                     T.C. Summary Opinion 2009-53



                       UNITED STATES TAX COURT



                 WALTER N. MAIMON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8008-07S.                 Filed April 20, 2009.



     John E. Fulker and Robert A. McCarthy, for petitioner.

     Gary R. Shuler, Jr. and Matthew J. Fritz, for respondent.



     GOEKE, Judge:    This case is before the Court pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    Pursuant to section

7463(b), the decision to be entered is not reviewable by any



     1
      Unless otherwise indicated, all 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, unless otherwise indicated.
                               - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined an $11,793 Federal income tax

deficiency for 2004.   The issues for decisions are:   (1) Whether

petitioner was an independent contractor for 2004 entitled to

report income and expenses on a Schedule C, Profit or Loss From

Business; and (2) should we determine that petitioner is an

employee, whether petitioner is entitled to miscellaneous

itemized deductions of $24,615 for 2004.

                            Background

     The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioner resided in Ohio at

the time of filing his petition.

     Petitioner is a medical doctor and specializes in head and

neck surgery, otolaryngology, and facial plastic surgery.    During

2004 petitioner provided medical services to patients through

Dayton Head and Neck Surgeons, Inc. (DHN).    Petitioner’s

biographical information is listed on DHN’s Web site under the

Web page designated “Physicians and Professional Staff”.

Petitioner joined DHN as a shareholder in 1999.    Before joining

DHN, petitioner was in sole practice for approximately 10 years.

     On July 1, 2001, petitioner and seven other doctors executed

a shareholders’ agreement and close corporation agreement

(shareholder agreement) with each doctor an equal shareholder.
                                 - 3 -

The physician shareholders of DHN had different areas of

specialty and organized DHN to share overhead and operating

expenses and agreed to share revenues equally.    On that same

date, petitioner executed an employment agreement with DHN

effective until June 30, 2004.    Thereafter, the employment

agreement would be automatically renewed for additional 1-year

terms unless the employee resigned, died, became disabled, or was

terminated by DHN.    The employment agreement expressly identified

petitioner as an “employee” of DHN and provided that he agreed to

serve as an officer and member of the board of directors.      The

terms of the employment agreement provided:

     the Employee shall, under the supervision of the
     physician members of the Corporation’s Board of
     Directors, devote his working time, skill and
     experience to advancing and rendering profitable the
     interests of the Corporation * * *.

     The employment agreement placed additional requirements on

petitioner relating to:    (1) Maintaining and improving DHN’s

standing within the community; (2) maintaining telephone service

and other appropriate equipment at his residence; (3) attending

annual continuing education courses; and (4) maintaining hospital

staff privileges.    The employment agreement provided that DHN

would reimburse petitioner for the costs of continuing education

courses, hospital staff dues, professional societies,

professional publications, and other professional expenses in

accordance with policies established by the board of directors.
                                - 4 -

The employment agreement also provided for paid vacation leave

for petitioner and required DHN to maintain malpractice insurance

on petitioner.

       Under the terms of the employment agreement, petitioner

agreed that all patients that he treated were regarded as DHN’s

patients and all records and files, including patient files, were

considered the property of DHN.    Petitioner further agreed that

DHN was entitled to “receive any and all fees arising out of his

rendition of medical services.”    DHN agreed to pay petitioner an

annual base salary of $253,000 with increases set by the board of

directors.    Petitioner’s annual base salary in 2004 remained at

$253,000.    Petitioner was also eligible to receive annual

bonuses.    The bonus was based on DHN’s net annual profits and not

on petitioner’s individual performance.    The employment agreement

provided that petitioner would receive the same amount of total

annual compensation, consisting of the base salary and bonus, as

the other physician shareholders.    Finally, under the terms of

the employment agreement, petitioner would receive “supplemental

bonus compensation” of $30,076 during the period ending December

31, 2004, in consideration of petitioner’s senior status with

DHN.

       During 2001 through 2007 DHN employed receptionists to

schedule patient appointments for its doctors, processed

insurance claims for patients, billed and collected money from
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patients for medical services its doctors and medical staff

performed, accepted assignments for all Medicare and Medicaid

patients, required new patients to complete paperwork relating to

patient information and insurance information, and required

returning patients to complete a health history form, including

for petitioner and petitioner’s patients.    By signing the

paperwork, the patient authorized DHN:   (1) To provide diagnostic

and treatment services to the patient; (2) to submit claims to

the patient’s insurance carrier or its intermediaries for all

covered services the doctor rendered and authorized and directed

the patient’s insurance carrier to issue payment directly to DHN;

and (3) to furnish complete information to the patient’s

insurance carrier or its intermediaries regarding services

rendered.   DHN provided patients, including petitioner’s, with a

“Notice of Privacy Practices” and required them to sign a

“Privacy Practices Acknowledgement”.   Petitioner had a personal

scheduler assigned to him who scheduled his appointments and

surgical procedures.   Although petitioner chose this person, the

person was paid by DHN.   Petitioner managed his patient records

and provided billing codes to DHN’s billing staff to prepare

patient billing statements.

     DHN leased real properties where it provided medical

services at five office locations in Ohio.    In 2004 petitioner

saw patients at two of these office locations--in Centerville,
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Ohio, and Dayton, Ohio.   Petitioner performed surgery at Miami

Valley Hospital and Kettering Medical Center.     DHN also leased

medical, communication, and computer equipment and other fixtures

for use at its office locations.   In 2004 DHN maintained office

hours on Monday through Friday from 8:30 a.m to 5 p.m.

Petitioner was required to work nine half-day shifts, or 4-1/2

days, per week during these set office hours.     Petitioner could

choose his half-day off each week.     Petitioner was required to be

on call on a rotating basis to accept assignments DHN scheduled

at night and on Sundays and holidays.     Petitioner could pay

another doctor from DHN to take his turn on call.     The doctors

were not required to see a specific number of patients.     The

number of patients per hour varied among the doctors and depended

in part on the doctor’s specialty.     Petitioner was paid a

prorated portion of his annual salary biweekly and received the

same amount of compensation regardless of the number of patients

that he saw during the biweekly pay period.

     The shareholder and employment agreements provided that DHN

had the right to terminate petitioner upon a vote of all, except

one, of the shareholders.   The agreements did not require DHN to

have cause for petitioner’s termination.     Upon termination,

petitioner had the right to a wage continuation payment of

$120,000 for past services, subject to certain conditions, in

addition to his accrued but unpaid base salary, a prorated annual
                                - 7 -

bonus, and earned and unpaid balance of the supplemental bonus

compensation.   The employment agreement required petitioner to

give DHN 60 days’ notice to terminate his relationship with DHN.

Petitioner’s failure to give 60 days’ notice could result in the

forfeiture of his right to payments upon termination.

     Petitioner participated in DHN’s employee retirement benefit

plan.   For 2004 DHN made contributions to the plan on

petitioner’s behalf.   Petitioner did not report these

contributions as income for 2004.    Nor did petitioner report

earnings on the account balance as income for 2004.    For 2004

petitioner received paid vacation and holidays from DHN.      DHN

also provided medical insurance and disability insurance to

petitioner and paid petitioner’s premiums for both policies

during 2004.    DHN also paid the premiums for petitioner’s

malpractice liability insurance during 2004.

     For 2004 petitioner received a Form W-2, Wage and Tax

Statement, from DHN reporting $409,300 in compensation paid to

petitioner as “Wages, tips, other compensation” in box 1.      DHN

did not check the box on the Form W-2 to indicate that petitioner

was a statutory employee.    In 2004 DHN withheld Federal, State,

and local income taxes and Social Security and Medicare taxes

from the compensation paid to petitioner.    Petitioner did not pay

any self-employment taxes for 2004.     Petitioner did not receive

compensation from any other source during 2004 for providing
                               - 8 -

medical services, and petitioner did not perform medical services

for a fee outside of his relationship with DHN.

     For 2004 petitioner filed a Form 1040, U.S. Individual

Income Tax Return, and left blank line 7 “Wages, salaries, tips,

etc.”   He attached Schedule C to his 2004 return and reported

“physician” as his principal business or profession.    On the

Schedule C petitioner reported gross receipts or sales of

$409,300, the wage amount shown on the Form W-2 DHN issued.      He

checked the box to incorrectly indicate that the statutory

employee box was checked on his Form W-2.

     During 2004 petitioner paid legal fees of $22,155 in

connection with a lawsuit filed against him, among others, for

medical negligence.   In 2004 petitioner settled the lawsuit for

$1.4 million with his malpractice insurer’s agreeing to pay

$400,000 and petitioner’s agreeing to pay $1 million.    Petitioner

paid the $1 million settlement during 2005.   During 2004

petitioner paid membership dues of $440 to the American College

of Surgeons Professional Association.   Petitioner reported total

expenses of $24,615, consisting of legal fees of $24,175 and

professional dues of $440, on the Schedule C.

     In September 2006 petitioner requested that DHN issue an

amended Form W-2 for 2004.   DHN’s business manager informed

petitioner that the issuance of an amended Form W-2 was not

appropriate, and petitioner did not receive the requested amended
                                - 9 -

Form W-2 from DHN.    For the years 2001 to 2003 and 2005 to 2006

petitioner received Forms W-2 from DHN reporting his compensation

as “Wages, tips, other compensation” and the withholding of

Federal, State, and local income taxes and Social Security and

Medicare taxes.   For 2001 to 2003 petitioner reported the

compensation received from DHN on Form 1040, line 7, “Wages,

salaries, tips, etc.”, on Form 1040 and did not file a Schedule C

with his returns.    For 2005 petitioner reported the compensation

received from DHN on line 7 “Wages, salaries, tips, etc.” and

attached a Schedule C to the return.       The Schedule C did not

report any gross receipts or sales but claimed expenses of over

$1 million, including the $1 million settlement payment for the

medical negligence lawsuit.    For 2006 petitioner attached a

Schedule C to his return and reported gross receipts and sales of

$507,944, which is $50 less than the amount shown as compensation

on his Form W-2 from DHN and claimed expenses of $992.

Petitioner checked the box on line 1 of the 2006 Schedule C to

incorrectly indicate that his Form W-2 identified him as a

statutory employee.

                              Discussion

     Petitioner contends that he is an independent contractor for

Federal income tax purposes and is entitled to deduct business

expenses on Schedule C.   An individual performing services as an

employee may deduct expenses incurred in the performance of
                              - 10 -

services as an employee as miscellaneous itemized deductions on

Schedule A, Itemized Deductions, to the extent the expenses

exceed 2 percent of the taxpayer’s adjusted gross income.     Secs.

62(a)(2), 63(a), (d), 67(a) and (b), 162(a).   An individual who

performs services as an independent contractor is entitled to

deduct expenses incurred in the performance of services on

Schedule C and is not subject to the 2-percent limitation imposed

on miscellaneous itemized deductions.   Although petitioner

claimed on his 2004 return that he was a statutory employee, he

has acknowledged that he does not qualify as a statutory employee

as defined in section 3121(d).

I.   Employment Classification

Respondent contends that petitioner was an employee of DHN

because he was an officer of DHN and under the common law

definition of employee.   Although petitioner agreed in his

employment and shareholder agreements to serve as an officer,

petitioner credibly testified that he did not in fact serve as an

officer during 2004.   Neither the shareholder nor the employment

agreement assigned any official responsibilities to petitioner.

Respondent has not identified any such duties assigned to

petitioner.   However, a determination of whether petitioner was

an officer is not necessary because we find below that he was a

common law employee of DHN.
                               - 11 -

     Whether an individual is an employee or an independent

contractor is a factual question to which common law principles

apply.   Weber v. Commissioner, 103 T.C. 378, 386 (1994), affd. 60

F.3d 1104 (4th Cir. 1995).    Guidelines for determining the

existence of an employment relationship are found in three

substantially similar sections of the regulations:    Sections

31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1, Employment Tax

Regs., relating to FICA, FUTA, and income tax withholding,

respectively, that adopt the common law definition of an

employee.   Under the common law, an employer-employee

relationship exists when the principal has the right to control

and direct the service provider, not only as to the result to be

accomplished but also as to the details and means by which that

result is accomplished.    Secs. 31.3121(d)-1(c)(2), 31.3306(i)-

1(b), Employment Tax Regs.; see also sec. 31.3401(c)-1(b),

Employment Tax Regs.    Factors that are relevant in evaluating

whether a worker is a common law employee or an independent

contractor include:    (1) The degree of control the principal

exercised; (2) which party invests in work facilities the worker

used; (3) the worker’s opportunity for profit or loss; (4)

whether the principal can discharge the worker; (5) whether the

work is part of the principal’s regular business; (6) the

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

parties believed they were creating.    Ewens & Miller, Inc. v.
                                - 12 -

Commissioner, 117 T.C. 263, 270 (2001); Weber v. Commissioner,

supra at 387.    All of the facts and circumstance of each case are

considered, and no single factor is dispositive.        Ewens & Miller,

Inc. v. Commissioner, supra at 270.

     A.     Degree of Control

     While no single factor is dispositive, the degree of control

the alleged employer exercised over the details of the work is

the “crucial test” in determining employment status.        Weber v.

Commissioner, supra at 387.     An employment relationship exists

where the principal has the right to control the details, manner,

or method of the individual’s work.      Sec. 31.3121(d)-1(c)(2),

Employment Tax Regs.    In contrast, an independent contractor is

hired to accomplish a specific result, and the principal has the

right only to specify the result it desires.      Id.   It is not

necessary for the principal to actually exercise control; it is

sufficient if the principal has the right to control.         Weber v.

Commissioner, supra at 387; Potter v. Commissioner, T.C. Memo.

1994-356.    The employer need not stand over the individual and

direct every detail of the individual’s work.      Weber v.

Commissioner, supra at 388.

     Petitioner maintains that Ohio State law prohibits DHN from

exercising control over him in matters relating to patient care

and treatment.    See Ohio Rev. Code Ann. sec. 1785.03 (LexisNexis

2004).    DHN did not control or supervise petitioner’s medical
                                - 13 -

judgment, including patient diagnoses, what medications to

prescribe, or what treatments or procedures to perform.

Petitioner had discretion to schedule the length of his patient

appointments, to consult with physicians outside of DHN, and to

determine whether to continue to treat a patient.     Petitioner

also maintained the ability to choose outside pathologists,

laboratories, and other medical services and to choose the

hospitals or surgical centers where he would maintain hospital

privileges.   Petitioner also chose the hospital personnel to

assist him, but neither petitioner nor DHN paid the hospital

staff.

     The degree of control necessary to find employee status

varies with the nature of the services the worker provides.     See

Ewens & Miller, Inc. v. Commissioner, supra at 270; Youngs v.

Commissioner, T.C. Memo. 1995-94, affd. without published opinion

98 F.3d 1348 (9th Cir. 1996).    The threshold level of control

necessary to find employee status is lower when applied to

professional services than when applied to nonprofessional

services.   Profl. & Executive Leasing, Inc. v. Commissioner, 89

T.C. 225, 234 (1987), affd. 862 F.2d 751 (9th Cir. 1988); James

v. Commissioner, 25 T.C. 1296, 1301 (1956).    An alleged

employer’s control over professional services “must necessarily

be more tenuous and general than the control over nonprofessional

employees.”   James v. Commissioner, supra at 1301.
                              - 14 -

     We do not agree that petitioner was not subject to DHN’s

control.   Petitioner was required to work 4-1/2 days during

office hours DHN set.   Although petitioner chose his half-day

off, he did not have the flexibility in his schedule that is

indicative of an independent contractor.   The employment

agreement provided that petitioner would render medical services

“under the supervision of the physician members” of DHN.

Petitioner agreed that all patients belonged to DHN and was

required to submit patient records to DHN for billing and

insurance purposes.   Petitioner did not provide medical services

outside of his relationship with DHN.

     Although petitioner exercised his medical judgment when

rendering medical services, his methods were directed by

professional standards set by the medical community.   Because of

the lower measure of control applicable to professionals, the

fact that DHN did not control his patient diagnoses and

treatments does not preclude a finding that DHN exercised

sufficient control over petitioner to establish an employment

relationship.   See James v. Commissioner, supra; Chaplin v.

Commissioner, T.C. Memo. 2007-58.   We find that DHN had a right

of control over petitioner sufficient to find an employment

relationship.
                              - 15 -

     B.   Investment in Facilities

     The fact that a worker provides his own equipment indicates

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

Commissioner, 117 T.C. at 271.   Petitioner provided medical

services only at offices DHN leased and at hospitals or surgical

facilities where he had staff privileges.    The employment

agreement provided that DHN would pay for petitioner’s hospital

staff dues.   Petitioner did not provide medical services outside

of facilities provided or paid for by DHN.    DHN also provided

clerical, central billing, and purchasing staff.

     Petitioner testified that he provided some specialized

equipment that he used to treat patients.    However, DHN also

leased medical, communications, and computer equipment and other

fixtures for use in its office locations.    Similarly, the

hospitals and medical centers where petitioner performed

procedures provided necessary equipment.    Petitioner did not

quantify his investment in equipment relative to DHN’s.    Any

investment by petitioner is offset by DHN’s investment in office

locations and equipment and payment of hospital dues.    Moreover,

petitioner did not use the equipment to provide medical services

for a fee outside of his relationship with DHN.    This factor

supports employment status.
                              - 16 -

     C.   Opportunity for Profit or Loss

     An opportunity for profit or loss indicates nonemployee

status.   Simpson v. Commissioner, 64 T.C. 974, 988 (1975).    On

the other hand, earning an hourly wage or fixed salary indicates

an employer-employee relationship exists.   Kumpel v.

Commissioner, T.C. Memo. 2003-265.

     Pursuant to the employment agreement, petitioner agreed that

DHN was entitled to any fees arising from his medical services.

The employment agreement guaranteed petitioner a base salary

regardless of the number of patients he saw or the amount of

medical fees he generated.   There was no requirement to generate

a certain level of patient fees to receive a bonus or an increase

in base salary.   Rather, petitioner received bonuses based on the

annual net profits of DHN and not on the amount of medical fees

he personally generated.   The employment agreement provided that

each shareholder physician would receive the same amount of total

annual compensation.   If petitioner increased the amount of

medical fees he generated, the increase would be shared equally

by all the doctors at DHN.   His opportunity for profit was as a

shareholder of DHN rather than from rendering medical services.

Further, petitioner did not perform any medical services for a

fee outside of his relationship with DHN where he could have an

opportunity for profit.
                              - 17 -

     Petitioner had some risk of loss as a shareholder of DHN if

DHN operated at a loss.   The fact that petitioner incurred an

individual loss on the settlement was a business decision he

made, but it supports a finding that he held a risk of loss.

Therefore, this factor on the whole favors independent contractor

status.

     D.    Right To Terminate the Relationship

In determining employment status, courts consider the manner in

which the relationship can be terminated; i.e., by one or both

parties, at any time, with or without notice.    Ewens & Miller,

Inc. v. Commissioner, supra at 273.    The right to discharge a

worker, and the worker’s right to quit, at any time indicate

employee status.

     Under the terms of the shareholder and employment agreements

DHN had the right to discharge petitioner by vote of all except

one of the shareholders with or without cause and without notice.

Upon termination, DHN would be required to pay petitioner a “wage

continuation payment” of $120,000 for his prior services to DHN.

Similarly, petitioner could terminate his relationship with DHN

with or without cause although he was required to give 60 days’

notice of his resignation.   A unilateral notice requirement on

the part of the worker does not support independent contractor

status.   Chaplin v. Commissioner, supra (notice requirement did
                                - 18 -

not indicate employee status).    But see Levine v. Commissioner,

T.C. Memo. 2005-86 (notice by alleged employer supports

independent contractor status).

     Petitioner’s right to receive a wage continuation payment

upon termination is at best a neutral factor.    The employment

agreement provided that the payment would be for past services.

It would not constitute a payment for breach of contract or

petitioner’s right to perform future services under the contract.

Both parties to the employment agreement had the right to

terminate the relationship with or without cause, and DHN could

terminate the relationshipwithout notice.    This factor supports a

finding of employment status.

     E.   Integral Part of Regular Business

Integration of a worker’s services into the business operations

of the alleged employer indicates employee status.    DHN is in the

business of providing medical services.    Petitioner, as a

physician member, is integrally involved in that business.    This

factor supports a finding that petitioner was an employee of DHN.

     F.   Permanency of Relationship

A continuing relationship indicates an employment relationship

while a transitory relationship weighs in favor of independent

contractor status.   Ewens & Miller, Inc. v. Commissioner, supra

at 273.   The parties’ contemplation of a continuing relationship

indicates an employment relationship.     Ellison v. Commissioner,
                                - 19 -

55 T.C. 142, 155 (1970).   In contrast, a relationship established

to accomplish a specified objective is indicative of an

independent contractor relationship.     Id.

     In his pretrial memorandum petitioner acknowledged that the

doctors at DHN intended a long-lasting relationship but argues

this fact is not significant.    Petitioner had a long-term

relationship with DHN.   He joined DHN as a shareholder in 1999.

The employment agreement contemplated an initial 3-year term with

automatic 1-year renewals thereafter.    Given the continuing

nature of the relationship, this factor supports a finding of

employee status.

     G.   Intent of the Parties

     The parties clearly intended to create an employment

relationship.   The employment agreement expressly identified

petitioner as an employee of DHN.    DHN reported petitioner’s

compensation on Form W-2 and withheld income, Social Security,

and Medicare taxes consistent with this expressed intent.

Petitioner did not make quarterly estimated tax payments.     For

the years 2001 through 2003 DHN similarly reported petitioner’s

compensation on Forms W-2 and withheld taxes.    For these years

petitioner reported his compensation from DHN as wages on line 7

of his Forms 1040 and did not report the income or his expenses

on Schedule C as he did for 2004.
                                - 20 -

     DHN provided employment benefits to petitioner, including

paid vacation and holidays, medical and disability insurance,

participation in a retirement plan, and malpractice insurance.

DHN also agreed to reimburse petitioner for the cost of

continuing education classes.    Petitioner did not include in

gross income DHN’s contributions to his retirement account.      DHN

refused to issue an amended Form W-2 to petitioner to indicate

that he was a statutory employee.    This factor supports a finding

of an employment relationship.

     H.   Conclusion

     We find that petitioner is a common law employee of DHN.

Petitioner entered into a contract with DHN that expressly

identified him as an employee.    Consistent with that intent,

petitioner received a fixed salary without regard to the medical

fees he generated, received paid vacations, employee benefits,

and reimbursement for expenses, participated in an employee

retirement plan, and received Forms W-2 reporting his

compensation.   Petitioner was required to work normal office

hours, maintained a long-term relationship with DHN, and did not

perform medical services for a fee except for his DHN patients.

DHN provided his office space, paid for hospital staff

privileges, and provided a substantial portion of his medical

equipment.   Petitioner accepted his employee classification with

DHN for prior years as defined in the employment agreement but
                              - 21 -

sought to change that treatment once faced with the enormous

expense from the employment-related lawsuit and settlement in

2004 and 2005.   The fact that petitioner was a medical

professional with discretion to exercise his professional

judgment in patient care and treatment does not negate the strong

evidence that shows that he was a common law employee of DHN.

      As a common law employee, petitioner must report his

compensation from DHN on Form 1040, line 7 and is not entitled to

deduct the claimed business expenses on Schedule C.     He must

claim the expenses on Schedule A as unreimbursed employee

business expenses subject to the 2-percent limitation for

miscellaneous itemized expenses.

II.   Miscellaneous Itemized Deduction

      We find that petitioner has substantiated that he paid legal

fees of $22,155 and professional dues of $440 during 2004.

Petitioner is entitled to deduct these expenses incurred in

connection with his employment as itemized deductions subject to

the 2-percent limitation of section 67(a).     However, the 2-

percent limitation denies any deduction of these expenses for

2004.

      To reflect the foregoing,


                                       Decision will be entered

                                  for respondent.
