                           123 T.C. No. 9



                     UNITED STATES TAX COURT



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



     Docket No. 1188-01.               Filed August 9, 2004.



          P’s wholly owned subsidiary S made payments to
     certain truck drivers whom S leased to certain trucking
     companies. S intended such payments to cover food and
     beverages expenses that such truck drivers paid while
     traveling away from home.

          Held, the parties’ respective positions as to the
     import of Beech Trucking Co. v. Commissioner, 118 T.C.
     428 (2002), rejected. Held, further, on the facts
     presented, S is the common law employer of the truck
     drivers to whom it made the payments at issue. Held,
     further, the limitation imposed by sec. 274(n)(1)
     applies to those payments.



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

for petitioner.
                                - 2 -



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

respondent.



     CHIECHI, Judge:   Respondent determined the following defi-

ciencies in petitioner’s Federal income tax (tax):

                Taxable Year
                Ended Aug. 31           Deficiency
                     1993                 $330,320
                     1994                   28,346
                     1995                1,694,076
                     1996                1,978,282

     In an amendment to answer, respondent alleged increases of

$460,999, $473,305, and $286,223 in the deficiencies in tax for

petitioner’s taxable years ended August 31, 1994, August 31,

1995, and August 31, 1996, respectively, as a result of respon-

dent’s disallowance of a net operating loss (NOL) carryback to

each such taxable year that petitioner claimed from its taxable

year ended August 31, 1997.1

     The issue remaining for decision2 is whether the limitation




     1
      We shall refer to petitioner’s taxable years ended Aug. 31,
1993, Aug. 31, 1994, Aug. 31, 1995, Aug. 31, 1996, and Aug. 31,
1997, as taxable years 1993, 1994, 1995, 1996, and 1997, respec-
tively.
     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.
                              - 3 -

imposed by section 274(n)(1)3 applies 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 (truck drivers) in order

to cover the amounts that they spent for food and beverages.4    We

hold that it does.

                        FINDINGS OF FACT5

     Most of the facts have been stipulated and are so found.

     Petitioner had its principal office in Arden Hills, Minne-

sota, at the time it filed the petition in this case.



     3
      Unless otherwise indicated, 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 Prac-
tice and Procedure. As in effect 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). Prior to its amendment by the Omnibus
Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13209(a),
107 Stat. 469 (OBRA 1993), sec. 274(n)(1) limited a deduction for
food or beverages to 80 percent of the amount otherwise allowable
(80-percent limitation). 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.
     4
      The parties agree that, in addition to food and beverage
expenses, the truck drivers in question paid certain incidental
expenses that TLC intended the per diem amounts to cover. The
parties also agree that if the Court were to hold that the
limitation imposed by sec. 274(n)(1) applies, that limitation
applies to the total of all per diem amounts that TLC paid during
each of the taxable years at issue to those truck drivers. For
convenience, we shall refer only to food and beverage expenses.
     5
      Unless otherwise indicated, our Findings of Fact and Opin-
ion pertain to the taxable years at issue.
                               - 4 -

     TLC, which was incorporated in Indiana in 1986, was a wholly

owned subsidiary of petitioner and a member of petitioner’s

affiliated group.   TLC’s corporate headquarters were in Arden

Hills, Minnesota, its payroll services operations were in

Audubon, Minnesota, and its human resources operations were in

Porter, Indiana.

     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-

chandise.6   Prior to the times such trucking companies entered

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

had (1) made payments to all of their respective truck drivers

who worked for them that were intended to compensate such drivers

for their work and (2) generally made payments (per diem pay-

ments) only to their respective over-the-road7 truck drivers who

worked for them that were intended to cover the amounts that such

truck drivers spent for food and beverages while traveling away

from home.

     As of the beginning of taxable year 1993, TLC was leasing




     6
      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.
     7
      The term over-the-road means that the length of travel
required a truck driver to stay away from home overnight.
                              - 5 -

driver-employees to approximately 100 trucking company clients.8

By the end of taxable year 1996, TLC was leasing driver-employees

to approximately 300 trucking company clients.   Although most of

TLC’s trucking company clients were located in Minnesota,

Montana, or Pennsylvania, by the end of taxable year 1996 TLC had

trucking company clients in 31 states.   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.

     TLC’s trucking company clients were engaged principally in

the over-the-road trucking industry.   As of the beginning of

taxable year 1993, approximately 90 percent of TLC’s trucking

company clients were over-the-road carriers, while the remaining

10 percent were local carriers.   By the end of taxable year 1996,

approximately 65 percent of TLC’s trucking company clients were

over-the-road carriers, and 35 percent were local carriers.

     In an attempt to attract clients, TLC’s sale representatives

used a variety of sales techniques, including (1) newspaper

advertisements, (2) face-to-face meetings with, and other presen-

tations to, trucking company owners, (3) brochures, (4) form

letters, and (5) other promotional mailings.   Two of the bro-

chures that TLC provided to prospective clients were entitled

“The Fact Book” (Fact Book) and “Your Trucks/Our Drivers” (Your



     8
      The number of truck drivers that each trucking company
client leased from TLC ranged from 1 to 50.
                               - 6 -

Trucks/Our Drivers).

     The Fact Book, which was one of TLC’s principal marketing

tools, described, inter alia, the savings and other advantages

that a trucking company would realize from leasing driver-employ-

ees from TLC.   The Fact Book stated in pertinent part:

     Help You Stay in Compliance with Most Employment Laws

     T.L.C. hires the drivers and becomes the legal em-
     ployer. And we can “prove” to your attorney’s satis-
     faction that we are the employer based on the things we
     do for our employees. Plus our standing as the em-
     ployer has been confirmed by the courts.

     We become responsible for payroll including withholding
     taxes, tax filings, garnishments, child support levies,
     Workers Compensation insurance and claims, unemployment
     claims, the hiring process and terminations. We also
     assure compliance with most of the federal and state
     employer/employee laws under most circumstances.

        *       *       *        *       *       *        *

     FREE Driver Recruiting

     Professional driver recruiting is included in the
     T.L.C. package. Our fee is a flat percentage of a
     driver’s gross wages, and all our services are in-
     cluded, including recruiting.

     Our full-time recruiters advertise for drivers across
     the USA. They take applications, interview, screen,
     confirm physical exams and CDL status, check with
     former employers, verify that all the driver specifica-
     tions are adhered to - including those of your liabil-
     ity carrier, plus we’ll order MVRs [Motor Vehicle
     Reports] and DAC reports.

     If the drivers meet our standards, we “give” these good
     employees to our customers.

     Hiring drivers is a full-time job for our recruiters
     and T.L.C. has an outstanding track record of finding
     qualified people. Bottom Line? You’ll have more
                              - 7 -

     drivers with T.L.C.

     Each year we recruit a number of drivers equal to 20%
     of the average on hand, at no cost to our clients.

     What If a Driver Applies Directly to You?

     Just send the driver to us. We’ll go through the same
     procedures we would follow if he had come to our re-
     cruiters - every key step. We’ll do it all - many
     times in less than four hours - and we’ll cover all the
     expenses. All you need to do is FAX us the application
     - we’ll take it from there.

     T.L.C. Handles Workers Comp and Unemployment Claims

     We manage and defend all workers compensation and
     unemployment claims. When a driver “quits,” because we
     have a job for a good driver almost anywhere in the
     USA, we offer to reassign him to another T.L.C. client.
     Accordingly, we are successful in unemployment hear-
     ings, and in time, cause our SUTA [State Unemployment
     Tax Act] rate to reach the minimum levels.

     In addition to making claims concerning the advantages that

a trucking company would realize from leasing driver-employees

from TLC that were substantially the same as such claims appear-

ing in the Fact Book, Your Trucks/Our Drivers stated in pertinent

part:

     TLC relieves your company of the burden of driver
     employee management by hiring the drivers. These
     drivers perform driver services for your company under
     a lease agreement between TLC and your company.

        *       *       *       *       *        *      *

     TLC is often able to use, with a different client, a
     driver that although qualified to drive may have a
     personality conflict with your staff. * * *

     In soliciting business, TLC’s sale representatives explained

to prospective trucking company clients the advantages that they
                                - 8 -

would realize from leasing driver-employees from TLC.    Those

advantages included TLC’s (1) recruiting truck drivers,

(2) obtaining workers’ compensation insurance for such truck

drivers, (3) substantiating the per diem amounts that TLC paid,

(4) filing Federal and State tax forms, (5) withholding Federal

and State income taxes, (6) maintaining truck driver files in

accordance with Department of Transportation (DOT) specifica-

tions, (7) providing safety programs, and (8) handling any

unemployment claims filed by a driver-employee.

     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

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.    Whenever possible, trucking companies attempted to obtain

workers’ compensation insurance in the private market.    However,

they were frequently unable to do so and were forced to obtain

such coverage through their respective States’ assigned risk

plans.    The cost of workers’ compensation insurance under such

assigned risk plans was typically quite high.    In soliciting a

trucking company’s business, TLC’s sales representatives ex-
                              - 9 -

plained that TLC was able to obtain workers’ compensation insur-

ance in the private market at comparatively low premium rates

because of the large number of driver-employees on whom it

obtained such insurance.

     After initial contacts between a sales representative of TLC

and a prospective trucking company client, TLC provided the

prospective client with a projection of the cost savings that it

could realize from leasing driver-employees from TLC.   TLC also

quoted that prospective client the lease fee that TLC intended to

charge if that trucking company agreed to become a client of TLC.

     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 company of driver-employees from TLC.9    When

each trucking company entered into an exclusive lease agreement

with TLC, such trucking company terminated the employment ar-

rangement that it previously had with all of its truck drivers.

     Each exclusive lease agreement provided in pertinent part:


     9
      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.
                           - 10 -

                          RECITALS

                             I.

     Lessor [TLC] is engaged in the business of provid-
ing services for truck driving operations and all
related duties by virtue of lease agreements with
individuals or companies.

                             II.

     Lessee [trucking company client] is engaged in the
business of a trucking operation providing for the
transportation of goods and merchandise on an inter-
state basis.

                            III.

     Lessor is willing to lease its employees to Lessee
for truck and semi-tractor driving services and Lessee
is willing to lease from Lessor such truck and semi-
tractor drivers upon the terms, covenants and condi-
tions hereinafter set forth.

   *       *       *         *       *     *       *

                         SECTION ONE
                       EXCLUSIVE LEASE

     Lessor hereby leases to Lessee those drivers in
the employment of Lessor during the term of the Agree-
ment. 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 indi-
rectly, any drivers for its trucking operation except
those agreed to be furnished by Lessor under this Lease
Agreement or as otherwise provided herein.

                      SECTION TWO
                BEST EFFORTS OF LESSOR

     Lessor agrees to use its reasonable best efforts
in furnishing Lessee with drivers as may be requested
from Lessee from time to time during the term of this
Agreement. Lessee understands and agrees Lessor cannot
absolutely guarantee the availability of drivers for
Lessee upon demand but Lessor nevertheless agrees to
use its reasonable best efforts in furnishing Lessee
                        - 11 -

with any and all drivers required at all times during
the terms of this Agreement. To facilitate the avail-
ability of drivers to Lessee, Lessee shall refer to
Lessor any and all qualified drivers known to it who
may be suitable for employment by Lessor.

                     SECTION THREE
         STATUS AND QUALIFICATIONS OF DRIVERS

     For purposes of this Agreement and otherwise,
drivers furnished by Lessor to Lessee shall in all
respects be considered the employees of Lessor for all
purposes including but not limited to unemployment
compensation, workers’ compensation, social security
and other employee related duties and obligations.
Lessor represents that it shall perform all the duties
and responsibilities as such employer and shall in its
absolute discretion, hire, fire, discipline, evaluate
and direct the work and conduct on all Lessor’s employ-
ees assigned to Lessee.

   *       *       *       *       *       *       *

     If, due to circumstances beyond Lessor’s control,
Lessor’s employee is unable to complete services to be
provided to Lessee (due to unforeseen or unanticipated
emergency, illness or other similar events) Lessee
shall immediately notify Lessor thereof and Lessor
shall use its reasonable best efforts to provide a
replacement Lessor employee to complete the services to
be provided to Lessee. * * *

   *       *       *       *       *       *       *

                     SECTION FIVE
                COMPENSATION OF LESSOR

     Lessee shall pay Lessor and Lessor shall accept
from Lessee in full payment for the services to be
provided by Lessor to Lessee hereinunder, a deposit and
compensation as follows:
          DEPOSIT: Upon the execution of this Agree-
ment, Lessee shall pay and Lessor hereby acknowledges
receipt of a deposit equal to the sum of Six Hundred
Fifty Dollars ($650) PER TRUCK. Said deposit repre-
sents security to Lessor for the performance of Les-
see’s financial and other obligations under this Agree-
ment. The amount of such deposit is representative of
                        - 12 -

that part of Lessor’s payroll attributable to Lessee
herein and the parties hereto recognize and understand
such amount may fluctuate from time to time. In this
respect, the deposit amount shall be reviewed semi-
annually and the amount of the required deposit shall
be renegotiated and mutually agreed upon. * * *

          COMPENSATION: As and for the services to be
provided by Lessor to Lessee herein, Lessor shall be
compensated as follows: On (day of the week) * * *
starting Mo. * * * Day * * *, * * *, and on that same
day of the week every * * * thereafter during the term
of this Agreement, Lessee shall submit to Lessor its
records reflecting the services provided to it by
Lessor’s driver in the form of hours driven, miles
driven or a percent of Lessee’s gross revenues attrib-
utable to the services provided to Lessee by Lessor’s
driver(s). Simultaneously with the delivery of such
verified records, Lessee shall deliver to Lessor pay-
ment for the amount of compensation payable to Lessor
in the form of bank certified funds and in accordance
with the compensation schedule as reflected on Exhibit
A which is attached hereto and incorporated semi-annu-
ally from and after the date of the Agreement and the
compensation schedule shall be mutually agreed upon,
initialed by the parties, and attached to this Agree-
ment.

                      SECTION SIX
       ADVANCES BY LESSEE TO LESSOR’S EMPLOYEES

     If Lessee advances cash or credit to Lessor’s
driver(s) for fuel, repairs or other transportation
operational expenses, Lessee shall immediately furnish
Lessor with written verified disclosure thereof. If
such advances are not actually expended by Lessor’s
driver(s) for such purposes, and the extent such funds
are not returned to Lessee by Lessor’s driver(s),
Lessee shall deliver to Lessor a written claim there-
fore within fourteen (14) days of the date Lessee had
knowledge of the fact that the funds or credit were not
actually expended by Lessor’s driver(s) and were re-
tained by such driver(s). Lessor shall deduct advances
from the particular driver(s) next payroll check.
Provided, however, that Lessor’s obligation and duty to
reimburse Lessee shall be limited to the extent the
reimbursable amount shall not exceed the net wages,
after all Lessor’s payroll deductions, due the particu-
                        - 13 -

lar driver or drivers during the next applicable pay-
roll period. Any claim submitted by Lessee to Lessor
in this respect after fourteen (14) days from the date
that Lessor has knowledge of the fact such advances
were not actually expended in its behalf by Lessor’s
employee may not be honored by Lessor and Lessor shall
have no obligation whatsoever to reimburse or pay such
unused advances to Lessee.

   *       *       *       *       *       *       *

                     SECTION NINE
       WARRANTIES AND REPRESENTATIONS OF LESSEE

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

     1.   That during the term of this Agreement, all
trucks, semi-tractors, trailers and all related equip-
ment and accessories thereto are in good working order
and properly maintained, are licensed in accordance
with all applicable local, state, and federal rules,
regulations and statutes and any load contained within
or upon any truck or trailer is legal insofar as the
transportation of such load as to type, weight, and any
and all other restrictions or requirements imposed by
local, state or federal rules, regulations or statutes.

     2.   Lessee shall not at any time during the term
of this Agreement require any of Lessor’s employees to
run or otherwise operate Lessee’s equipment and loads
in any manner whatsoever which may be or which Lessee
has reason to believe to be contrary to or in violation
of any local, state, or federal restrictions on hours
driven, miles driven, or the like.

     3.   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 Lessor’s prior written consent.

     4.   As to the representations and warranties made
by Lessee in paragraphs 1 and 2 of this Section Nine,
Lessor’s employee shall inspect Lessee’s equipment,
load and routing requirements of Lessee to verify that
Lessee complies with applicable local, state and fed-
eral rules, regulations and statutes. If Lessor’s
                        - 14 -

employee determines that the equipment, loads or rout-
ing requirements of Lessee are in any way illegal or
contrary to the applicable local, state or federal
rules, regulations or statutes, Lessor’s employee shall
immediately notify Lessee and Lessor thereof and any
dispute resulting therefrom shall be resolved by the
managing officers of Lessor and Lessee.

   *       *       *       *       *       *       *

                    SECTION TWELVE
          LIABILITY LOSS AND INDEMNIFICATION

     Lessor shall not be liable to Lessee for any loss
of business or any other damage caused by an interrup-
tion of the service which Lessor agrees to furnish
hereunder when such interruption is due to war, fire,
strike, picketing, accidents, acts of God, labor dis-
putes, civil disturbances, riots, or any other causes
beyond the control of the Lessor.

     Lessor shall not be responsible or held liable for
any injury or damage to person or property resulting
from the use, misuse or failure of any equipment used
by Lessee and utilized by Lessor’s employees in the
performance of its services to be provided herein. In
this respect and in all other respects, Lessee shall
indemnify Lessor against all liability or loss from and
against all claims or actions based upon or arising out
of damage or injury (including death) to persons or
property caused by or sustained in the connection with
the performance of the Agreement or by conditions
created thereby or based upon any violation of any
local, state or federal rule, regulation, ordinance or
statute and the defense of any such claims or actions,
except only as to injuries sustained by Lessor’s em-
ployee, as a result of such employee’s negligence or
wrongful act of the employee.

     Lessor shall not be responsible for loss or damage
to equipment or cargo of Lessee by reason of collision,
fire, flood, windstorm, explosion, or other casualty.

     In this respect and in all other respects Lessee
shall indemnify Lessor against all liabilities or
losses, including but not limited to those liabilities
or losses described immediately above.
                             - 15 -

          Lessor shall indemnify Lessee against all liabil-
     ity and loss in connection with and shall assume full
     responsibility for payment of all federal, state and
     local employee taxes or contributions imposed or re-
     quired under unemployment insurance, social security
     and income tax laws with respect to Lessor’s employees
     engaged in the performance of the Agreement.

          *     *       *       *       *       *       *

                            EXHIBIT A
                      COMPENSATION SCHEDULE

          Lessee shall compensate Lessor via certified bank
     funds for the services provided by Lessor’s drivers by
     the following methods. (By cents per mile, an hourly
     wage, a percentage of Lessees gross revenue produced by
     Lessor’s employees or by any other method agreed to or
     described below.) Any of the below which are directly
     attributable to services performed for the Lessee by
     the Lessor’s employee. (See addendum A).

     The above compensation multiplied by (See addendum B),
     surcharge or charge currently or retroactively charged
     the Lessor and other charges attributable to services
     performed. The rate is subject to change based upon
     federal and state tax changes and unemployment and
     workers compensation rates throughout the year, PLUS
     Lessor’s portion of health insurance costs for Lessor’s
     employees assigned to Lessee (used or not), and charges
     to Lessee by Lessor for Lessee’s operation expense
     (such as fuel, tire repair, other expenses for Lessee,
     and charges for truck expense advances) multiplied at
     the rate of ONE HUNDRED (100%) percent.[10] [Reproduced


     10
      None of the exclusive lease agreements into which TLC and
a trucking company client entered prior to calendar year 1993
contained addendum A and addendum B. Instead, such exclusive
lease agreements contained Exhibit A, which set forth the same
type of information as that set forth in Addendum A and Addendum
B that were included as part of each exclusive lease agreement
into which TLC and a trucking company client entered during the
taxable years at issue. Addendum A listed the type of trucking
company (i.e., over-the-road or local) and the method used to
compute the gross amount that TLC was to pay each driver-employee
whom it leased to a trucking company client. Addendum B listed
                                                   (continued...)
                                - 16 -

     literally.]

     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


     10
      (...continued)
the factor to which TLC and each trucking company client agreed
and which such trucking company client and TLC used to compute
the lease fee that such client owed to TLC under the exclusive
lease agreement. The information included in those addenda to
all post-1992 exclusive lease agreements was included in Exhibit
A to all pre-1993 exclusive lease agreements.
                                - 17 -

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

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.

     As part of TLC’s screening and approval process, TLC re-

quired each truck driver who applied for a position as a driver-

employee to sign and submit a number of documents, including:

(1) An application (employment application) for employment that

set forth, inter alia, such truck driver’s employment and medical

history; (2) a certification of violations that set forth all

motor vehicle violations in the past 12 months; (3) a truck

driver data sheet that certified the number of hours that such

truck driver had driven in the preceding 7 days; (4) Immigration

and Naturalization Service Form I-9 that verified such truck

driver’s eligibility to work in the United States; (5) a form

that authorized the release of such truck driver’s employment

history to TLC; (6) a form that authorized the release to TLC by

appropriate State agencies of such truck driver’s driving record;

and (7) a form in which such truck driver consented to a
                              - 18 -

preemployment urinalysis.

     After TLC concluded that a truck driver had passed TLC’s

screening and approval process, but before TLC hired such truck

driver as a driver-employee, TLC required each truck driver to:

(1) Certify that he or she did not possess more than one driver’s

license; (2) complete an application (assignment application)

that requested assignment to a trucking company client; (3) sign

a document (safe driving acknowledgment) that acknowledged that a

safe driving record was a condition for employment; and

(4) receive the Federal Motor Carrier Safety Regulation Pocket-

book.

     Each assignment application that each driver-employee

completed provided in pertinent part:   “it is to be understood

that the applicant is an employee of Transport Leasing\Contract,

Inc. [TLC] only.   Applicant is not an employee of the lessee

named above or herein after [sic].”

     Each safe driving acknowledgment that each driver-employee

signed provided in pertinent part:

          As a condition of continued employment with Trans-
     port Labor\Contract, Inc.[,] it is understood that a
     safe driving record must be maintained. If driving
     privileges are suspended by the issuing state agency or
     an insurance company deems you uninsurable, we can no
     longer use your services.

          In the above situation, dismissal would be deemed
     directly attributable to your actions. Unemployment
     claims may be denied.

     TLC required each driver-employee whom it hired to sign a
                             - 19 -

document entitled “DRIVER EMPLOYEE CONTRACT” (driver contract).

Each driver contract provided in pertinent part:

     THE FOLLOWING IS A LIST OF REGULATIONS AND REQUIREMENTS
     CONCERNING YOUR EMPLOYMENT WITH TRANSPORT
     LEASING/CONTRACT, INC., (TLC). ANY VIOLATION OF THESE
     REQUIREMENTS MAY RESULT IN DISMISSAL OR A CHARGE BEING
     MADE AGAINST THE EMPLOYEE BY TLC OR IT’S AFFILIATES.

        *       *       *       *       *       *       *

     • ALL DRIVERS ARE TO ATTEND AT LEAST 2 SAFETY MEETINGS
     PER YEAR.

     ALL LOAD OVERAGES ARE THE PROPERTY OF THE SHIPPER OR
     THE TLC LESSEE.

     DRINKING OR BEING UNDER THE LEAST INFLUENCE OF ALCOHOL
     WHILE ON THE JOB SHALL BE GROSS MISCONDUCT AND WILL
     RESULT IN IMMEDIATE DISMISSAL.

     THE TAKING OF ILLEGAL DRUGS OR BEING UNDER THE INFLU-
     ENCE OF ILLEGAL DRUGS IS STRICTLY PROHIBITED BY THE
     D.O.T., FEDERAL LAW AND TLC COMPANY POLICY. IF ANY
     EMPLOYEE IS FOUND OR TESTS POSITIVE FOR ILLEGAL DRUG
     USE, THEY WILL BE EITHER DISCHARGED IMMEDIATELY OR
     FORCED INTO A DRUG REHABILITATION PROGRAM. ALL DRIVERS
     ARE SUBJECT TO FEDERAL DRUG TESTING AS REQUIRED BY THE
     D.O.T.

     ALL PAPERWORK REQUIRED BY TLC OR IT’S AFFILIATES WILL
     BE DONE ON A DAILY BASIS OR AS DIRECTED.

     THE PERFORMANCE OF ANY JOB REQUIRED BY TLC MUST NOT BE
     AFFECTED BY A PERSONAL, LEGAL OR FINANCIAL PROBLEM OF
     THE DRIVER. THIS ALSO INCLUDES DRIVER ATTITUDE.

        *       *       *       *       *       *       *

     I HEREBY ACKNOWLEDGE THE FACT THAT TRANSPORT LEAS-
     ING/CONTRACT, INC. IS AN INDIANA CORPORATION AND THAT
     ANY WORKER’S COMPENSATION CLAIMS SUBMITTED BY ME WILL
     BE REPORTED TO THE STATE OF INDIANA.

     I FURTHER AGREE THAT IF I AM EVER INJURED ON THE JOB I
     WILL REPORT MY INJURY TO TLC, INC. IMMEDIATELY SO THEY
     MAY FILE A FIRST REPORT OF INJURY TO THE INDIANA
                           - 20 -

WORKER’S COMPENSATION BOARD. I WILL ALSO INFORM ANY
MEDICAL FACILITY THAT I AM TREATED AT FOR SAME THAT I
AM AN EMPLOYEE OF TLC, INC. AND THAT ALL BILLINGS ARE
TO BE SENT DIRECTLY TO TLC, INC. LASTLY, I WILL INFORM
ALL MEDICAL FACILITIES/PHYSICIANS THAT I AM AN EMPLOYEE
OF AN INDIANA CORPORATION AND THAT ALL WORKER’S COMPEN-
SATION CLAIMS SUFFERED BY ME WILL BE REPORTED TO THE
STATE OF INDIANA.

   *        *       *        *       *        *      *

                STATEMENT OF COMPANY POLICY

     Upon reading and reviewing this next section
[regarding types of losses involving the transportation
of goods or merchandise by a trucking company client
that is leasing a driver-employee from TLC], please be
aware that every TLC, Inc. lessee may have their own
individual regulations and requirements. The following
may not apply in every given situation.

   *        *       *        *       *        *      *

LEVEL 3 LOSS: A loss resulting in property damage or
bodily injury. Property damage shall be equal to a
value of $2,000.00 but not greater than $20,000.00
combined. Bodily injury shall be any injuries which
receive treatment away from the scene of the accident
but does not result in death, disability or disfigure-
ment of a second party.

     First Offense: A letter of reprimand, 1 week
suspension from work without compensation.

     Second Offense:     (Within 9 months) Discharge from
employment.

LEVEL 4 LOSS: A loss resulting in property damage and
or bodily injury in excess of or to the extent of:
property damage equal to or greater than $20,000.01 and
or death, disability or disfigurement of a second
party.

       First Offense:   Discharge from employment.

NOTE: The intentional failure to report any and all
incurred losses immediately shall be viewed as an act
of dishonesty of the driver. Acts of dishonesty sub-
                             - 21 -

     ject the driver to discharge from employment. The
     occurrence of a Level 2, 3 or 4 Loss is automatically
     counted as an occurrence in the lower levels. There-
     fore, if by the automatic counting of a higher occur-
     rence into a lower level, that fills that level and
     subjects a driver to a more sever type of reprimand,
     then the more severe type of reprimand will take prece-
     dence.

     *DRIVER: The use of the word Driver refers to any
     company employees who have been qualified to drive for
     any of TLC, Inc.’s lessees.

        *       *       *       *       *       *       *

     EMPLOYMENT COUNSELING: Employment counseling may not
     be completed during a period of reprimand, however must
     be completed prior to a driver being allowed to return
     to work. There shall be no compensation paid for the
     driver’s time during an employment counseling session.
     The driver’s failure to complete an employment counsel-
     ing session will subject the driver to discharge of
     employment.

          I HEREBY CERTIFY THAT I HAVE READ AND UNDERSTAND
     THE ABOVE EMPLOYMENT CONTRACT OF TRANSPORT
     LEASING\CONTRACT, INC. AND WILL ABIDE TO ALL POLICIES
     AND PROCEDURES STATED WITHIN. I FURTHER ACCEPT THESE
     CONDITIONS WITH REGARD TO MY DRIVING QUALIFICATIONS AND
     EMPLOYMENT WITH TRANSPORT LEASING\CONTRACT, INC. [Re-
     produced literally.]

     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
                             - 22 -

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

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 no responsibil-

ity for the losses of the business of any trucking company

client.

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

and conduct of each driver-employee.   Thus, 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.   When TLC hired

each driver-employee, TLC gave such driver-employee a packet of

materials, including a truck driver handbook (TLC driver hand-

book), a safety manual, and a brochure entitled “Welcome to TLC”.

The TLC driver handbook 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
                               - 23 -

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.11

     After TLC hired a truck driver as a driver-employee, TLC

maintained a file with respect to such driver-employee, which

included such driver-employee’s employment application and

medical history and the results of TLC’s screening and approval

process with respect to such driver-employee.   In addition, TLC

required periodic physical examinations of each driver-employee

and monitored each driver-employee to ensure that such driver-

employee remained current with respect to his or her motor

vehicle reports.   TLC and each trucking company client maintained

duplicate driver-employee personnel files that contained DOT-

mandated forms and information.   Each trucking company client

monitored each driver-employee’s compliance with DOT regula-

tions.12   TLC ensured that each driver-employee’s file was main-


     11
      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. The table of
contents of the TLC driver handbook listing such matters is
attached as an appendix.
     12
      Pursuant to the exclusive lease agreement, if a driver-
employee determined “that the equipment, loads or routing re-
quirements of * * * [a trucking company client] are in any way
illegal or contrary to the applicable local, state or federal
rules, regulations or statutes,” such driver-employee “shall
immediately notify * * * [TLC and such trucking company client]
thereof and any dispute resulting therefrom shall be resolved by
the managing officers of * * * [TLC and such trucking company
                                                   (continued...)
                              - 24 -

tained in accordance with DOT specifications.

     TLC provided each driver-employee with a monthly newsletter

and periodically provided each driver-employee with materials on

driving safety, drug usage, and compliance with DOT requirements.

TLC also conducted safety programs for the driver-employees,

which included periodic on-site safety training for each driver-

employee and safety awards and bonuses.    Each trucking company

client provided each driver-employee whom TLC leased to it with

any necessary orientation and training with respect to such

trucking company client’s trucking equipment.

     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 associated with the $5,000 group term life

insurance policy.   TLC bore the administrative costs but no other

costs associated with the various employee benefits that it

sponsored for its driver-employees.    Each driver-employee paid

such other costs through payroll deductions.13


     12
      (...continued)
client].”
     13
      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
                                                   (continued...)
                              - 25 -

     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

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




     13
      (...continued)
such instances, TLC paid the trucking company client’s share of
such health insurance premiums and charged such premiums to the
trucking company client.
                              - 26 -

unemployment claims that such driver-employee filed.14

     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

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

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

was a local carrier.

     At the end of each payroll period,15 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) which was equal to the

total of the gross wages16 and any per diem amounts to which each



     14
      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).
     15
      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.
     16
      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.
                             - 27 -

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

such component parts;17 (2) the total amount of expenses for gas,

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

company client (a) made cash advances (advances)18 and/or (b) was

obligated to make reimbursements to such driver-employee (reim-

bursable 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;19

and (5) the number of days such driver-employee was away from

home.

     TLC determined what portion of the batch report lump sum to

which each driver-employee was entitled constituted gross wages

and what portion, if any, constituted per diem amounts.20   In

order to make that determination, TLC applied to each batch


     17
      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.
     18
      Except for such advances, no trucking company client made
any payments to a driver-employee.
     19
      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.
     20
      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).
                              - 28 -

report lump sum amount to which each driver-employee was entitled

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

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

ranged from zero to 33 percent.

     Beginning in late calendar year 1993, TLC requested that for

each payroll period each trucking company client provide it on a

“Leased Driver Worksheet” certain information that the Internal

Revenue Service (IRS) required in order to substantiate each

driver-employee’s per diem amounts.21    The requested information

for each payroll period included, inter alia, the number of days

such driver-employee traveled away from home.    Some of TLC’s

trucking company clients did not provide TLC with the information

that TLC requested.22

     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


     21
      As discussed above, TLC’s promotional materials repre-
sented to each trucking company client that TLC was responsible
for substantiating the per diem amounts that TLC paid to a
driver-employee and for ensuring the appropriateness of such per
diem amounts for Federal income tax purposes.
     22
      When a trucking company client did not provide TLC with
the information that it requested, TLC used the number of days
that each driver-employee was away from home that was shown in
the batch report in order to substantiate any per diem amounts
that TLC determined and paid to such driver-employee.
                              - 29 -

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

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

employee share of employment taxes,23 payroll deductions for

employee benefits, and net wages.24    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

his or her net wages and any per diem amounts,25 regardless of

whether the trucking company client to which TLC leased such



     23
      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, the
Federal Unemployment Tax Act, or SUTA as employment taxes.
     24
      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.
     25
      The aggregate amount of each driver-employee’s net wages
and any per diem amounts to which such driver-employee was
entitled was increased by the amount of any reimbursable expenses
for which a trucking company 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.
                              - 30 -

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 IRS and appropriate State agencies,

and pay workers’ compensation insurance premiums as TLC’s payroll

obligation.)   TLC paid each driver-employee by either mailing a

check directly to such driver-employee or sending a check via

overnight delivery to the trucking company client to whom TLC

leased such driver-employee for distribution to such driver-

employee.

     At the time TLC paid each driver-employee, TLC sent such

driver-employee an earnings statement showing, inter alia, the

batch report lump sum amount to which he or she was entitled, net

wages, any per diem amounts, Federal and State income taxes

withheld and paid, the driver-employee’s share of employment

taxes withheld and paid, and any other payroll deductions.

     At the time TLC paid each driver-employee, TLC generated and
                              - 31 -

sent to the trucking company client that leased such driver-

employee from TLC documents entitled “Statement” (account state-

ment), “Invoice” (account invoice), and “Precheck report”

(precheck report).   The account statement showed the most recent

debits and credits to each trucking company client’s account and

any credit or balance due on that account.26   The account invoice

showed TLC’s total expenses for each payroll period for all the

driver-employees whom it leased to a trucking company client.27

The precheck report showed for each driver-employee for each

payroll period his or her gross wages, any per diem amounts,

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

employee’s share of employment taxes paid, payroll deductions for

employee benefits, and net wages.

     During the taxable years 1993, 1994, 1995, 1996, and 1997,

TLC paid its driver-employees per diem amounts totaling

$4,841,563, $7,111,060, $8,617,378, $9,934,172, and $10,178,691,

respectively.



     26
      In some instances the account statements covered the two
most recent payroll periods, while in other instances the account
statements covered the three most recent payroll periods.
     27
      Each account invoice showed TLC’s expenses for a payroll
period including, inter alia, the total amount of gross wages and
the total amount of any per diem amounts that TLC paid to all the
driver-employees whom TLC leased to a trucking company client,
the total amount of advances that a trucking company client paid
to the driver-employees whom TLC leased to it, and the total
amounts that TLC paid for health insurance for which the trucking
company client reimbursed TLC.
                             - 32 -

     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.28   Each

exclusive lease agreement set forth a factor (factor)29 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

determine 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 for each driver-employee

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

ployer’s share of employment taxes on the gross wages paid to

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


     28
      Pursuant to each exclusive lease agreement, each trucking
company client, and not TLC, selected the method used to “compen-
sate * * * [TLC] * * * for the services provided by * * * [TLC’s]
* * * drivers”. 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.
     29
      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).
                              - 33 -

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 representatives

and managers, legal and accounting services, and other overhead;

and (5) TLC’s profit (gross 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., the employer’s share of employment

taxes, workers’ compensation insurance, any per diem amounts, and

compensation of persons who performed services for TLC other than

TLC’s driver-employees).

     The per diem percentage that TLC used to determine any per

diem amounts of each driver-employee affected the factor that was

used to compute the lease fee that each trucking company client

owed to TLC.   As discussed above, per diem amounts are not wages

for purposes of computing employment taxes, Federal and State

income taxes withheld, and workers’ compensation insurance

premiums, and a higher per diem percentage resulted in a lower

wage base for purposes of computing such amounts.   A lower wage

base resulted in lower employment taxes, Federal and State income

taxes withheld, and workers’ compensation premiums, which, in
                              - 34 -

turn, reduced the factor.   The amount of TLC’s gross profit,

however, was not affected by the per diem percentage that TLC

used to determine any per diem amounts of each driver-employee.

     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

determine 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

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
                              - 35 -

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

TLC did not maintain separate accounts for the funds received

from each trucking company client.

     In order to minimize TLC’s loss in the event a trucking

company client did not pay to it the payroll period net lease fee

due, each exclusive lease agreement required each trucking

company client to make a deposit with TLC equal to $650 per truck

($650 deposit).   TLC intended the $650 deposit to approximate

TLC’s payroll obligation for one week for each driver-employee

whom it leased to a trucking company client.   The $650 deposit

that each trucking company client paid to TLC did not ensure that

TLC had sufficient funds to pay TLC’s payroll obligation with

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

company client where (1) such trucking company client selected a

payroll period that covered more than one week and/or (2) such

driver-employee was entitled to a batch report lump sum amount

that was greater than $650 per payroll period.

     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:
                             - 36 -

     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
     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.30]

     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 or about March 27, 1996, respondent notified petitioner

that respondent intended to commence the examination upon which

this case is based.

     30
      The per diem letters for each of 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 OBRA 1993. See supra note 3.
                                  - 37 -

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

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

inter alia, that the limitation imposed by section 274(n)(1)

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 tax for one or

more taxable years31 arising out of such trucking company cli-

ent’s failure to take into account the limitation imposed by

section 274(n)(1)32 and with respect to which each such trucking

company client commenced proceedings in the Court, as follows:




     31
      The record does not disclose the taxable year(s) to which
each of the notices issued to certain of TLC’s trucking company
clients pertained.
     32
          See supra note 3.
                              - 38 -

  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

entered stipulated decisions in such cases, which reflected such

concessions.

                              OPINION

     Petitioner bears the burden of proving that the determina-

tions in the notice are erroneous.     See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).    Respondent bears the burden

of proof with respect to the respective increases in the defi-

ciencies in tax for petitioner’s taxable years 1994, 1995, and

1996 that respondent alleged in the amendment to answer.     Rule

142(a)(1).

     We must determine whether the limitation imposed by section

274(n)(1) (section 274(n)(1) limitation) applies to the per diem

amounts that TLC paid to each driver-employee.    Section 274(n)(1)

imposes the following limitation on the amount otherwise allow-
                                  - 39 -

able as a deduction for food or beverage expenses:

     SEC. 274.       DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC.,
                     EXPENSES.

           *         *        *      *       *       *         *

          (n) Only 50 Percent of Meal * * * Expenses Allowed
     as Deduction.--

                    (1) In general.--The amount allowable as a
               deduction under this chapter for--

                         (A) any expense for food or bever-
                    ages, * * *

           *         *        *      *       *       *         *

     shall not exceed 50[33] percent of the amount of such
     expense or item which would (but for this paragraph) be
     allowable as a deduction under this chapter.

     Section 274(n)(2) provides certain exceptions to the section

274(n)(1) limitation, including the following:

          (2) Exceptions.--Paragraph (1) [of section 274(n)]
     shall not apply to any expense if--

                    (A) such expense is described in paragraph
               (2), (3), (4), (7), (8), or (9) of subsection (e).

     The exceptions to the section 274(n)(1) limitation provided

by section 274(e)(3) (section 274(e)(3) exceptions) are for:

          (3) Reimbursed expenses.--Expenses paid or in-
     curred by the taxpayer, in connection with the perfor-
     mance by him of services for another person (whether or
     not such other person is his employer), under a reim-
     bursement or other expense allowance arrangement with
     such other person, but this paragraph shall apply--

                    (A) where the services are performed for
               an employer, only if the employer has not

     33
          See supra note 3.
                             - 40 -

          treated such expenses in the manner provided
          in paragraph (2) [of section 274(e)], or

               (B) where the services are performed for
          a person other than an employer, only if the
          taxpayer accounts (to the extent provided by
          subsection (d) [of section 274]) to such
          person.

     The regulations elaborating on the section 274(e)(3) excep-

tions provide in pertinent part:

     In the case of any expenditure * * * paid or incurred
     by one person in connection with the performance by him
     of services for another person (whether or not such
     other person is an employer) under a reimbursement or
     other expense allowance arrangement, the limitations on
     allowability of deductions provided for in * * * this
     section shall be applied only once, either (1) to the
     person who makes the expenditure or (2) to the person
     who actually bears the expense, but not to both. * * *

Sec. 1.274-2(f)(2)(iv)(a), Income Tax Regs.

     It is petitioner’s position that Beech Trucking Co. v.

Commissioner, 118 T.C. 428 (2002), requires the Court to hold in

the instant case that

          In the case of a three-party arrangement in which
     a professional employer organization leases truck
     drivers to trucking companies, * * * the party which is
     subject to the Section 274(n) limitation * * * is the
     common-law employer of the truck drivers.

According to petitioner, under Beech Trucking Co. v. Commis-

sioner, supra, TLC was not the employer34 of any driver-employee

and thus is not subject to the section 274(n)(1) limitation on


     34
      We accord the term “employer” the same meaning as the term
“common-law employer”. For convenience, we shall use only the
term “employer”.
                                   - 41 -

the per diem amounts at issue.

       Respondent disagrees with petitioner’s reading of Beech

Trucking Co. v. Commissioner, supra.        According to respondent,

Beech Trucking Co. requires the Court to hold in the instant case

that the section 274(n)(1) limitation applies to the person who

paid or incurred, or actually bore,35 the food or beverage ex-

penses in question and that that person is TLC.

       The parties in Beech Trucking Co. v. Commissioner, supra,

agreed that the truck drivers in question were employees not

subject to the section 274(n)(1) limitation because such truck

drivers qualified for the exception to that limitation provided

by section 274(e)(3)(A) (section 274(e)(3)(A) exception).         The

parties in Beech Trucking Co. also agreed that the section

274(n)(1) limitation applied to the employer of those truck

drivers.        It was in the context of those agreements that the

Court stated in Beech Trucking Co. v. Commissioner, supra at 440,

443:

       with respect to meal and entertainment expenses that an
       employee pays or incurs and that are reimbursed by the
       employer, the section 274(n) limitation applies either
       to the employee (as the “person who makes the expendi-
       ture”) or to the employer (as the “person who actually
       bears the expense”). Sec. 1.274-2(f)(2)(iv)(a), Income
       Tax Regs.

            *        *       *        *       *       *       *


       35
      Respondent accords the words “paid or incurred” the same
meaning as the words “actually bore”.
                                - 42 -

             * * * we conclude that the section 274(n) limita-
        tion applies to Beech Trucking as the common law em-
        ployer of its drivers and as the party that (as peti-
        tioner states on brief) actually bore the expense of
        the expenditures for which the per diem payments were
        made [by the company that leased the drivers to Beech
        Trucking]. * * *

        We decline petitioner’s invitation to read into the above-

quoted or any other statements in Beech Trucking Co. v. Commis-

sioner, supra, that, in all instances involving a three-party

arrangement among a truck driver who is an employee (truck

driver-employee), a trucking company, and a company (driver-

leasing company) that provides, for a fee, the services of such a

truck driver to such a trucking company, the employer of the

truck driver is the person subject to the section 274(n)(1)

limitation.    The truck driver-employee in such a three-party

arrangement might be the person who is subject to the section

274(n)(1) limitation, in which event the employer for which such

truck driver worked would not be subject to such limitation.     See

sec. 274(e)(3); see also sec. 1.274-2(f)(2)(iv)(a), Income Tax

Regs.

     We also decline respondent’s invitation to read into the

above-quoted or any other statements in Beech Trucking Co. v.

Commissioner, supra, that, in all instances involving a three-

party arrangement among a truck driver-employee, a trucking

company, and a driver-leasing company, the person who pays or

incurs or actually bears the food or beverage expenses is the
                              - 43 -

person subject to the section 274(n)(1) limitation, and that

person may or may not be the employer of the truck driver-em-

ployee.   In support of such an interpretation of Beech Trucking

Co., respondent asserts:

           While the Court in Beech did look to the fact that
     Beech was the drivers’ common law employer, it also
     looked to the fact that Beech was the party that “actu-
     ally bore the expense” of the * * * per diem. * * * And
     it is this latter inquiry that goes to the central
     question of whether the taxpayer paid or incurred an
     otherwise deductible expenditure for food or beverages
     which is subject to the limitation of section 274(n).
     * * *

          The ultimate question under section 274(n) is
     whether the taxpayer paid or incurred an expense for
     food or beverages. In the case of * * * per diem paid
     employees in a three-party employee leasing arrange-
     ment, the party which is the common law employer and
     the party which pays and incurs the food or beverage
     expense will not necessarily be one and the same.

     In Beech Trucking Co. v. Commissioner, 118 T.C. at 443, the

Court concluded that the section 274(n)(1) limitation applied to

Beech Trucking “as the common law employer of its drivers and as

the party that * * * actually bore the expense of the expendi-

tures for which the per diem payments were made [by the driver-

leasing company].”   That conclusion is merely a restatement of

what the regulations under the section 274(e)(3)(A) exception

provide where a person performs services for an employer under a

reimbursement or other expense allowance arrangement and the

requirements of section 274(e)(3)(A) are met; namely, in such a

situation the limitations imposed by section 274(n), inter alia,
                                - 44 -

section 274(n)(1) are to be applied only to the employer as the

person who actually bears the expense, and not to the employee as

the person making the expenditure.36     Sec. 1.274-2(f)(2)(iv)(a)

and (b), Income Tax Regs.

     We reject respondent’s assertions (1) that the question of

who actually bore the expense of the per diem payments involved

in Beech Trucking Co. v. Commissioner, supra, was the central

question in that case in determining whether Beech Trucking Co.,

Inc. was subject to the section 274(n)(1) limitation and

(2) that, in a three-party arrangement among a truck driver-

employee, a trucking company, and a driver-leasing company, the

person who is the employer of the truck driver will not necessar-

ily be the person who pays or incurs or actually bears the food

or beverage expenses.    The parties in Beech Trucking Co. agreed

that the truck drivers in question were employees not subject to

the section 274(n)(1) limitation because of the section

274(e)(3)(A) exception and that consequently the employer of

those truck drivers was subject to the section 274(n)(1) limita-

tion.     See sec. 1.274-2(f)(2)(iv)(a) and (b), Income Tax Regs.

     36
      Where a person performs services for a nonemployer-client
under a reimbursement or other expense allowance arrangement and
the requirements of sec. 274(e)(3)(B) are met, the regulations
under the section 274(e)(3)(B) exception provide that the
limitations under, inter alia, sec. 274(n)(1) are to be applied
only to the nonemployer-client as the person who actually bears
the expense, and not to the independent contractor as the person
making the expenditure. Sec. 1.274-2(f)(2)(iv)(a), (c), Income
Tax Regs.
                                - 45 -

However, the taxpayer in that case claimed that it was not the

employer of those truck drivers and that therefore it was not

subject to the section 274(n)(1) limitation.     As a result, a

threshold question in Beech Trucking Co. v. Commissioner, supra,

was whether the taxpayer was the employer of such truck

drivers.37    If the taxpayer in Beech Trucking Co. was the em-

ployer of the truck drivers in question, the taxpayer, as such

employer, necessarily would have borne the food or beverage

expenditures that those truck drivers made.     If the taxpayer in

Beech Trucking Co. was not the employer of the truck drivers in

question, the taxpayer necessarily would not have borne such

expenditures.     See Beech Trucking Co. v. Commissioner, supra at

440, 443; sec. 1.274-2(f)(2)(iv)(a), Income Tax Regs.

     In the instant case, the parties agree and/or do not dispute

that:     (1) No driver-employee is an independent contractor but

each is an employee who performed services for a person who is an

employer; (2) while traveling away from home, each driver-em-

ployee paid or incurred food and beverage expenses in connection


     37
      Having decided as a threshold matter that the taxpayer in
Beech Trucking Co. v. Commissioner, 118 T.C. 428 (2002), was the
employer of the truck drivers in question, the Court addressed
the central question presented in that case of whether Rev. Proc.
94-77, 1994-2 C.B. 825, and Rev. Proc. 96-28, 1996-1 C.B. 686,
were valid in characterizing the employer-taxpayer’s payments of
the per diem amounts at issue in Beech Trucking Co. as payments
only for food and beverage expenses, and not for lodging ex-
penses, and in applying the section 274(n)(1) limitation to the
entire amounts of such payments.
                              - 46 -

with the performance by such driver-employee of services for such

employer under a reimbursement or other expense allowance ar-

rangement with such employer; (3) such expenses, as well as the

per diem amounts that TLC paid to each driver-employee, are the

kinds of expenses that generally are subject to the section

274(n)(1) limitation; and (4) no driver-employee is subject to

the section 274(n)(1) limitation because each driver-employee

qualifies for the section 274(e)(3)(A) exception.

     As a result of the parties’ agreement regarding, and/or

their failure to dispute, the foregoing matters, we conclude that

our resolution of the disagreement between the parties over

whether the section 274(n)(1) limitation applies to the per diem

amounts that TLC paid to each driver-employee depends on our

resolution of the dispute between them over whether TLC was the

employer of each such driver-employee.

     It is petitioner’s position that each trucking company

client of TLC, and not TLC, was the employer of each driver-

employee, the services of whom TLC provided, for a fee, to such

trucking company client and that, under the doctrine of judicial

estoppel, the Court should preclude respondent from arguing that

TLC was the employer of each driver-employee.

     It is respondent’s position that the Court should not allow

petitioner to disavow TLC’s status as the employer of each

driver-employee.   That is because, according to respondent, TLC
                              - 47 -

held itself out as the employer of each driver-employee to the

public, including to each trucking company client, the IRS, and

various State workers’ compensation plans.   Respondent also

argues that if the Court were to allow petitioner to disavow

TLC’s status as the employer of each driver-employee, petitioner

must demonstrate by strong proof38 that TLC was not the employer

of each driver-employee.   Respondent further maintains that if

the Court not only were to allow petitioner to disavow TLC’s

status as the employer of each driver-employee but also were to

reject respondent’s argument that the strong proof rule is

applicable in the instant case, the record nonetheless estab-

lishes that TLC was the employer of each driver-employee.

     We consider first petitioner’s argument that, under the

doctrine of judicial estoppel, the Court should preclude respon-

dent from contending that TLC was the employer of each driver-

employee.   According to petitioner, the Court should apply that

doctrine in the instant case because the Commissioner of Internal

     38
      “Strong proof must be put forth by * * * [taxpayers] for
this Court to disregard the form in which they cast their trans-
actions in an arm's-length deal.” Miami Purchasing Serv. Corp.
v. Commissioner, 76 T.C. 818, 830 (1981); see also Meredith Corp.
& Subs. v. Commissioner, 102 T.C. 406, 438 (1994). Strong proof
constitutes more than a mere preponderance of the evidence. See
Major v. Commissioner, 76 T.C. 239, 247 (1981). In the instant
case, respondent contends that under each exclusive lease agree-
ment between TLC and each trucking company client TLC cast itself
as the employer of each driver-employee whom it leased to such
trucking company client and that therefore petitioner must
present strong proof that TLC was not in fact the employer of
each such driver-employee.
                                - 48 -

Revenue (Commissioner) took the position in Beech Trucking Co. v.

Commissioner, 118 T.C. 428 (2002), that the driver-leasing

company in that case (i.e., Arkansas Trucking Service) was not

the employer of the truck drivers whom it leased to Beech Truck-

ing Co., Inc., whereas the Commissioner takes the inconsistent

position in the instant case that the driver-leasing company in

this case (i.e., TLC) was the employer of each driver-employee

whom it leased to each trucking company client.

     The doctrine of judicial estoppel is designed to protect the

integrity of the courts by preventing a party from asserting

positions contradictory to or inconsistent with positions as-

serted in prior litigation.     New Hampshire v. Maine, 532 U.S.

742, 749-750 (2001); Leonard v. Southwestern Bell Corp. Disabil-

ity Income Plan, 341 F.3d 696, 702 (8th Cir. 2003); Huddleston v.

Commissioner, 100 T.C. 17, 26 (1993).    We observed in Huddleston

v. Commissioner, supra at 26:

     Judicial estoppel generally requires acceptance by a
     court of the prior position and does not require priv-
     ity or detrimental reliance of the party seeking to
     invoke judicial estoppel. * * * Acceptance by a court
     does not mean that the party being estopped prevailed
     in the prior proceeding with regard to the ultimate
     matter in dispute, but rather only that a particular
     position or argument asserted by the party in the prior
     proceeding was accepted by the court. * * *

The Court has discretion as to whether to invoke the doctrine of

judicial estoppel.   Fazi v. Commissioner, 105 T.C. 436, 446

(1995).
                                - 49 -

       Where there is a “possibility that ‘some distinction may

exist or arise’ between * * * [the prior case and the case under

consideration], the integrity of the judicial process is not

undermined by permitting the * * * [party against whom judicial

estoppel is advanced] an opportunity to argue that such a dis-

tinction in fact exists.”     Bendet v. Sandoz Pharm. Corp., 308

F.3d 907, 910 (8th Cir. 2002).

       The determination of whether a person is an employer is a

fact-intensive inquiry.     Nationwide Mut. Ins. Co. v. Darden, 503

U.S. 318, 324 (1992); Alford v. United States, 116 F.3d 334, 337

(8th Cir. 1997); Beech Trucking Co. v. Commissioner, supra at

441.    Respondent argues here that the facts in Beech Trucking Co.

v. Commissioner, supra, are different from the facts in the

instant case.39   On the record before us, we shall not apply the

doctrine of judicial estoppel so as to preclude respondent from

taking the position that, under the facts established by the


       39
      The evidentiary record presented in Beech Trucking Co. v.
Commissioner, 118 T.C. at 441, was sparse. We stated in that
case:

       the evidentiary basis for analyzing the relevant common
       law factors is relatively sparse, owing largely to
       petitioner’s failure to introduce in evidence or other-
       wise establish the precise terms of any lease agree-
       ment, employment agreement, or contract between Beech
       Trucking and ATS [the driver-leasing company]. Nor
       does the record contain the drivers’ employment con-
       tracts. Moreover, the record does not always clearly
       distinguish the roles of Beech Trucking and ATS with
       respect to the drivers’ activities. * * *
                              - 50 -

record in this case, TLC was the employer of each driver-em-

ployee.

     We turn next to respondent’s arguments that the Court should

not allow petitioner to disavow TLC’s status as the employer of

each driver-employee and that if the Court were to allow peti-

tioner to do so, petitioner must demonstrate by strong proof that

TLC was not the employer of each driver-employee.   Assuming

arguendo that we were to reject such arguments of respondent, on

the instant record we nonetheless would, and do below, reject

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

driver-employee.   Consequently, we need not, and we shall not,

consider such arguments of respondent.   Instead, we shall deter-

mine whether TLC was the employer of each driver-employee.

     In determining whether TLC was the employer of each driver-

employee, we shall apply the common-law employment test.     Nation-

wide Mut. Ins. Co. v. Darden, supra at 322-324; Alford v. United

States, supra at 337-338; Beech Trucking Co. v. Commissioner, 118

T.C. at 440.   In determining under the common-law employment test

whether TLC was the employer of each driver-employee, we shall

consider a variety of factors, including the following:

     the skill required; the source of the instrumentalities
     and tools; the location of the work; the duration of
     the relationship between the parties; whether the
     hiring party has the right to assign additional pro-
     jects to the hired party; the extent of the hired
     party’s discretion over when and how long to work; the
     method of payment; the hired party’s role in hiring and
     paying assistants; whether the work is part of the
                              - 51 -

     regular business of the hiring party; whether the
     hiring party is in business; the provision of employee
     benefits; and the tax treatment of the hired party.

Nationwide Mut. Ins. Co. v. Darden, supra at 323-324.

     A primary consideration in determining which of two persons

is the employer of an individual is “which of the two [persons]

has the right to control the activities of the individual”.

Leavell v. Commissioner, 104 T.C. 140, 150 (1995); see Schweiger

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

Trucking Co. v. Commissioner, supra at 441; Weber v. Commis-

sioner, 103 T.C. 378, 387 (1994), affd. per curiam 60 F.3d 1104

(4th Cir. 1995); Profl. & Executive Leasing Inc. v. Commissioner,

89 T.C. 225, 232-233 (1987), affd. 862 F.2d 751 (9th Cir. 1988);

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

     Before considering the factors under the common-law employ-

ment test, we shall address the testimony of Gary Ankerfelt (Mr.

Ankerfelt) on which petitioner relies to support its position

that TLC was not the employer of each driver-employee.    From

TLC’s inception until 2000, Mr. Ankerfelt was TLC’s president and

chief executive officer.   According to petitioner, Mr.

Ankerfelt’s testimony establishes that the provisions of each

exclusive lease agreement which gave TLC the sole and absolute

authority to hire, fire, and control the work and conduct of each

driver-employee do not mean what they say.   In this regard, Mr.

Ankerfelt testified:   (1) TLC exercised only an advisory role in
                              - 52 -

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.

     On the record before us, we find that respondent impeached

the foregoing testimony of Mr. Ankerfelt.    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 (1994).40    In that affidavit, Mr.

Ankerfelt swore under oath that:

     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 [sic]. When a lessee
     [trucking company client] no longer desires to lease a
     TLC driver-employee, the TLC driver-employee returns to
     TLC for assignment to another lessee.

     Not only did respondent impeach Mr. Ankerfelt’s testimony

with Mr. Ankerfelt’s affidavit, respondent also raised other

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

TLC exercised only an advisory role in hiring each driver-em-



     40
      Joe Hix was one of TLC’s trucking company clients. The
court in Hix v. Minn. Workers’ Comp. Assigned Risk Plan, 520
N.W.2d 497, 508 (1994), held that, for purposes of Minnesota’s
workers’ compensation laws, Joe Hix was not the employer of any
driver-employee whom he leased from TLC.
                                 - 53 -

ployee.     Respondent called as a witness Beverly Fiereck (Ms.

Fiereck), the president of Parkway Auto Transport (Parkway), one

of TLC’s trucking company clients.41      She testified that TLC, and

not Parkway, decided whether or not to hire a truck driver whom

Parkway referred to it.42     We found Ms. Fiereck to be credible.

     Moreover, the record establishes (1) that TLC successfully

recruited and hired approximately 25 percent of its driver-

employees through its own recruiting efforts and (2) that TLC

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

company clients referred to it.

     We shall not rely on Mr. Ankerfelt’s testimony to support

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

driver-employee.     See Lerch v. Commissioner, 877 F.2d 624, 631-



     41
      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.
     42
          Each exclusive lease agreement provided in pertinent part:

          Lessor agrees to use its reasonable best efforts
     in furnishing Lessee with drivers as may be requested
     from Lessee from time to time during the term of this
     Agreement. Lessee understands and agrees Lessor cannot
     absolutely guarantee the availability of drivers for
     Lessee upon demand but Lessor nevertheless agrees to
     use its reasonable best efforts in furnishing Lessee
     with any and all drivers required at all times during
     the terms of this Agreement. To facilitate the avail-
     ability of drivers to Lessee, Lessee shall refer to
     Lessor any and all qualified drivers known to it who
     may be suitable for employment by Lessor.
                             - 54 -

632 (7th Cir. 1989), affg. T.C. Memo. 1987-295; Geiger v. Commis-

sioner, 440 F.2d 688, 689-690 (9th Cir. 1971), affg. per curiam

T.C. Memo. 1969-159; Tokarski v. Commissioner, 87 T.C. 74, 77

(1986).

     We shall now address the factors under the common-law

employment test in order to determine whether TLC was the em-

ployer of each driver-employee.

Right To Control Driver-Employee

     Petitioner argues that each trucking company client exer-

cised control over the activities of a driver-employee whom TLC

leased to it by giving such driver-employee his or her route

assignments, directing such 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 customer

instructions relating to such loads.

     Respondent counters that the foregoing assignments, direc-

tions, and instructions that each trucking company client gave to

a driver-employee whom TLC leased to it were merely dispatching

functions “which, as a practical matter, could only be performed

by the Trucking Companies, and the fact that they did so has

little bearing on which party was the Drivers’ employer.”

     Section 31.3121(d)-1(c)(2), Employment Tax Regs., describes

the right to control an employee as follows:

     the person for whom services are performed has the
     right to control and direct the individual who performs
                             - 55 -

     the services, not only as to the result to be accom-
     plished by the work but also as to the details and
     means by which that result is accomplished. That is,
     an employee is subject to the will and control of the
     employer not only as to what shall be done but how it
     shall be done. In this connection, it is not necessary
     that the employer actually direct or control the manner
     in which the services are performed; it is sufficient
     if he has the right to do so. * * *

     We have found that TLC had the right to, and did, direct and

control the work and conduct of each driver-employee.43   Thus,

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.

The TLC driver handbook, which TLC gave to each driver-employee

when it hired such driver-employee, 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




     43
      The exclusive lease agreement provided that TLC “shall in
its absolute discretion, * * * direct the work and conduct” of
each driver-employee.
                               - 56 -

trucks.44

     Moreover, the driver contract, which each driver-employee

signed when TLC hired such driver-employee, required each driver-

employee to attend each year at least two safety meetings that

TLC sponsored, to complete any paperwork that TLC (or its affili-

ates) requested on a daily basis or as directed, and to perform

any work that TLC required of such driver-employer without

letting any of his or her personal problems, including attitude,

affect such performance.

     On the record before us, we find that TLC had the right to

control each driver-employee within the meaning of section

31.3121(d)-1(c)(2), Employment Tax Regs.   The dispatching func-

tions (i.e., route assignments, directions as to the loads

assigned and the times when such loads had to be delivered, and

any customer instructions relating to such loads) that each of

TLC’s trucking company clients performed did not give such

trucking company client control over each driver-employee within

the meaning of those regulations.

     On the record before us, we find that TLC’s right to direct

and control the work and conduct of each driver-employee is a

factor evidencing that TLC was the employer of each driver-

employee.




     44
          See supra note 11.
                                - 57 -

Hiring of Each Driver-Employee

     Petitioner argues that TLC exercised only an advisory role

in hiring each driver-employee.    Petitioner also points out that,

when a trucking company became a client of TLC, the truck drivers

who had worked for that trucking company continued performing

work at that trucking company client as driver-employees.

     Respondent counters that the exclusive lease agreement

provided that TLC had the sole and absolute authority to hire

each driver-employee and that TLC did not hire a truck driver as

a driver-employee until he or she passed TLC’s screening and

approval process.   According to respondent, TLC’s screening and

approval process was no formality, and in fact TLC rejected 10 to

15 percent of the truck drivers whom its trucking company clients

referred to it.

     We have found that TLC had the sole and absolute authority

to hire each driver-employee.    Before TLC hired a truck driver as

a driver-employee, such truck driver had to pass TLC’s screening

and approval process.   TLC rejected 10 to 15 percent of the truck

drivers whom its trucking company clients referred to it.

Moreover, TLC hired approximately 25 percent of its driver-

employees through its own recruitment efforts.   Ms. Fiereck, the

president of Parkway, testified that TLC, and not Parkway,

decided whether or not it would hire truck drivers whom Parkway
                               - 58 -

referred to TLC.45

     On the record before us, we find that TLC’s sole and abso-

lute authority to hire each driver-employee is a factor evidenc-

ing that TLC was the employer of each driver-employee.

Source of the Instrumentalities and Tools

     Petitioner argues that each trucking company client provided

the tools and instrumentalities of each driver-employee’s work

because such trucking company client owned or leased the trucks

that such driver-employee drove.

     Respondent counters that “The fact that the Drivers did not

provide their own equipment and facilities * * * is of little

significance in determining by whom they were employed.”

     We have found that TLC was in the business of leasing

driver-employees, and not in the trucking business.   In contrast,

each trucking company client was in the trucking business and

needed to own or lease one or more trucks in order to conduct

that business.

     On the record before us, we find that each trucking company

client’s owning or leasing the truck driven by each driver-

employee whom it leased from TLC is a neutral factor in determin-

ing whether TLC was the employer of each driver-employee.




     45
          See supra note 41.
                              - 59 -

Right to Assign Additional Projects to Each Driver-Employee

     Petitioner argues that 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.

According to petitioner, each driver-employee was effectively

assigned to only one trucking company client.

     Respondent counters that the exclusive lease agreement gave

TLC the right to lease a driver-employee to more than one truck-

ing company client and thereby assign additional projects to such

driver-employee.

     We have 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.   The parties

agree that, once TLC assigned a driver-employee to a trucking

company client, TLC did not reassign such driver-employee to

another trucking company client without permission from the

trucking company client to which TLC had assigned such driver-

employee.   Such a practice of TLC was, we believe, a sound

business practice.   TLC, like any business, was interested in

accommodating, to the extent feasible, the requests of its
                              - 60 -

clients.46

     On the record before us, we find that TLC’s right to lease a

driver-employee to a trucking company client while it was leasing

such driver-employee to another trucking company client and

thereby to assign additional projects to such driver-employee is

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

employee.

Employee Benefits For Each Driver-Employee

     Petitioner does not address TLC’s sponsorship of certain

employee benefits with respect to which each driver-employee made

payments through payroll deductions, including:   (1) A section

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

(3) group or individual health insurance.47

     On the record before us, we find that TLC’s sponsorship of

certain employee benefit plans for the driver-employees is a

factor evidencing that TLC was the employer of each driver-



     46
      We note that 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 particu-
lar trucking company client to which TLC had assigned such
driver-employee.
     47
      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. See
supra note 13. TLC paid the premiums associated with the $5,000
group term life insurance policy provided for each driver-em-
ployee.
                              - 61 -

employee.

Authority To Determine Driver-Employee’s Vacation

     Petitioner argues that each trucking company client, and not

TLC, had the authority to determine whether to permit a driver-

employee whom TLC leased to such trucking company client to take

any vacation days.

     Respondent does not dispute that each trucking company

client had such authority.   Instead, respondent maintains that

determining whether to permit a driver-employee to take vacation

days “is, like dispatching, a function which must necessarily be

performed by the Trucking Company and therefore has little

bearing on which party is the employer.”

     On the record before us, we find that each trucking company

client’s authority to determine whether to permit a driver-

employee whom TLC leased to it to take any vacation days is a

factor evidencing that each trucking company client was the

employer of each driver-employee.

Method of Payment

     Petitioner argues that “It is clear that the source of the

funds used to meet [TLC’s] payroll obligations was from income

earned by the Trucking Companies.”     That is because, according to

petitioner, “TLC required the Trucking Companies to wire transfer

the funds to TLC before TLC would issue payroll.”    Petitioner

also points out that, in order to ensure that TLC had sufficient
                             - 62 -

funds to pay TLC’s payroll obligation, the exclusive lease

agreement required each trucking company client to pay a $650

deposit to TLC, an amount TLC intended to approximate TLC’s

payroll obligation for each driver-employee for one week.

     Respondent counters that “the source of the funds used by

the Trucking Companies to pay TLC” is irrelevant because “Solvent

businesses necessarily pay recurring expenses out of income.”

According to respondent, what is relevant is that “there was no

escrow or reimbursement arrangement, only the payment of a flat

fee.”

     We have found that, for each payroll period with respect to

each driver-employee, 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 lease fee.   We have also

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 to cover its costs and generate a profit.    The

method by which each trucking company client paid TLC the lease

fee to compensate TLC for leasing driver-employees to such

trucking company client is not a factor indicating that each

trucking company client, and not TLC, was the employer of the

driver-employees whom it leased from TLC.   It is common business

practice for a business to use moneys received from its clients
                              - 63 -

or customers as payments for services or goods in order to cover

its expenses.

     In order to ensure that TLC had sufficient funds to pay

TLC’s payroll obligation, each exclusive lease agreement required

each trucking company client to make a $650 deposit per truck

with TLC.   The $650 deposit that each trucking company client

paid to TLC did not ensure that TLC had sufficient funds to pay

TLC’s payroll obligation with respect to each driver-employee

whom it leased to such trucking company client where (1) such

trucking company client selected a payroll period that covered

more than one week and/or (2) such driver-employee was entitled

to a batch report lump sum amount that was greater than $650 per

payroll period.

     On the record before us, we find that the method by which

each trucking company client 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.   On that record, we further find 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.

Tax Treatment of Each Driver-Employee

     Petitioner does not address TLC’s tax treatment of each

driver-employee.   With respect to each driver-employee, for each
                             - 64 -

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 insur-

ance premiums.

     On the record before us, we find that TLC’s tax treatment of

each driver-employee is a factor evidencing that TLC was the

employer of such driver-employee.

Work of Driver-Employee as Part of Regular Business of TLC

     Petitioner argues that each driver-employee was “an integral

part of the regular business” of the trucking company client to

which TLC leased such driver-employee and that each driver-

employee played “no role in the daily function of TLC’s business”

of providing “back office functions such as payroll and benefits

administration.”

     Respondent counters that, as reflected in the consolidated

tax return (consolidated return) that petitioner filed for each

of the taxable years at issue, the leasing of driver-employees

was TLC’s business, and the deduction that petitioner claimed for

each of the taxable years at issue for TLC’s expenses relating to

the driver-employees was the largest deduction that petitioner
                               - 65 -

claimed in its consolidated return for each such taxable year.

     We have found that each truck driver that TLC hired as a

driver-employee played an integral role in TLC’s business of

leasing driver-employees to its trucking company clients.    The

exclusive lease agreement provided in pertinent part:

          Lessor [TLC] hereby leases to Lessee [trucking
     company client] those drivers in the employment of
     Lessor during the term of the Agreement. * * *

        *       *       *        *       *       *       *

          Lessor agrees to use its reasonable best efforts
     in furnishing Lessee with drivers as may be requested
     from Lessee from time to time during the term of this
     Agreement. * * *

     The arrangement between TLC and each trucking company client

was a driver-leasing arrangement, and not merely the provision of

“back office functions”.    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.   TLC could not have conducted its business of

leasing truck drivers without the driver-employees whom it leased

to its trucking company clients.

     On the record before us, we find that the integral role that

each driver-employee played in TLC’s business of leasing driver-

employees to its trucking company clients is a factor evidencing

that TLC was the employer of each driver-employee.
                               - 66 -

Duration of the Relationship Between a
Driver-Employee and a Trucking Company Client

     Petitioner argues that “as between the Trucking Companies

and their drivers, their relationship was of indefinite dura-

tion”.   Petitioner points out:

     when a Trucking Company entered into a Lease Agreement
     with TLC, the existing drivers would continue to drive
     for the Trucking Company. * * * Moreover, upon cancel-
     lation of the Lease Agreement with TLC, the drivers
     typically would stay with the Trucking Company. * * *
     Many drivers have long-term relationships with the
     Trucking Companies that pre-date the Lease with TLC and
     continue after termination of the Lease Agreement.
     * * *

     Respondent counters that “the duration of the relationship

is a factor which is of little significance in determining which

party was the employer.”    Respondent points out that TLC fre-

quently was successful in reassigning to another trucking company

client a driver-employee whom a trucking company client did not

wish to continue leasing from TLC.

     Petitioner does not explain what it means when it argues

that the “relationship” between a trucking company and its

drivers was of indefinite duration.     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 arrangement with such company that

existed before it entered into such lease agreement with TLC.     We

reject any such argument.    We have found that, when each trucking
                             - 67 -

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.

     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.

     On the record before us, we find 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.

Termination of the Employment of a Driver-Employee

     Petitioner contends that, without exception, the trucking

company client made the decision to terminate the employment of

any driver-employee whom TLC leased to it.   Petitioner points out

that each trucking company client was in the best position to

evaluate each driver-employee’s performance and therefore to

decide whether to terminate the employment of a driver-employee.

     Respondent counters that the exclusive lease agreement

provided that TLC, and not each trucking company client, had the
                              - 68 -

sole and absolute authority to terminate the employment of each

driver-employee.

     We have found that TLC had the sole and absolute authority

to terminate each driver-employee’s employment with TLC.   Peti-

tioner’s argument confuses a trucking company client’s right to

decline using a particular driver-employee whom TLC wanted to

lease to it with the termination by TLC of such driver-employee’s

employment with TLC.   Petitioner’s argument also ignores that TLC

frequently was successful in reassigning a driver-employee from

one trucking company client to another trucking company client.

That a trucking company client did not wish to use a particular

driver-employee did not mean that TLC terminated such driver-

employee’s employment with TLC.   TLC could have reassigned, and

frequently did reassign, such a driver-employee to another

trucking company client.

     On the record before us, we find that TLC’s sole and abso-

lute authority to terminate each driver-employee’s employment

with TLC is a factor evidencing that TLC was the employer of each

driver-employee.

Opportunity for Profit and Risk of Loss

     Petitioner argues that TLC’s opportunity for profit was

“from its payroll and payroll-related services.”   Petitioner also

points out that each exclusive lease agreement contained an

indemnification provision (indemnification provision) which
                              - 69 -

provided in pertinent part:

          Lessor shall not be responsible or held liable for
     any injury or damage to person or property resulting
     from the use, misuse or failure of any equipment used
     by Lessee and utilized by Lessor’s employees in the
     performance of its services to be provided herein. In
     this respect and in all other respects, Lessee shall
     indemnify Lessor against all liability or loss from and
     against all claims or actions based upon or arising out
     of damage or injury (including death) to persons or
     property caused by or sustained in the connection with
     the performance of the Agreement or by conditions
     created thereby or based upon any violation of any
     local, state or federal rule, regulation, ordinance or
     statute and the defense of any such claims or actions,
     except only as to injuries sustained by Lessor’s em-
     ployee, as a result of such employee’s negligence or
     wrongful act of the employee.

          Lessor shall not be responsible for loss or damage
     to equipment or cargo of Lessee by reason of collision,
     fire, flood, windstorm, explosion, or other casualty.

          In this respect and in all other respects Lessee
     shall indemnify Lessor against all liabilities or
     losses, including but not limited to those liabilities
     or losses described immediately above.

     Respondent counters that petitioner “fails to distinguish

between losses incurred in the business of trucking and losses

incurred in the business of leasing employees.”

     We turn first to the indemnification provision on which

petitioner relies.   We find that such indemnification provision

may be read to support the respective positions of both parties

in the instant case.   The indemnification provision on which

petitioner relies may be construed as implicitly acknowledging

that, absent such provision, TLC, as the employer of each driver-

employee whom it leased to a trucking company client, would have
                              - 70 -

been responsible, presumably under the doctrine of respondeat

superior or a similar doctrine, for all liabilities and losses

arising from the negligent and/or wrongful acts of such driver-

employee.   However, each trucking company client apparently

received no consideration for its agreement under the indemnifi-

cation provision on which petitioner relies to indemnify TLC for

liabilities and losses arising from the negligent and/or wrongful

acts of each driver-employee whom it leased from TLC, which may

be construed as implicitly acknowledging that, at least with

respect to such liabilities and losses, such trucking company

client did not consider TLC to be the employer of such driver-

employee.

     We turn now to petitioner’s argument that TLC’s opportunity

for profit was “from its payroll and payroll-related services.”

We reject petitioner’s characterization of the services that TLC

provided to its trucking company clients as payroll and payroll-

related services.   We have found that TLC was in the business of

leasing driver-employees to trucking company clients.   Nonethe-

less, we find merit in petitioner’s suggestion that TLC’s oppor-

tunity for profit from TLC’s business was limited.   That was

because the amount of TLC’s gross profit under an exclusive lease

agreement with a trucking company client was not affected by any

changes (e.g., increasing or decreasing the per diem percentage)

in the factor used to compute the lease fee to which TLC was
                              - 71 -

entitled under such lease agreement.   The factor, although not

broken down into component parts, was calculated to produce a

lease fee that included, inter alia, a fixed amount for TLC’s

gross profit.   It is also noteworthy that TLC’s risk of loss from

its driver-leasing business was limited to the risk that it would

have to pay TLC’s payroll obligation with respect to each driver-

employee for a payroll period, regardless of whether a trucking

company client paid TLC the payroll period net lease fee due for

such payroll period.48

     On the record before us, we find that the indemnification

provision on which petitioner relies, which we have found sup-

ports the respective positions of both parties in the instant

case, is a neutral factor in determining whether TLC was the

employer of each driver-employee.   On that record, we further

find that TLC’s limited opportunity for profit and limited risk

of loss in its driver-leasing business is a factor evidencing

that each trucking company client, and not TLC, was the employer

of each driver-employee.




     48
      Although each exclusive lease agreement required each
trucking company client to make a $650 deposit with TLC, that
deposit did not ensure that TLC had sufficient funds to pay TLC’s
payroll obligation with respect to each driver-employee whom it
leased to such trucking company client where (1) such trucking
company client selected a payroll period that covered more than
one week and/or (2) such driver-employee was entitled to a batch
report lump sum amount that was greater than $650 per payroll
period.
                              - 72 -

Per Diem Letters

     Petitioner argues that TLC’s trucking company clients “were

well aware of the total amount of per diem they paid and their

responsibility to limit their deduction under Section 274(n)”

because TLC sent each trucking company client a per diem letter

for each of the taxable years at issue.

     Respondent counters that TLC did not inform each trucking

company client of the section 274(n)(1) limitation prior to such

trucking company client’s entering into the exclusive lease

agreement with TLC.

     We have found that the exclusive lease agreement was silent

as to (1) any per diem amounts that TLC was to pay a driver-

employee to cover such driver-employee’s food and beverage

expenses while traveling away from home and (2) the section

274(n)(1) limitation.   We have also found that 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 agree-

ment.   We view the per diem letters that TLC sent to its trucking

company clients as nothing more than a self-serving attempt by

TLC to bolster petitioner’s position in the respective consoli-

dated Forms 1120 that it filed for the taxable years at issue

that the section 274(n)(1) limitation does not apply to the per

diem amounts that TLC paid to its driver-employees.   In this
                              - 73 -

regard, we note that at least certain of the trucking company

clients to which TLC sent the per diem letters did not consider

such letters to be binding on them, since such trucking company

clients did not take the section 274(n)(1) limitation into

account in their respective tax returns.49

     On the record before us, we find that TLC’s sending a per

diem letter to each trucking company client is a neutral factor

in determining whether TLC was the employer of each driver-

employee.

     Based on our examination of the entire record before us, we

find that TLC was the employer of each driver-employee.    On that

record, we further find that the section 274(n)(1) limitation

applies to the per diem amounts that TLC paid to its driver-

employees.

     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.

     To reflect the foregoing,

                                      Decision will be entered

                                 for respondent.



     49
      The record establishes that TLC’s trucking company clients
NBS Trucking, Joe Hix Trucking, Blachowske Truck Line, Inc.,
Jones Brothers Trucking, Inc., Lake State Transport, Inc., Schak
Trucking Inc., and Parkway Auto Transport received respective
notices of deficiency in which respondent determined that they
had failed to take into account the section 274(n)(1) limitation.
                                - 74 -

                               Appendix

             TLC DRIVER HANDBOOK--TABLE OF CONTENTS

                TRANSPORT LEASING/CONTRACT, INC.

GLOSSARY OF TERMS
INTRODUCTION
DRIVERS CREED
DISPATCH CALL-IN
GENERAL INFORMATION

                        GENERAL OPERATION

FUELING
PARKING
STARTING ENGINE
EQUIPMENT FAILURES ON ROAD
HOOKING UP TO TRAILER
DRIVING FOR MAXIMUM FUEL SAVINGS
BRAKING
MISCELLANEOUS
COLD WEATHER OPERATION
DEPARTURE TIMES
LOADING AND UNLOADING
     COUNTING
     WEIGHING YOUR LOADS
     SLIDING FIFTH WHEELS
     SLIDING THE TRAILER TANDEMS
     OVERAGES AND SHORTAGES
     LATE DELIVERY
     HAZARDOUS MATERIALS
     CLAIM PREVENTION

      OPERATIONS (VANS AND REEFERS [refrigerated trailers])

HOOKING UP TO TRAILER
REFRIGERATION UNIT OPERATION
TRAILER HEIGHT
COUNTING
SEALS
LOADING
UNLOADING
WEIGHING LOADS
FORKLIFTS
PALLETS
OVERAGES AND SHORTAGES
SEALS (FURTHER THOUGHT)
                                - 75 -

CLAIM PREVENTION
THERMOSTAT ON UNIT
RECOMMENDED PRODUCE PROCEDURES
HOW TO HANDLE DIFFERENT PRODUCE PRODUCTS
MISCELLANEOUS PRODUCE
ANY LOAD

                   OPERATIONS (TANK TRAILERS)

LOADING AND MAKING A DELIVERY
SMOKING
SPILLS AND MIXES
IN THE EVENT OF A SPILL
IN THE EVENT OF A TOXIC SPILL
SPILL AND MIX REPORTING
RAILROAD CROSSINGS
USE OF SPECIAL EQUIPMENT
TRAILERS IN SHOP
SPEED WITH TANKS
PLACARDING

                   OPERATIONS (FLATS & DROPS)

CARGO CLAIM PREVENTION
PRE-LOADING INSPECTIONS
LOADING
CHAINING
INSPECTIONS DURING TRIP
INSPECTION AT DELIVERY
TARPING
SHORTAGE
HIGH LOADS & OVERHEAD OBSTRUCTIONS
PERMIT LOADS - PRECAUTIONS
SPECIALIZED EQUIPMENT
LOAD TRANSFERRING (FORKLIFTS)
INTRODUCTIONS TO THE SAFETY SECTION
WHAT TO DO IN CASE OF AN ACCIDENT
MEETING OTHER VEHICLES
PASSING
BACKING
CLEARANCES
RAIL ROAD CROSSINGS
SPEED
TAILGATING
RIGHT OF WAY
STOPPING & PARKING
TURNS
TOP 10 DRIVING ERRORS
                             - 76 -

MIRRORS
FIRE PREVENTION AND FIRE FIGHTING
HAZARDS REQUIRING EXTRA PRECAUTION
WINTER DRIVING TIP
PERSONAL SAFETY TIPS
DEFENSIVE DRIVING
MOMENTUM

                 OTHER IMPORTANT TLC INFORMATION

PAYROLL
ADVANCES
PHONE CALLS
MOTELS
VALUABLES
UNAUTHORIZED PASSENGERS
ROUTES
PATIENCE
PROBATION
GENERAL CONDUCT
COMPENSATION

NOTE: ALL REFERENCES TO “DISPATCH” IN THIS MANUAL ARE REFERENCES
TO LESSEE DISPATCH.
