                  T.C. Summary Opinion 2006-191



                     UNITED STATES TAX COURT



                ARIC MANLEY ALLMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21588-05S.               Filed December 19, 2006.


     Aric Manley Allman, pro se.

     Edward L. Walter, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year at issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined a deficiency in petitioner’s Federal

income tax of $989 for taxable year 2003.   The issues for

decision with respect to the taxable year at issue are: (1)

Whether petitioner failed to report interest from Nationwide Life

Insurance Company in the amounts of $16 and $11; (2) whether

petitioner failed to report compensation in the amount of $3,497;

and (3) whether petitioner is liable for self-employment tax.

                            Background

     Some of the facts are stipulated and are so found.   The

stipulation of facts and attached exhibits are incorporated

herein by reference.   At the time the petition was filed,

petitioner resided in Lebanon, Ohio.

     During taxable year 2003, petitioner was employed by

AquaProof, Inc. (AquaProof), a company that specializes in

foundation repair, waterproofing basements, and installing

drainage systems.   Petitioner earned $17,539.42 from AquaProof in

2003.   The Form W-2, Wage and Tax Statement, issued by AquaProof

shows that Federal income tax and Social Security taxes were

withheld from his wages.

     On or about November 17, 2003, petitioner was fired from his

job at AquaProof.   The next day, petitioner began working for

Albert McMickle (Mr. McMickle), who owns a construction company

that specializes in framing new homes.   In that job, petitioner

built and erected the load-bearing structural elements of a
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house.    Petitioner worked for Mr. McMickle from November 18,

2003, until the first week of January 2004.    Petitioner also took

unpaid time off in November and December for the Thanksgiving and

Christmas holidays.

     In his new job, petitioner received the same salary he

earned at AquaProof ($12.50 per hour).    There was no written

employment contract between petitioner and Mr. McMickle.

Petitioner did not receive any benefits, such as health insurance

or vacation time.    Petitioner worked together with Mr. McMickle

and other workers.    Petitioner was paid by cash weekly each

Friday.    Petitioner worked no more than 27 days during 2003 for

Mr. McMickle.

     In early January 2004, however, petitioner realized that the

wages he was receiving from Mr. McMickle were insufficient to

meet his bills.    Petitioner thereafter quit his job.   Sometime in

February or March 2004, petitioner returned to work for

AquaProof.

     Although petitioner provided his Social Security number to

Mr. McMickle at the start of his employment and signed a “tax

form”, he never received a Form W-2 or any other tax information

from Mr. McMickle for taxable year 2003.    Petitioner filed a Form

1040EZ, Income Tax Return for Single and Joint Filers With No

Dependents, for the 2003 tax year on which he reported the income
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received from his employment with AquaProof.     Petitioner did not

report any income derived from his employment with Mr. McMickle.

      Mr. McMickle reported to the Internal Revenue Service on a

Form 1099-MISC, Miscellaneous Income, that petitioner received

nonemployee compensation in 2003 of $3,497.    For the 2003 taxable

year, Nationwide Life Insurance Company (Nationwide) also

reported on a Form 1099-INT, Interest Income, that petitioner

received interest of $16 and $11.   Petitioner did not report

these amounts on his Form 1040EZ for 2003.

                            Discussion

1.   Income from Nationwide Life Insurance Co.

      Gross income includes all income from whatever source

derived unless excluded by a specific provision of section 61(a).

Notably, gross income includes interest and dividends.    Sec.

61(a)(4).

      Generally, the taxpayer bears the burden of proving the

Commissioner’s determination is erroneous.    Sec. 7491(a); Rule

142(a); Welch v. Helvering, 290 U.S. 111 (1933).     The issue we

must resolve in this case is whether respondent may rely solely

upon information provided by a third-party payer in making a

determination.

      Respondent determined that petitioner received interest of

$16 and $11 in taxable year 2003 from two separate insurance

policies based solely on the information contained on Forms 1099-
                                 - 5 -

INT as provided by Nationwide.    Petitioner disagrees with

respondent’s determination.

     Although not raised by the parties, under section 7491(a),

the burden of proof with respect to any factual issue will shift

to respondent if petitioner’s testimony with respect to the issue

is credible.   At trial, petitioner testified that the life

insurance policies were owned by his father, despite their having

his Social Security number on them, and that he neither owned,

nor knew himself to be a beneficiary, of either one of the

policies at issue.   Petitioner further stated that he did not

recall making any type of premium payments to Nationwide Life

Insurance Company, and that he did not receive any income from

either of the policies during the taxable year at issue.

Petitioner also testified that his parents never indicated to him

that they had purchased a life insurance policy on his behalf.

According to petitioner, the only insurance that he had was

through AquaProof and that was with an entirely different

insurance company.   Respondent, who has the burden of production

as to this issue pursuant to section 6201(d), offered no evidence

to rebut petitioner’s testimony, which we find credible.

     We accordingly conclude that petitioner did not receive any

income from Nationwide in taxable year 2003, and that if he did

have any interest in the policies it was, at best, as a nominee
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and not as a beneficiary or owner.      Accordingly, we hold for

petitioner with respect to this issue.

2.   Reported NonEmployee Compensation

      Petitioner does not dispute that he received compensation

from Mr. McMickle for 2003.   Petitioner, however, disputes the

total amount of $3,497 reported by Mr. McMickle as nonemployee

compensation.   He disagrees with the Commissioner’s determination

that he failed to report $3,497 in 2003, and argues that the

determination is based solely on information erroneously filed by

a third-party payor.

      Under section 7491(a), the burden of proof with respect to

any factual issue shifts to the respondent if the petitioner

introduces credible evidence with respect to that issue.

Moreover, under section 6201(d), if a taxpayer asserts a

“reasonable dispute” with regard to income reported by a third

party, respondent must produce reasonable and probative

information regarding the source of income derived.      See Gussie

v. Commissioner, T.C. Memo. 2001-302.

      At trial, petitioner testified that he worked only from

November 18, 2003, through the end of December for Mr. McMickle

(27 days), taking into account the Thanksgiving and Christmas

holidays.   Petitioner stated that he earned roughly $1,800 during

that period.    Petitioner’s estimate is based on his belief that

he worked between 30 to 35 hours per week at $12.50 per hour.
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Although petitioner was paid by cash without a receipt, and could

not produce documentation to support his testimony, we

nonetheless find his testimony as to the maximum number of days

and hours worked to be truthful and accurate.

     If the Form 1099-MISC provided to respondent by Mr. McMickle

were to be believed, which reported $3,497 of nonemployee

compensation, petitioner would have then worked approximately 280

hours during the period at issue.   If true, this would mean that

petitioner worked 40 hours a week for 7 weeks.   We calculate that

based on petitioner’s credible testimony, that he could have

worked no more than 140 hours for Mr. McMickle (35 hours

multiplied by 4 weeks).   We also believe that petitioner took 1

week off for Thanksgiving and Christmas each, resulting in a 4-

week period of work in 2003.    We find that petitioner worked no

more than a 35-hour week with Mr. McMickle for 4 weeks for a

total of 140 hours, earning a total of no more than $1,750 (140

hours multiplied by the rate of $12.50 per hour).

     Respondent did not call Mr. McMickle as a witness in order

to rebut any of petitioner’s testimony.   On all of the facts

presented, petitioner has persuaded us that respondent’s

determination based on the information provided by Mr. McMickle

is erroneous.   Accordingly, we conclude that petitioner failed to

report compensation received from Mr. McMickle in the amount of

$1,750 for taxable year 2003.
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3.   Self-Employment Tax

      Section 1401 imposes a percentage tax on self-employment

income of every individual.    See Jackson v. Commissioner, 108

T.C. 130 (1997).   Self-employment income is defined as “the net

earnings from self-employment derived by an individual * * *

during any taxable year”.    Sec. 1402(b).   The term “net earnings

from self-employment” is defined as “the gross income derived by

an individual from any trade or business carried on by such

individual, less the deductions * * * which are attributable to

such trade or business”.    Sec. 1402(a).

      For purposes of the self-employment income tax, a “trade or

business” has the same meaning as when used in section 162,

except that it does not include the performance of service by an

individual as an employee.    Sec. 1402(c)(2).1   The definition of

an employee applicable to this case is “any individual who, under

the usual common law rules applicable in determining the

employer-employee relationship, has the status of an employee”.

Sec. 3121(d)(2); see sec. 1402(d).




      1
       See also sec. 1.1402(c)-3(a), Income Tax Regs., which
provides as follows: “the performance of service by an individual
as an employee, as defined in the Federal Insurance Contributions
Act (chapter 21 of the Internal Revenue Code) does not constitute
a trade or business within the meaning of sec. 1402(c) and sec.
1.1402(c)-1”.
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     The question of whether an individual performs services for

another as an employee or independent contractor is generally

considered a question of fact.     Packard v. Commissioner, 63 T.C.

621, 629 (1975).   This Court has enumerated seven factors that

should be considered in determining whether an individual is a

common law employee:   (1) The degree of control exercised over

the details of the work; (2) the individual’s investment in the

work facilities; (3) the individual’s opportunity for profit or

loss; (4) whether the work is part of the principal’s regular

business; (5) the principal’s right to discharge the individual;

(6) the permanency of the relationship; and (7) the relationship

the parties think they are creating.      Ewens & Miller, Inc. v.

Commissioner, 117 T.C. 263, 270 (2001); Profl. & Executive

Leasing, Inc. v. Commissioner, 89 T.C. 225, 232 (1987), affd. 862

F.2d 751 (9th Cir. 1988). These factors are not weighted equally

but must be evaluated according to their significance in each

particular case.   Teschner v. Commissioner, T.C. Memo. 1997-498.

     Although no one factor is controlling, the most fundamental

is the degree of the principal’s control over the details of the

work.   Packard v. Commissioner, supra.    Generally the common law

employer-employee relationship exists when “the person for whom

services are performed has the right to control and direct the

individual who performs the services, not only as to the result

to be accomplished by the work but also as to the details and
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means by which that result is accomplished.”   Sec. 31.3121(d)-

1(c)(2), Employment Tax Regs.; see also Gamal-Eldin v.

Commissioner, T.C. Memo. 1988-150, affd. without published

opinion 876 F.2d 896 (9th Cir. 1989).

     Petitioner takes issue with respondent’s determination that

he is required to pay self-employment tax for the 2003 taxable

year.   The Commissioner’s determination is based solely on Mr.

McMickle’s reporting of income paid to petitioner on a Form 1099-

MISC as nonemployee compensation.   According to petitioner, he

was an employee of Mr. McMickle and not an independent

contractor.   As support for his position, petitioner testified

with respect to his work for Mr. McMickle.

     According to petitioner, Mr. McMickle instructed him what to

do when he reported to work and while on the job.   Petitioner

explained that Mr. McMickle worked through a foreman who, in

turn, supervised four individuals, including petitioner.

Petitioner believed that Mr. McMickle would provide him with “a

1099, or W-2, at the end of the year, whatever they send you”.

     We construe respondent to believe that petitioner is liable

for self-employment taxes because the amounts he earned from Mr.

McMickle were income derived from petitioner’s trade or business

as an independent construction worker.   We disagree.

     Petitioner understood himself to be a full-time, hourly

employee of Mr. McMickle during 2003.    Petitioner worked for Mr.
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McMickle “under the table”, which explains the lack of

withholding for taxes and Social Security.    Petitioner testified

that Mr. McMickle owned the construction company and controlled

the details of when and how the work was to be performed at the

various project locations.    Mr. McMickle determined the hours to

be worked by the employees, including petitioner.    There is

nothing in the record that indicates that petitioner was

responsible for profits or losses with respect to the rough

framing activity.    Moreover, the record does not indicate that

petitioner was responsible for his own work expenses or that he

was required to purchase his own tools for use on the job.

Petitioner never signed a contract with Mr. McMickle or anybody

else with respect to the various rough framing projects that

indicated that he was an independent contractor.    Mr. McMickle

could terminate petitioner at any time.    We find petitioner’s

testimony credible.

       Again, we note that respondent failed to rebut petitioner’s

testimony because he did not call Mr. McMickle as a witness.

Based on the facts before us, and in light of the factors

enumerated above, we find that petitioner was an employee during

2003.    Accordingly, petitioner is not subject to self-employment

tax.    Petitioner is sustained on this issue.

       Reviewed and adopted as the report of the Small Tax Case

Division.
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             Decision will be entered

         under Rule 155.
