have actually reassigned a driver-

employee in order for TLC to be the employer of such driver-

employee.   It was the right to assign additional projects to each
                              - 49 -

driver-employee, and not the actual assignment of such projects,

that evidenced that TLC was the employer of such driver-employee.

Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992);

Alford v. United States, 116 F.3d at 338; Beech Trucking Co. v.

Commissioner, 118 T.C. at 440.     In Transport Labor I, the Court

found that while TLC was leasing a driver-employee to a trucking

company client, TLC had the right to lease that driver-employee

to another trucking company client and thereby assign additional

projects to such driver-employee.     Transp. Labor

Contract/Leasing, Inc. & Subs. v. Commissioner, supra at 169.

     Employee Benefits for Each Driver-Employee

     With respect to the sponsorship of employee benefits,

petitioner asserts that each trucking company client paid for

various benefits, including a section 401(k) plan, section 125

flexible benefit plan, group or individual health insurance, and

$5,000 group term life insurance policy (collectively, the

employee benefits) provided to each driver-employee and that that

alleged fact supports its position that each trucking company

client was the employer of each driver-employee whom TLC leased

to such trucking company client.    In support of that assertion,

petitioner contends as follows:

          The Opinion found that TLC sponsored 401(k), 125
     flexible benefit, and group/individual health insurance
     plans. The Opinion overlooked the testimony of Ms.
     Schrupp, who testified:

               Q:   And when you say that TLC offers benefits
                                 - 50 -

            like 401(k) and health insurance, does TLC
            actually bear the cost of those benefits?

                  A:   No. It’s paid by the trucking company.

            (Tr. 92:10-13(Schrupp)(emphasis added).)

                 Q: [D]oes TLC pay for any portion of those
            benefits?

                  A:   Not to my knowledge.

            (Tr. 103:12-15(Schrupp).)     [Reproduced literally.]

On the record before us, we reject petitioner’s assertion.

     The Court did not overlook the above-quoted testimony of Ms.

Schrupp.    The Court found that testimony, like Ms. Schrupp’s

testimony with respect to the hiring of driver-employees, to be

questionable.     Indeed, Ms. Schrupp’s testimony that each trucking

company client paid for the costs of the employee benefits was

contradicted by her own testimony and by the parties’ stipulation

of facts.    On cross-examination by respondent’s counsel, Ms.

Schrupp testified:

          Q Now, Ms. Schrupp, TLC has a 401(k) plan.
     Correct?

            A   Yes.

          Q And not all the drivers participate in it, but
     some do. Correct?

            A   Correct.

          Q And the payments for the drivers who
     participate in the 401(k) plan are paid for by the
     drivers through payroll withholding. Correct?

            A   Correct.
                            - 51 -

         Q TLC also has a flexible spending plan.
    Correct?

         A   Yes.

         Q And, again, some of the drivers participate and
    some do not.

         A   Correct.

         Q And the drivers who participate pay for that
    themselves through payroll withholding. Correct?

         A   Correct.

         Q And TLC also offers health insurance to the
    drivers. Correct?

         A   Yes.

         Q Now, in some instances, drivers pay for that
    health insurance solely through payroll deductions.
    Correct?

         A I believe that the trucking company had a
    participation level that they had to pay for.

         Q So your understanding is that as to health
    insurance, there was participation by the trucking
    companies in all cases or just some?

         A   Some.

    The parties’ stipulation of facts provided in pertinent

part:

    The cost of the $5,000 group term life insurance policy
    was paid for by TLC. TLC bore the cost of
    administering the other * * * [employee benefits], but
    these administrative costs did not contribute to the
    direct costs of the benefits. In most cases, the
    direct costs of the benefits were funded entirely by
    the Drivers through payroll deductions. However, some
    Trucking Companies did contribute to the cost of the
    Drivers’ health insurance. * * *
                                - 52 -

     Termination of the Employment of a Driver-Employee

     Petitioner asserts:

     In other words, even though drivers in Beech Trucking
     may have been turned back to the leasing company for
     reassignment, the Court [in Beech Trucking Co.] looked
     to the termination of the relationship between the
     driver and the trucking company, which in practice the
     trucking company controlled.

     Petitioner appears to be contending that, because a trucking

company client was able to decline continuing to lease a

particular driver-employee whom it no longer wished to use, such

trucking company client had the authority to terminate such

driver-employee’s employment with TLC.   That is because,

according to petitioner, the Court in Beech Trucking Co. found

that Beech Trucking Company’s declining to continue leasing a

truck driver whom it no longer wished to use evidenced that Beech

Trucking company had the final authority to terminate such truck

driver’s employment with ATS.    Beech Trucking Co. v.

Commissioner, 118 T.C. at 442.    On the record before us, we

reject petitioner’s assertion.

     In contrast to the instant case, the record in Beech

Trucking Co. did not establish that ATS (the driver-leasing

company) leased truck drivers to any entity other than Beech

Trucking Company.36   Id. at 443.   Insofar as the record in Beech


     36
      Moreover, as discussed above, there was no evidence, and
petitioner does not contend, (1) that petitioner or TLC had any
overlapping personnel with any trucking company client, (2) that
                                                   (continued...)
                                - 53 -

Trucking Co. revealed, by declining to continue leasing a truck

driver whom it no longer wished to use, Beech Trucking Company,

in effect, assured such truck driver’s termination as an

employee.

     In the instant case, during the years at issue TLC had

between 100 and 300 trucking company clients.     Transp. Labor

Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 156.

As of the time of trial in this case, TLC leased a total of 5,563

driver-employees to a total of 453 trucking company clients.      Id.

TLC frequently was successful in reassigning a driver-employee

from one trucking company client that no longer wished to use

such driver-employee to another trucking company client.     Id. at

169-170.    A trucking company client’s declining to continue

leasing a driver-employee whom it no longer wished to use did not

evidence that such driver-employee’s employment with TLC was

terminated.    TLC also reassigned to another trucking company

client any driver-employee who no longer wished to work with a

particular trucking company client to which TLC had assigned such

driver-employee.    Id.   The Court in Transport Labor I found that



     36
      (...continued)
petitioner or TLC owned any interest in any trucking company
client, and (3) that any owner of a trucking company client owned
an interest in petitioner. Cf. Beech Trucking Co. v. Commis-
sioner, 118 T.C. 428, 430-431 (2002). The Court in Beech Truck-
ing Co. also found that the roles of ATS and Beech Trucking were
“to some degree blurred” with respect to the truck drivers’
activities. Id. at 441.
                                - 54 -

TLC had the “sole and absolute authority * * * to terminate each

driver-employee’s employment with TLC.”    Id. at 164.

     With respect to petitioner’s argument that, in determining

whether TLC was the employer of each driver-employee whom it

leased to one of its trucking company clients, the Court gave

improper weight to certain facts that it had found, petitioner

asserts:

          The Court used the term “neutral” to describe
     certain factors which the Court concluded were not
     important in its decision * * *. This categorization
     of certain factors was in error for at least two
     reasons: (1) the Court was not free to disregard
     certain factors; and (2) a factor should be considered
     “neutral” only when there is evidence favoring both
     sides, in other words, when the court is unable to
     determine which party the factor favors.

On the record before us, we reject petitioner’s assertion.

     As discussed above, the Court in Transport Labor I did not

disregard any common-law employment factors.   With respect to

petitioner’s assertion that a common-law employment factor should

be considered neutral only when there is evidence favoring both

sides, that assertion ignores that the Court is “the trier of the

facts, the judge of the credibility of witnesses and of the

weight of the evidence, and the drawer of appropriate

inferences”, Hamm v. Commissioner, 325 F.2d at 938.      The Court in

Transport Labor I was free to give evidence whatever weight it

considered to be appropriate.    Moreover, the Court does not

consider a factor to be neutral only when there is evidence
                                 - 55 -

favoring both parties’ positions.     For example, with respect to

the factors used to determine whether a request for relief under

section 6015(f) should be granted, a factor may be neutral when

there is evidence that such factor is not applicable.37     In such

a case, any such neutral factor does not weigh in favor of or

against granting relief under section 6015(f).

     The Court in Transport Labor I used the term “neutral” to

designate those common-law employment factors which, after

analysis based on the facts and circumstances in the instant

case, did not assist the Court in determining whether TLC or each

trucking company client was the employer of each driver-employee

whom TLC leased to such trucking company client.     By way of

illustration, in Transport Labor I the Court found that “TLC’s

leasing a driver-employee to a trucking company client for which

such driver-employee had worked before such trucking company

client entered into an exclusive lease agreement with TLC is a

neutral factor in determining whether TLC was the employer of

such driver-employee.”     Transp. Labor Contract/Leasing, Inc. &

Subs. v. Commissioner, 123 T.C. at 195.     The Court found such

common-law employment factor to be neutral because, as discussed

above, the record established that, when a trucking company

became a client of TLC, such trucking company terminated whatever

employment arrangement existed between a truck driver and such


     37
          See, e.g., Lopez v. Commissioner, T.C. Memo. 2005-36.
                              - 56 -

trucking company.   After analysis based on the facts and

circumstances in the instant case, evidence that TLC leased a

driver-employee to a trucking company client for which such

driver-employee had worked before such trucking company client

entered into an exclusive lease agreement with TLC did not assist

the Court in determining whether TLC or such trucking company

client was the employer of each driver-employee whom TLC leased

to such trucking company client.

     With respect to petitioner’s argument that, in determining

whether TLC was the employer of each driver-employee whom it

leased to its trucking company clients, the Court gave improper

weight to certain facts, petitioner advances several additional

assertions with respect to certain common-law employment factors,

which we address below.

     Hiring of Each Driver-Employee

     Petitioner asserts:

          The Court found on the hiring factor that TLC had
     the sole and absolute authority to hire each driver-
     employee. * * * This finding was based on the Lease
     Agreement, which gave TLC the “sole and absolute right
     to hire.”

          Beech Trucking is to the contrary. The Court here
     overlooked the conclusion in Beech Trucking that an
     agreement of the parties would not control if the
     parties’ conduct showed otherwise. Here the parties’
     Stipulation was that when a trucking company entered a
     Lease Agreement with TLC, “the Trucking Company would
     terminate all of its existing drivers’ employment. TLC
     would then generally hire all of the drivers who passed
     its approval process and assigned them [back] to the
     Trucking Company.” * * *
                                - 57 -

          Also, while TLC advertised for and attempted to
     recruit new drivers, the parties stipulated that “the
     Trucking Companies located most new Drivers and then
     referred them to TLC for approval and hiring” by TLC
     for assignment to the trucking company that had located
     the driver for employment. * * * The trucking companies
     located about 75 percent of the new drivers, and TLC
     only located about 25 percent of the new drivers. * * *

          The Court’s analysis here is contrary to Beech
     Trucking in another respect. In Beech Trucking, the
     Court found that the leasing company hired the drivers
     and provided the drivers with some orientation. * * *
     Although the leasing company hired the drivers, the
     Court in Beech Trucking accurately described the
     leasing company’s role as a “driver procurement and
     payroll service.” * * * On nearly identical facts in
     this case, the Court inexplicably reached the opposite
     result. [Reproduced literally.]

On the record before us, we reject petitioner’s argument.

        As discussed above, the facts presented in Beech Trucking

Co. are materially distinguishable from the facts in the instant

case.    In Beech Trucking Co., ATS (the driver-leasing company)

procured truck drivers for Beech Trucking Company but, as

discussed above, the record was “unclear as to the extent of any

business ATS might have had apart from the services it provided

Beech Trucking”.      Beech Trucking Co. v. Commissioner, 118 T.C.

at 443.    Thus, insofar as the record in Beech Trucking Co.

revealed, any truck drivers whom ATS procured were procured only

for Beech Trucking Company’s use.    Indeed, Beech Trucking Company

reimbursed ATS for any expenses related to ATS’s truck driver

procurement.     Id. at 442.

     In the instant case, TLC had the sole and absolute authority
                                  - 58 -

to hire each driver-employee.      Transp. Labor Contract/Leasing,

Inc. & Subs. v. Commissioner, 123 T.C. at 164.      Before TLC

decided whether to hire a truck driver as a driver-employee, such

truck driver had to pass TLC’s screening and approval process.

Id.   TLC hired approximately 75 percent of its driver-employees

through referrals of trucking company clients, but TLC also hired

approximately 25 percent of its driver-employees through its own

recruitment efforts.38      TLC rejected 10 to 15 percent of truck

drivers whom its trucking company clients referred to it.        Id.

In addition, petitioner does not contend, and there is no

evidence, that any trucking company client reimbursed TLC for

TLC’s expenses relating to TLC’s recruitment of any driver-

employee.

      Petitioner does not explain how the parties’ stipulation on

which it relies39 is inconsistent with the Court’s finding in


      38
      Petitioner does not explain how the referral by trucking
company clients of approximately 75 percent of the driver-employ-
ees TLC hired supports its argument that TLC provided only
“driver procurement” services. That the trucking company clients
referred to TLC approximately 75 percent of the driver-employees
whom TLC hired suggests that such trucking company clients, and
not TLC, were providing driver procurement services for TLC. In
addition, TLC hired a substantial number of its driver-employees,
i.e., 25 percent, without referral from any trucking company
client. Transp. Labor Contract/Leasing, Inc. & Subs. v. Commis-
sioner, 123 T.C. at 164.
      39
           The stipulation in question states:

      When a Trucking Company entered into a Lease Agreement
      with TLC, the Trucking Company would terminate all of
                                                    (continued...)
                                 - 59 -

Transport Labor I that TLC had the sole and absolute authority to

hire a truck driver as one of its driver-employees.          Id.   Indeed,

the parties’ stipulation supports the Court’s finding.         When each

trucking company client entered into an exclusive lease agreement

with TLC, it ended whatever employment arrangement it had with

the truck drivers who were then working for it and relied on TLC

to provide through the exclusive lease agreement the services of

one or more of TLC’s driver-employees.40       Id. at 159.


     39
      (...continued)
     its existing drivers’ employment. TLC would then
     generally hire all of the drivers who passed its ap-
     proval process and assigned them to the Trucking Com-
     pany.
     40
          Section one of the exclusive lease agreement provided:

          Lessor [TLC] hereby leases to Lessee [trucking
     company client] those drivers in the employment of
     Lessor during the term of the Agreement. Lessee hereby
     leases Lessor’s drivers on an exclusive basis and from
     and after the date of this Agreement, Lessee shall not
     employ, directly or indirectly, any drivers for its
     trucking operation except those agreed to be furnished
     by Lessor under this Lease Agreement or as otherwise
     provided herein.

Section nine of the exclusive lease agreement provided in
pertinent part:

          For purposes of this Agreement, Lessee warrants
     and represents to Lessor as follows:

           *       *       *       *       *         *         *

          * * * That during the term of this Agreement, Lessee
     shall not hire, lease, or utilize any drivers other than
     drivers to be furnished by Lessor hereunder except only in
     emergency situations duly disclosed to Lessor or upon
                                                   (continued...)
                               - 60 -

       Source of Instrumentalities and Tools

       Petitioner asserts:

       The parties stipulated in this case that the trucking
       companies were the source of the instrumentalities and
       tools of the drivers * * *, just as was the case with
       the trucking company in Beech Trucking. Because the
       facts clearly favored TLC, this factor must be
       considered to be an indication that the trucking
       companies were the common law employers.

On the record before us, we reject petitioner’s assertion.

       The Court in Beech Trucking Co. based its findings and

conclusions upon the record before it.    As discussed above, the

record in Beech Trucking Co. was “relatively sparse”.      It did not

contain evidence such as an exclusive lease agreement, a driver

contract, or a driver handbook.    Beech Trucking Co. v.

Commissioner, 118 T.C. at 441.    In addition, there was no

evidence, and petitioner does not contend, (1) that petitioner or

TLC had any overlapping personnel with any trucking company

client, (2) that petitioner or TLC owned any interest in any

trucking company client, or (3) that any owner of a trucking

company client owned an interest in petitioner.    Cf. id. at 430-

431.

       In Transport Labor I, the Court found that, both before and

after entering into an exclusive lease agreement with TLC, each

trucking company client owned or leased the trucks, semitrailers,



       40
        (...continued)
       Lessor’s prior written consent.
                                - 61 -

terminals, and other equipment and facilities used in its

trucking business (collectively, the trucking business

instrumentalities and tools).    Transp. Labor Contract/Leasing,

Inc. & Subs. v. Commissioner, 123 T.C. at 167.     The Court also

found in Transport Labor I that “TLC was a driver-leasing company

that leased one or more truck drivers to small and mid-sized

independent trucking companies which used such truck drivers to

transport goods and merchandise.”    Id. at 156.   TLC was in the

business of leasing driver-employees, and not in the trucking

business, and each trucking company client was in the trucking

business.

     Each trucking company client’s owning or leasing the

trucking business instrumentalities and tools for such client’s

trucking business did not evidence that such trucking company

client was the employer of each driver-employee TLC leased to

such trucking company client.    Such trucking company client

needed to own or lease the trucking business instrumentalities

and tools in order to conduct its trucking business, but could

have procured the services of truck drivers to use in that

business through other arrangements, e.g., by leasing them from a

person engaged in the driver-leasing business.     Id. at 190, 194.

     In contrast, TLC’s failure to provide the trucking business

instrumentalities and tools did not evidence that the driver-

employees were not its employees because such instrumentalities
                              - 62 -

and tools were not the instrumentalities and tools of TLC’s

business, viz., leasing driver-employees.    After analysis based

on the facts and circumstances in the instant case, evidence that

each trucking company client, and not TLC, provided the trucking

business instrumentalities and tools did not assist the Court in

determining whether TLC or each trucking company client was the

employer of each driver-employee whom TLC leased to such trucking

company client.   That is why the Court in Transport Labor I

found on the record presented to it that each trucking company

client’s owning or leasing the trucking business instrumen-

talities and tools used by each driver-employee whom it leased

from TLC was a neutral factor in determining whether TLC was the

employer of each driver-employee.    Id. at 190.   It is mere

speculation on the part of petitioner to assume that if the facts

in Beech Trucking Co. had been virtually the same as the facts in

the instant case, which they are not, the Court in Beech Trucking

Co. nevertheless would have found that Beech Trucking Company was

the employer of the truck drivers whom it leased from ATS because

Beech Trucking Company supplied the instrumentalities and tools

to those truck drivers.

     Method of Payment

     Petitioner asserts:

          In addition, the Court   here overlooked the
     uncontradicted testimony of   Kristi Schrupp, who
     testified that the trucking   company determined drivers’
     salaries and that there was   no time when TLC would make
                        - 63 -

this decision. * * * Ms. Fiereck, respondent’s witness,
corroborated this testimony when she testified that the
trucking company determined how much a particular
driver was paid, and that TLC had no role in this
determination. * * *

   *       *       *       *       *       *       *

     The Opinion found the factor of the source of
funds used to pay payroll to be a “neutral” factor. On
the other hand, the Opinion also found that TLC’s
preparing of the paychecks to be a factor evidencing
TLC as the employer. The Court overlooked the fact
that these conclusions are inconsistent, and elevated
the substance of the transaction (the source of the
funds) over the form of the transaction (the
ministerial act of check processing).

     The Court also disregarded the most important
aspects of payroll. The trucking companies determined
whether and how much the drivers would be paid. * * *
The trucking companies also determined how drivers
would be paid, i.e., by direct deposit, checks sent
directly to the drivers, or checks sent to the trucking
companies for distribution to drivers. * * * The Court
should have concluded that this factor favored a
finding that the trucking companies were the employers.

   *       *       *       *       *       *       *

      * * * In Beech Trucking, the Court on facts nearly
identical to those here did not find method of payment
to be a negative factor. Yet, the Court in this case
inexplicably reached the opposite result. In Beech
Trucking, the Court found that “although [the leasing
company] issued the drivers’ weekly paychecks, paid
workers compensation [insurance premiums], and
maintained a section 401(k) plan for the drivers, [the
trucking company] reimbursed [the leasing company]
weekly for its expenditures, plus a service charge.”
* * *

     The facts here are even more compelling -- TLC did
not advance funds and seek reimbursement from the
trucking companies. Rather, TLC required payment
before issuing payroll. Mr. DeBerg, Ms. Schrupp, and
Ms. Fiereck all testified that the trucking company
transferred funds to TLC, usually by wire transfer,
                              - 64 -

     before TLC would issue checks. * * *    [Reproduced
     literally.]

On the record before us, we reject petitioner’s assertion.

     Petitioner’s assertion that the facts in Beech Trucking Co.

are “nearly identical to those” in the instant case is wrong.     As

discussed above, the facts in Beech Trucking Co. are materially

distinguishable from the facts in the instant case, including the

facts relating to the “method of payment”.    In Beech Trucking Co.

v. Commissioner, 118 T.C. at 442, the Court found that ATS, the

driver-leasing company, issued the drivers’ weekly paychecks,

paid workers’ compensation, and maintained a section 401(k) plan

for the drivers and that Beech Trucking Company reimbursed ATS

weekly for its expenditures and paid ATS a separate service

charge for the services ATS rendered to Beech Trucking Company.

In Transport Labor I, with respect to the “method of payment”,41

the Court found that each payroll period each trucking company

client paid TLC a lease fee that was not broken down into

component parts, which TLC used (1) to cover its costs, including

the respective net wages and per diem amounts, if any, that TLC

determined to pay its driver-employees, and (2) to generate a

profit.   Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 173-174.     With the exception of certain


     41
      By “method of payment”, we mean the method by which, for
each payroll period, each trucking company client paid TLC the
lease fee that it owed to TLC and TLC prepared and disbursed each
driver-employee’s paycheck.
                                - 65 -

trucking company clients that reimbursed TLC for certain premiums

with respect to health insurance for certain driver-employees,42

no trucking company client reimbursed TLC for any of TLC’s

expenses, and no trucking company client paid TLC a separate

service charge.

     Petitioner’s assertion that the Court found in Transport

Labor I that TLC’s preparation of each driver-employee’s paycheck

was a factor evidencing that TLC was the employer of each driver-

employee is wrong.     Contrary to petitioner’s assertion, the Court

found in Transport Labor I, “that TLC’s payment of each driver-

employee’s net wages and any per diem amounts is a factor

evidencing that TLC was the employer of each driver-employee.”

Id. at 193.     That was because it is the employer who pays the

wages and any per diem due to his or her employees.43

     Petitioner’s assertion that the Court found in Transport

Labor I that the factor relating to the source of the funds used

to pay TLC’s payroll obligation was a neutral factor is wrong.

Contrary to petitioner’s assertion, the Court found in Transport

Labor I that “the method by which each trucking company client



     42
          See supra note 8.
     43
      Petitioner fails to mention that the Court in Transport
Labor I found that TLC’s limited opportunity for profit and
limited risk of loss in its driver-leasing business were factors
“evidencing that each trucking company client, and not TLC, was
the employer of each driver-employee.” Transp. Labor
Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at 198.
                              - 66 -

paid TLC a lease fee to compensate TLC for leasing driver-

employees to such trucking company client is a neutral factor in

determining whether TLC is the employer of each driver-employee.”

 Id. at 192-193.   That TLC may have paid TLC’s payroll obligation

with moneys that it received from its trucking company clients

did not evidence to the Court in Transport Labor I that TLC was

or was not the employer of each driver-employee.    Id. at 192.   It

is common business practice for a business to use moneys received

from its clients or customers as payments for services or goods

in order to cover its expenses.   Id.   Even if, as petitioner

contends, TLC required payment of the payroll period net lease

fee due from each trucking company client prior to paying TLC’s

payroll obligation, that fact would not evidence that TLC was or

was not the employer of each driver-employee.   A business may

require payment at the time of, or even prior to, providing

services or goods to its customers.44

     Petitioner asserts that the Court in Transport Labor I



     44
      In the instant case, TLC’s obligation to pay TLC’s payroll
obligation with respect to each driver-employee whom it leased to
a trucking company client accrued as such driver-employee per-
formed services for TLC by driving a truck of such trucking
company client that leased such driver-employee from TLC. TLC
was obligated to pay TLC’s payroll obligation with respect to
each driver-employee whether or not the trucking company client
to which TLC leased such driver-employee paid TLC the lease fee.
TLC required payment of the lease fee after it provided the
services of its driver-employees to its trucking company clients.
Transp. Labor Contract/Leasing, Inc. & Subs. v. Commissioner,
supra at 172.
                               - 67 -

ignored that each trucking company client “determined whether and

how much the drivers * * * [and] how [such] drivers would be

paid.”    As we understand petitioner’s assertion, petitioner

contends that each trucking company client determined unilat-

erally without the agreement of TLC whether, how much, and how

each driver-employee was to be paid.    Such a contention is

contrary to the findings that the Court in Transport Labor I made

based upon an examination of the entire record before it.

     With respect to petitioner’s assertion that each trucking

company client determined how much each driver-employee was to be

paid, the Court found in Transport Labor I that TLC and each

trucking company client agreed in the exclusive lease agreement

that such trucking company client was to submit for each payroll

period a batch report to TLC which showed certain information

that TLC needed in order to determine, inter alia, the amount of

gross wages and per diem amounts, if any, to which each driver-

employee was entitled, the amount of the lease fee to which TLC

was entitled,45 and the amount that TLC had to withhold in order

to pay Federal and State income taxes and employment taxes with

respect to each driver-employee.    Transp. Labor Contract/Leasing,


     45
      For each payroll period, the batch report that each truck-
ing company client submitted to TLC showed, inter alia, such
trucking company client’s calculation of the lease fee for such
payroll period. TLC used the information submitted by each
trucking company client in each batch report to determine the
lease fee that such trucking company client owed TLC for each
payroll period.
                                  - 68 -

Inc. & Subs. v. Commissioner, 123 T.C. at 161.     Included in the

information shown in the batch report that each trucking company

client submitted to TLC was the batch report lump sum amount with

respect to each driver-employee whom TLC leased to such trucking

company client.46   Id. at 170.    TLC and each trucking company

client agreed in the exclusive lease agreement to the method by

which the batch report lump sum amount was to be calculated.47

Id. at 173 n.28.    Pursuant to sections five and fifteen of the

exclusive lease agreement, in order to change that method that

agreement would have had to be modified, which would have

required the agreement of both TLC and the trucking company

client.   Id. at 161.   In Transport Labor I, the Court did not

find that the foregoing facts evidenced that each trucking

company client, and not TLC, was the employer of each driver-

employee.

     With respect to petitioner’s assertion that each trucking


     46
      Neither the batch report nor any other document that a
trucking company client submitted to TLC showed the breakdown of
the batch report lump sum amount between gross wages and any per
diem amounts. It was TLC that determined what portion of the
batch report lump sum amount with respect to each driver-employee
constituted gross wages and what portion, if any, constituted per
diem amounts.
     47
      Pursuant to each exclusive lease agreement, each trucking
company client was to select the method which was to be used in
calculating the batch report lump sum amount for each driver-
employee whom TLC leased to such trucking company client and to
which TLC agreed in that lease agreement. Virtually all of TLC’s
trucking company clients selected a cents-per-mile or a
percentage-of-load-gross-revenue basis as the applicable method.
                              - 69 -

company client determined whether each driver-employee was to be

paid, the Court in Transport Labor I was unable to find on the

record presented that, once a trucking company client calculated

the batch report lump sum amount with respect to each driver-

employee whom it leased from TLC, such trucking company client

determined whether TLC paid such driver-employee his or her net

wages and any per diem amounts.   The Court in Transport Labor I

found that for each payroll period TLC was obligated to, and did,

pay each driver-employee his or her net wages and any per diem

amounts, regardless of whether the trucking company client to

which TLC leased such driver-employee paid TLC the lease fee.

Id. at 172.   In Transport Labor I, the Court did not find that

the foregoing facts evidenced that each trucking company client,

and not TLC, was the employer of each driver-employee.

     With respect to petitioner’s assertion that each trucking

company client determined “how drivers would be paid, i.e., by

direct deposit, checks sent directly to the drivers, or checks

sent to the trucking companies for distribution to drivers”,

petitioner relies on the following testimony of Ms. Schrupp on

direct examination by petitioner’s counsel:

          Q   And how were the drivers paid?

          A The checks may have been sent back to the
     client, or they may have been mailed directly to the
     driver.

          Q So they either went to the trucking company
     directly, or they went to the driver directly.
                                - 70 -

            A   Correct.

          Q And who decided whether it would be directly to
     the driver or directly to the trucking company?

            A   The trucking company.

     Like Ms. Schrupp’s testimony that TLC’s involvement in

hiring driver-employees was limited to an advisory role and her

testimony that all of the employee benefits that TLC sponsored

for the driver-employees were paid for by TLC’s respective

trucking company clients who leased such driver-employees from

TLC, we found the above-quoted testimony of Ms. Schrupp to be

questionable.     Decisions as to how an employee is to be paid

(e.g., by direct deposit, by check sent directly to the employee

or by check sent directly to a person for whom such employee is

performing services pursuant to a contract between such person

and another person) are decisions generally made only by such

employee.    Thus, we did not understand Ms. Schrupp’s testimony to

mean that each trucking company client decided unilaterally how

each driver-employee whom it leased from TLC was to be paid.48

We understood such testimony to mean that each driver-employee

whom a trucking company client leased from TLC gave instructions

to such trucking company client as to how such driver-employee

wanted to be paid and that such trucking company client informed


     48
      If Ms. Schrupp literally meant what she said regarding who
decided how each driver-employee was to be paid, we reject such
testimony as questionable and unreliable.
                              - 71 -

TLC as to what those instructions were.   In Transport Labor I,

the Court did not find that the above-quoted testimony of Ms.

Schrupp evidenced that TLC was or was not the employer of each

driver-employee.

     Work of Driver-Employee as Part of Regular Business of TLC

     Petitioner asserts:

          The business of a trucking company is to move
     cargo by truck. TLC’s business was to enter into
     contracts to lease personnel. TLC’s business would be
     the same whether it leased truck drivers or some other
     type of personnel. By contrast, a trucking company
     cannot exist without drivers. The drivers worked from
     the trucking companies’ places of business and operated
     the trucking companies’ equipment.

          The Court’s conclusion in this case again was
     contrary to Beech Trucking because the Court did not
     find that “clearly, the drivers’ work was part of the
     regular business” of the trucking companies. Indeed,
     we are not aware of a single case in which a leased
     employee was found to be “part of the business” of a
     leasing company.

On the record before us, we reject petitioner’s assertion.

     In Transport Labor I, the Court found that each truck driver

whom TLC hired as a driver-employee played an integral role in

TLC’s business of leasing driver-employees to its trucking

company clients.   Transp. Labor Contract/Leasing, Inc. & Subs. v.

Commissioner, 123 T.C. at 164.   TLC could not have conducted its

business of leasing truck drivers without the driver-employees

whom it leased to its trucking company clients.   Id. at 194.

Petitioner has not explained how TLC could have conducted its

business of leasing each driver-employee without employing such
                               - 72 -

driver-employee.    In contrast, each trucking company client could

have conducted its trucking business by procuring the services of

truck drivers to use in that business by hiring them directly

and/or by leasing them from a person engaged in the driver-

leasing business.    Id.

     Per Diem Letters

     In Transport Labor I, the Court found that, for each of the

calendar years 1993, 1994, 1995, and 1996, TLC sent a per diem

letter to each trucking company client, which set forth the total

of all per diem amounts that TLC paid to the driver-employees

whom it leased to such trucking company client during the

preceding calendar year.    Id. at 176.   With respect to such per

diem letters, petitioner asserts:

          The Court overlooked important evidence proving
     that far from being “self serving” and an attempt to
     bolster TLC’s return position, the letters were part of
     the regular business practice of TLC long before the
     Section 274(n) issue arose to insure that the trucking
     companies that paid per diem were responsible for the
     Section 274(n) limitation to trucking companies. TLC
     began the business practice of sending the letters
     following the close of the 1993 calendar tax year, over
     10 years ago. At the time that TLC began sending out
     the letters there was no need to “bolster” its return
     reporting position. * * *

          It was TLC’s practice and intention that the
     trucking companies would be responsible for the Section
     274(n) limitation on per diem, and it adopted
     procedures to inform the trucking companies that they
     were responsible for the deduction limitation at every
     step in the relationship. Mr. DeBerg testified that
     the trucking companies were informed during the sales
     process that they would be subject to the per diem
     deduction limitation. [Fn. ref. omitted.]
                              - 73 -


On the record before us, we reject petitioner’s assertion.

     Petitioner’s asserts that “At the time that TLC began

sending out the [per diem] letters there was no need to ‘bolster’

its return reporting position” with respect to the section

274(n)(1) limitation.   We find that assertion to be disingenuous.

That the IRS may not have been examining petitioner’s

consolidated returns for the years at issue at the time TLC sent

out the per diem letters does not mean that petitioner and TLC

were unaware of the tax issues under section 274(n) that the IRS

might raise on audit of such returns.    In this connection, in

Transport Labor I the Court found the per diem letters to be a

self-serving attempt to bolster petitioner’s position (viz., that

the section 274(n)(1) limitation did not apply to the per diem

amounts that TLC paid to its driver-employees) in the respective

consolidated Forms 1120 which petitioner filed for the taxable

years at issue.   Id. at 198-199.    Each per diem letter was a

self-serving declaration sent by TLC to each trucking company

client, which set forth TLC’s position that each trucking company

client was subject to the section 274(n) limitation with respect

to the per diem amounts that TLC paid to each driver-employee.

At least certain of TLC’s trucking company clients disagreed with

that self-serving position of TLC.     Id. at 177.

     Petitioner asserts that “It was TLC’s practice and intention

that the trucking companies would be responsible for the Section
                                 - 74 -

274(n) limitation”.     Regardless of what TLC’s practice and

intention with respect to the section 274(n)(1) limitation might

have been, that practice and that intention were not made part of

the exclusive lease agreement between TLC and each trucking

company client.     Indeed, the Court in Transport Labor I found

(1) that there were no agreements between TLC and any trucking

company client other than the agreement set forth in the

exclusive lease agreement and (2) that the exclusive lease

agreement was silent as to the section 274(n)(1) limitation.       Id.

at 159 n.9, 171 n.20.     If there had been an agreement that each

trucking company client was to be subject to the section

274(n)(1) limitation, such agreement would have been reflected in

the exclusive lease agreement that TLC entered into with each

trucking company client or some other written document signed by

each such trucking company client.49

     Petitioner asserts that the Court disregarded Mr. DeBerg’s



     49
          Sec. fifteen of each exclusive lease agreement provides:

          No waiver or modification of this Agreement or of
     any covenant, condition or limitation herein contained
     shall be valid unless in writing and duly executed by
     the party to be charged therewith, and no evidence of
     any waiver or modification shall be offered or received
     in evidence of any proceeding, arbitration or litiga-
     tion between the parties hereto arising out of or
     affecting this Agreement, or the rights or obligations
     of the parties, hereunder unless such waiver or modifi-
     cation is in writing, duly executed as aforesaid, and
     the parties further agree that the provisions of this
     Section may not be waived except as herein set forth.
                                 - 75 -

testimony that “the trucking companies were informed during the

sales process that they would be subject to the per diem

deduction limitation.”     Petitioner is correct that the Court did

not rely on such testimony of Mr. DeBerg.     That is because such

testimony was uncorroborated, served the interests of his

employer TLC, and was inconsistent with section fourteen of the

exclusive lease agreement.50

     Based upon our examination of the entire record before us,

we find that petitioner has failed to carry its burden of

demonstrating unusual circumstances or substantial error in

Transport Labor I.     On that record, we shall deny petitioner’s

motion for reconsideration.

Petitioner’s Motion To Vacate

     In support of petitioner’s position that the Court’s



     50
          Sec. fourteen of each exclusive lease agreement provides:

          This Agreement contains the complete agreement
     concerning the lease arrangement between the parties
     and shall, as of the effective date hereof, supercede
     [sic] all other agreements between the parties. The
     parties stipulate that neither of them has made any
     representations with respect to the subject matter of
     this Agreement or any representations * * * except such
     representations as are specifically set forth herein
     and each of the parties hereto acknowledges that he or
     they have relied on their own judgement in entering
     into this Agreement. The parties hereto further ac-
     knowledge that any payments or representations that may
     have heretofore been made by either of them to the
     other are of no effect and that neither of them has
     relied thereon in connection with his or their dealings
     with the other. [Emphasis added.]
                              - 76 -

decision in Transport Labor I should be vacated or revised,

petitioner incorporates by reference the arguments in

petitioner’s motion for reconsideration and advances the

following additional arguments:    (1) The Court’s decision in

Transport Labor I did not allow the parties an opportunity to

submit computations under Rule 155 to show the correct amount of

the respective deficiencies for the taxable years at issue;

(2) the Court’s decision failed to reduce the amounts subject to

the section 274(n)(1) limitation pursuant to section 274(e)(3)

(petitioner’s section 274(e)(3) argument); and (3) the Court’s

decision did not reduce the respective deficiencies in

petitioner’s tax for the years at issue by certain amounts of tax

allegedly paid by certain trucking company clients for those

years (petitioner’s tax duplication argument).    Respondent

disagrees with petitioner’s position.

     A motion to vacate or revise a decision pursuant to Rule 162

is granted at the Court’s discretion.    We have rejected

petitioner’s arguments in support of petitioner’s motion for

reconsideration.   We also reject those arguments in support of

petitioner’s motion to vacate.    Our discussion of petitioner’s

motion to vacate will address only the additional arguments that

petitioner advances in that motion.

     A motion to vacate or revise a decision pursuant to Rule 162

is usually denied in a case where the moving party attempts to
                                 - 77 -

reopen a case for the purpose of presenting theories or grounds,

and evidence in support thereof, that could have been advanced

and supported at the trial in that case.51      See Concordia Coll.

Corp. v. W.R. Grace & Co., 999 F.2d 326, 330 (8th Cir. 1993);

Chiquita Mining Co. v. Commissioner, 148 F.2d 306, 310 (9th Cir.

1945), affg. a Memorandum Opinion of this Court dated Jan. 5,

1943; Standard Knitting Mills, Inc. v. Commissioner, 141 F.2d

195, 198-199 (6th Cir. 1944), affg. 47 B.T.A. 295 (1942).

Generally, new issues may not be raised in a Rule 155

computation.     Harris v. Commissioner, 99 T.C. 121, 123 (1992),

affd. 16 F.3d 75 (5th Cir. 1994).     “Issues considered in a Rule

155 proceeding are limited to ‘purely mathematically generated

computational items’.”     Id. at 124.

     In support of petitioner’s argument that the Court should

vacate its decision in Transport Labor I because the Court did

not allow the parties an opportunity to submit computations under

Rule 155 to show the correct amount of the deficiency for each of

the taxable years at issue, petitioner asserts that the parties

stipulated that a Rule 155 computation was necessary in the

instant case.     Petitioner further asserts:

          The Court’s Rule 155 contemplates two phases of a
     deficiency case: the first phase in which the
     petitioner has the burden of proving that the
     Commissioner’s determination is invalid; and the second
     phase for the purpose of computing the amount of the


     51
          Taylor v. Commissioner, T.C. Memo. 1987-403.
                             - 78 -

     deficiency. A taxpayer, such as TLC, had the burden of
     proving that the Commissioner’s deficiency
     determination was invalid, but it did not also have the
     burden of showing the amount of tax, if any, that TLC
     owed. To impose such a burden on TLC, as respondent
     would have the Court do, “would not be consonant with
     the great remedial purposes of the legislation
     creating” the U.S. Tax Court. Helvering v. Taylor, 293
     U.S. 507, 516 (1935).

        *       *       *       *       *        *        *

           In many, but not all cases, evidence adequate to
     overthrow the Commissioner’s findings is also adequate
     to show the correct amount that is due. Id. [Helvering
     v. Taylor, 293 U.S. 507 (1935)] at 515. For cases in
     which evidence is not adequate to show the correct
     amount due, Rule 155 permits the parties to submit
     computations to the Court based on the Court’s opinion.
     * * *

     On the record before us, we reject petitioner’s assertion.

     Petitioner’s assertion that the parties stipulated that a

Rule 155 computation was necessary is wrong.   The parties

stipulated:

     On May 17, 1998, Petitioner filed a Corporation
     Application for Tentative Refund (“Form 1139”)
     [petitioner’s Form 1139] seeking tentative refunds for
     the tax years 1994, 1995, and 1996 of $460,999,
     $473,305, and $286,223, respectively. These tentative
     refund claims were based on the carryback of a
     $3,589,781 claimed net operating loss from the tax year
     1997.

          * * * Pursuant to I.R.C. § 6511(b), on or about
     May 27, 1998, Respondent issued Petitioner tentative
     refunds for the tax years 1994, 1995, and 1996, of
     $460,999, $473,305, and $286,223, respectively, based
     on the Form 1139. If there is a decision on the per
     diem issue, a computation will have to take into
     account this refund for years in issue.

     Tentative refunds, like the tentative refunds that
                                  - 79 -

respondent issued to petitioner for its taxable years 1994, 1995,

and 1996 (collectively, petitioner’s tentative refunds), are

rebates within the meaning of section 6211(b)(2).52        Baldwin v.

Commissioner, 97 T.C. 704, 707-708 (1991).         Pursuant to section



     52
          Sec. 6211 provides in pertinent part:

     SEC. 6211.      DEFINITION OF A DEFICIENCY.

          (a) In General.--For purposes of this title in the
     case of income, estate, and gift taxes imposed by
     subtitles A and B * * * the term “deficiency” means the
     amount by which the tax imposed by subtitle A or B
     * * * exceeds the excess of--

               (1) the sum of

                         (A) the amount shown as the tax by the
                    taxpayer upon his return, if a return was
                    made by the taxpayer and an amount was shown
                    as the tax by the taxpayer thereon, plus

                         (B) the amounts previously assessed (or
                    collected without assessment) as a
                    deficiency, over--

                    (2) the amount of rebates, as defined in
               subsection (b)(2), made.

           *        *       *        *       *        *        *

          (b) Rules for Application of Subsection (a).--For
     purposes of this section--

           *        *       *        *       *        *        *

                    (2) The term “rebate” means so much of an
               abatement, credit, refund, or other payment, as
               was made on the ground that the tax imposed by
               subtitle A or B * * * was less than the excess of
               the amount specified in subsection (a)(1) over the
               rebates previously made.
                              - 80 -

6211(a), the amount of a deficiency for a taxable year is

increased by the amount of any rebates for such taxable year.

     In an amendment to answer, respondent asserted increased

deficiencies in tax for petitioner’s taxable years 1994, 1995,

and 1996 on the ground that petitioner was not entitled to

petitioner’s tentative refunds.   The Court stated in Transp.

Labor Contract/Leasing, Inc. & Subs. v. Commissioner, 123 T.C. at

155 n.2:

          Our resolution of the issue remaining for decision
     will resolve the issues that respondent raised in the
     amendment to answer relating to the disallowance of an
     NOL carryback that petitioner claimed from its taxable
     year 1997.

     Having held in Transport Labor I that the section 274(n)(1)

limitation applied to the per diem amounts that TLC paid to its

driver-employees, it was necessary, in order to calculate the

correct amounts of the deficiencies for petitioner’s taxable

years 1994, 1995, and 1996, respectively, to add the amount of

the tentative refund for each such taxable year to the amount of

the deficiency that respondent had determined in the notice for

each such year.   Sec. 6211(a) and (b).   That was the computation

to which the Court understood the parties to be referring in the

parties’ stipulation of facts.    That computation, which the Court

made, was a straightforward calculation under section 6211(a) and
                              - 81 -

(b).53

     As for petitioner’s reliance on Helvering v. Taylor, 293

U.S. 507 (1935), that case is materially distinguishable from the

instant case, and petitioner’s reliance on it is misplaced.    In

Helvering v. Taylor, supra, the taxpayer carried its burden of

proving that the determination of the Commissioner of Internal

Revenue as to the amount of the taxpayer’s deficiency was

erroneous.   However, the taxpayer did not develop a record upon

which the trial court could have determined the correct amount,

if any, of the deficiency.   Id. at 511-512.    Thus, it was

appropriate in Helvering v. Taylor, supra, for the trial court to

have conducted further proceedings to establish a record from

which the trial court could have determined the appropriate

amount, if any, of the deficiency.     See Hamm v. Commissioner, 325

F.2d at 940.   In this connection, the Court of Appeals for the

Ninth Circuit stated in Cohen v. Commissioner, 266 F.2d 5, 11

(9th Cir. 1959), remanding T.C. Memo. 1957-172:

          When the Commissioner’s determination has been
     shown to be invalid, the Tax Court must redetermine the
     deficiency. The presumption as to the correctness of
     the Commissioner’s determination is then out of the
     case. The Commissioner and not the taxpayer then has
     the burden of proving whether any deficiency exists and
     if so the amount. It is not incumbent upon the
     taxpayer under these circumstances to prove that he
     owed no tax or the amount of the tax which he did owe.
     [Citations and fn. refs. omitted.]

     In contrast to Helvering v. Taylor, supra, in Transport

     53
      Petitioner does not contend that the Court made a mathe-
matical error in making that calculation.
                              - 82 -

Labor I petitioner did not carry its burden of proving error in

respondent’s determination in the notice that petitioner was

subject to the section 274(n)(1) limitation with respect to the

per diem amounts that TLC paid to each driver-employee.    Thus,

the Court’s holding that TLC was subject to that section

274(n)(1) limitation resulted in the Court’s sustaining

respondent’s determination in the notice with respect to that

limitation.   No further proceedings were, or are, appropriate in

the instant case.   See Hamm v. Commissioner, supra at 940.

     With respect to petitioner’s section 274(e)(3) argument,

petitioner asserts:

          The computation of the allowable deduction for
     food and beverage expenses is complex, but there is no
     dispute about the applicable law. Section 274(a)
     completely disallows deductions for certain expenses.
     Section 274(n) ameliorates the total disallowance of
     274(a) by allowing a 50 percent deduction for food and
     beverage expenses. Section 274(e)(3) in turn provides
     that “the employer” is not subject to the limitations
     of Section 274, where the employee incurs the expense
     in the course of performing services for another
     person, such as here where the truck drivers incur
     expenses while performing services for the trucking
     companies. * * * The Section 274(e)(3) exception
     applies only where taxpayer “accounts” for the
     expenses, as required by Section 274(d). * * *

Petitioner further asserts that uncontradicted evidence

demonstrated that TLC accounted to the trucking company clients

for the per diem amounts that it paid to its driver-employees.

On the record before us, we reject petitioner’s assertion.

     Petitioner first raised petitioner’s section 274(e)(3)

argument in its amended petition.   However, petitioner did not
                             - 83 -

argue, or even mention, petitioner’s section 274(e)(3) argument

in its trial memorandum, at trial, or on brief.    Consequently, we

concluded that petitioner had abandoned that argument.    See

Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); Rybak v.

Commissioner, 91 T.C. 524, 566 n.19 (1988).    It was only after

the Court ruled against petitioner in Transport Labor I that

petitioner decided to resurrect petitioner’s section 274(e)(3)

argument in petitioner’s motion to vacate.    By doing so,

petitioner is trying to advance in the context of a Rule 155

computation theories or grounds with respect to a position which

it abandoned before the trial in this case and with respect to

which petitioner wants the Court to hold a second trial at which

petitioner would introduce new evidence in support of that

position.

     With respect to petitioner’s tax duplication argument,

petitioner asserts:

          As a result of the Court’s Opinion in this case
     and without a Rule 155 proceeding, respondent will be
     in a windfall position — it will have collected tax on
     the same transaction twice. Congress has explicitly
     recognized that only one taxpayer should be subject to
     the tax. H. Rept. 1447, 87th Cong., 2d Sess. (1962),
     1962-3 C.B. 405, 429; see also Treas. Reg. § 1.274-
     2(f)(2)(iv)(a). Respondent’s computations in the
     Notices of Deficiency fail to take that double payment
     of tax into account.
          At the time of the audit of TLC’s returns for the
     years at issue, the examining agent also was reviewing
     information related to TLC’s customers to determine
     whether the customers had applied the deduction
     limitation. The agent informed TLC during the
     examination that a significant number of TLC’s
     customers applied the Section 274(n) deduction
                              - 84 -

     limitation.[54]
          Accordingly, the actions and return positions of
     the other trucking companies must be reviewed to
     determine whether the deficiencies computed by
     respondent are correct. We respectfully request,
     therefore, that the Court vacate its Order [sic] of
     August 16 and order the parties to submit computations
     pursuant to Rule 155. This will permit the parties the
     opportunity to determine whether TLC’s liability should
     be reduced by the amounts already paid by parties to
     the transaction.
On the record before us, we reject petitioner’s assertion.

     Petitioner did not advance petitioner’s tax duplication

argument in its petition, in its trial memorandum, at trial, or

on brief.   It was only after the Court ruled against petitioner

in Transport Labor I that petitioner decided to advance

petitioner’s tax duplication argument in petitioner’s motion to

vacate.   By doing so, petitioner is trying to advance in the

context of a Rule 155 computation a new argument that it is

raising for the first time in petitioner’s motion to vacate.55

     54
      There was no evidence in the record in this case estab-
lishing: (1) That the examining agent who audited the consoli-
dated return that petitioner filed for each of the years at issue
also conducted an audit of any of TLC’s trucking company clients
and (2) that any such examining agent made any statements to
petitioner’s officers, directors, or employees that a significant
number of TLC’s customers applied the sec. 274(n)(1) limitation
to any amounts that they paid to TLC.
     55
      Even if we were to allow petitioner to advance
petitioner’s tax duplication argument, petitioner would not be
entitled to the remedy it seeks. If, as petitioner asserts,
certain trucking company clients applied the sec. 274(n)(1)
limitation to certain amounts that they paid to TLC as a lease
fee, our findings and conclusions in Transport Labor I may have
resulted in such trucking company clients’ having overpayments of
tax. The appropriate remedy in any such situation would be for
any such trucking company client to seek a refund of any such
                                                   (continued...)
                              - 85 -

Generally, new issues may not be raised in a Rule 155

computation.   Harris v. Commissioner, 99 T.C. at 123.

     Based upon our examination of the entire record before us,

we reject petitioner’s argument that the parties stipulated that

a computation under Rule 155 is necessary in order to determine

the effect on the respective deficiencies for the years at issue

of the tentative refunds that respondent erroneously issued to

petitioner for such years.   Based on that examination, we further

find that petitioner’s motion to vacate advances theories or

grounds with respect to positions which petitioner raised for the

first time in petitioner’s motion to vacate or which petitioner

abandoned before the trial in this case and with respect to which

petitioner wants the Court to hold a second trial at which

petitioner would introduce new evidence in support of those

positions.

     For the foregoing reasons and the reasons discussed above in

connection with the Court’s denial of petitioner’s motion for

reconsideration, we shall deny petitioner’s motion to vacate.

     We have considered all of the contentions and arguments of

petitioner and respondent that are not discussed herein, and we

find them to be without merit, irrelevant, and/or moot.




     55
      (...continued)
overpayment.
                        - 86 -

To reflect the foregoing,


                                 An order will be issued

                            denying petitioner’s motion for

                            reconsideration and petitioner’s

                            motion to vacate.
