                                                 KRAATZ & CRAIG SURVEYING INC., PETITIONER v.
                                                    COMMISSIONER OF INTERNAL REVENUE,
                                                                RESPONDENT
                                                        Docket No. 26152–08.                      Filed April 13, 2010.

                                                  P’s only activity is land surveying in Tennessee. P does not
                                               employ any licensed engineers, is not associated with any firm
                                               that employs licensed engineers, and does not provide any
                                               services that State law requires to be performed only by a
                                               licensed engineer. Pursuant to sec. 1.448–1T(e)(4)(i), Tem-
                                               porary Income Tax Regs., 52 Fed. Reg. 22768 (June 16, 1987)
                                               (the temporary regulation), engineering includes surveying
                                               and mapping. R determined that P’s land surveying con-
                                               stitutes the performance of services in the field of engineering
                                               pursuant to the temporary regulation and that, therefore, P is
                                               a qualified personal service corporation as defined in sec.

                                                                                                                                      167




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                                               448(d)(2), I.R.C., subject to a flat 35-percent income tax rate
                                               under sec. 11(b)(2), I.R.C. P asserts that the temporary regu-
                                               lation is invalid or, if valid, means that surveying and map-
                                               ping services, if performed by an engineer, would qualify as
                                               services in the qualifying field of engineering and does not
                                               apply in P’s situation. P asserts, citing Grutman-Mazler Engg.
                                               Inc. v. Commissioner, T.C. Memo. 2008–140, and Alron
                                               Engg. & Testing Corp. v. Commissioner, T.C. Memo. 2000–
                                               335, that the Court should look to State law to decide whether
                                               surveying is in the field of engineering. P contends that land
                                               surveying in Tennessee can be performed only by a licensed
                                               land surveyor and that P is not licensed to perform any
                                               activity which State law requires to be performed by a
                                               licensed engineer.
                                                  1. Held: Whether a service is performed in a qualifying field
                                               under sec. 448(d)(2), I.R.C., is to be decided by examining all
                                               relevant indicia and is not controlled by State licensing laws.
                                               See Rainbow Tax Serv., Inc. v. Commissioner, 128 T.C. 42,
                                               46–47 (2007).
                                                  2. Held, further, the temporary regulation is supported by
                                               the legislative history, by the ordinary meaning of the term
                                               ‘‘civil engineering’’, which encompasses surveying, Webster’s
                                               Third New International Dictionary 413 (2002), and by other
                                               indicia that surveying is regarded as within the field of
                                               engineering; it is valid under Natl. Muffler Dealers Associa-
                                               tion v. United States, 440 U.S. 472 (1979) (it implements the
                                               congressional mandate in a reasonable manner), and under
                                               Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467
                                               U.S. 837, 842–843 (1984) (it is not arbitrary, capricious, or
                                               manifestly contrary to the statute).
                                                  3. Held, further, P’s land surveying is a service performed
                                               in the field of engineering under sec. 448(d)(2), I.R.C., and P
                                               is subject to the flat 35-percent income tax rate under sec.
                                               11(b)(2), I.R.C.

                                           Maurice W. Gerard, for petitioner.
                                           Caroline R. Krivacka, for respondent.

                                                                                  OPINION

                                        DAWSON, Judge: Respondent determined a deficiency of
                                      $9,762 in petitioner’s Federal income tax for its tax year
                                      ending December 31, 2005. In the notice of deficiency,
                                      respondent determined that petitioner is a qualified personal
                                      service corporation under section 448 subject to a flat 35-per-
                                      cent income tax rate under section 11(b)(2). 1 Whether peti-
                                        1 Unless otherwise indicated, section references are to the Internal Revenue Code in effect for

                                      2005, and Rule references are to the Tax Court Rules of Practice and Procedure.




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                                      tioner is a qualified personal service corporation depends
                                      upon whether petitioner’s sole activity of land surveying con-
                                      stitutes the performance of services in the field of
                                      engineering for purposes of section 448.

                                                                               Background
                                        This case was submitted fully stipulated under Rule 122,
                                      and the stipulated facts are incorporated as our findings by
                                      this reference. 2
                                        Petitioner was incorporated under the laws of the State of
                                      Tennessee. Its principal place of business is Seymour, Ten-
                                      nessee. Petitioner timely filed Form 1120, U.S. Corporation
                                      Income Tax Return, for 2005, reporting taxable income of
                                      $48,808 and tax of $7,321.
                                        Petitioner is in the business of surveying land, and land
                                      surveying is the only service petitioner provides. Petitioner
                                      does not have any employees who are licensed engineers, is
                                      not associated with any firm that employs licensed engineers,
                                      and does not provide any services that State law requires to
                                      be performed only by a licensed engineer.

                                                                                Discussion
                                      I.    Applicable Sections of the Internal Revenue Code and
                                            Regulations
                                        Section 11(a) imposes a tax on the taxable income of every
                                      corporation. Although for Federal income tax purposes cor-
                                      porations generally are taxed at graduated income tax rates
                                      under section 11(b)(1), qualified personal service corporations
                                      as defined in section 448(d)(2) are taxed at a flat 35-percent
                                      income tax rate. Sec. 11(b)(2).
                                        A qualified personal service corporation is any corporation
                                      that satisfies a function test and an ownership test. Sec.
                                      448(d)(2). Petitioner argues that it is not a qualified personal
                                      service corporation because it does not meet the function
                                      test. 3
                                         2 Respondent previously filed a motion for summary judgment pursuant to Rule 121. The par-

                                      ties’ submission of the case fully stipulated renders that motion moot.
                                         3 Petitioner has not asserted that it does not satisfy the ownership test and is deemed, there-

                                      fore, to have conceded that the ownership test is satisfied if its land surveying is in the field
                                      of engineering.




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                                        The function test requires that substantially all of the cor-
                                      poration’s activities involve the performance of services in
                                      the fields of ‘‘health, law, engineering, architecture,
                                      accounting, actuarial science, performing arts, or consulting’’
                                      (qualifying field). Sec. 448(d)(2)(A). Section 1.448–1T(e)(4)(i),
                                      Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June 16,
                                      1987) (sometimes the temporary regulation), provides:
                                         (4) Function test.—(i) In general.—A corporation meets the function test
                                      if substantially all the corporation’s activities for a taxable year involve the
                                      performance of services in one or more of the following fields—
                                           (A) Health,
                                           (B) Law,
                                           (C) Engineering (including surveying and mapping),
                                           (D) Architecture,
                                           (E) Accounting,
                                           (F) Actuarial science,
                                           (G) Performing arts, or
                                           (H) Consulting.
                                      Substantially all of the activities of a corporation are involved in the
                                      performance of services in any field described in the preceding sentence (a
                                      qualifying field), only if 95 percent or more of the time spent by employees
                                      of the corporation, serving in their capacity as such, is devoted to the
                                      performance of services in a qualifying field. For purposes of determining
                                      whether this 95 percent test is satisfied, the performance of any activity
                                      incident to the actual performance of services in a qualifying field is
                                      considered the performance of services in that field. Activities incident to
                                      the performance of services in a qualifying field include the supervision of
                                      employees engaged in directly providing services to clients, and the
                                      performance of administrative and support services incident to such activi-
                                      ties.

                                      II.      Positions of the Parties
                                         Respondent determined that petitioner’s land surveying
                                      constitutes the performance of services in the field of
                                      engineering pursuant to section 1.448–1T(e)(4)(i), Temporary
                                      Income Tax Regs., supra. Respondent asserts that the regula-
                                      tion is supported by the legislative history and reflects the
                                      congressional intent.
                                         Petitioner asserts that the temporary regulation as inter-
                                      preted and applied by respondent is invalid in that it
                                      expands the meaning of engineering beyond the ordinary
                                      meaning and brings into the definition of engineering the
                                      entirely separate profession of land surveying. Citing
                                      Grutman-Mazler Engg. Inc. v. Commissioner, T.C. Memo.




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                                      2008–140, and Alron Engg. & Testing Corp. v. Commissioner,
                                      T.C. Memo. 2000–335, petitioner asserts that the Court
                                      should look to State law to determine whether an activity is
                                      the performance of a service ‘‘in the field of engineering’’.
                                      Petitioner asserts that its land surveying is not performed in
                                      the field of engineering because the activities of engineering
                                      and land surveying are separately licensed and administered
                                      under Tennessee law. For completeness, we briefly summa-
                                      rize the relevant State law provisions.
                                      III.     Tennessee Registration Requirements for Engineers and
                                               Land Surveyors
                                         It is unlawful for any person to practice either land sur-
                                      veying or engineering in Tennessee unless the person has
                                      been duly registered or is exempted from registration under
                                      Tennessee law. Tenn. Code Ann. secs. 62–18–101(b), 62–2–
                                      101 (2009). Land surveying and engineering require separate
                                      registration and are governed by separate boards and stat-
                                      utes.
                                         The practice of land surveying is governed by Tenn. Code
                                      Ann. secs. 62–18–101 to 62–18–127 (2009) and regulated by
                                      the State Board of Examiners for Land Surveyors. The prac-
                                      tice of engineering is governed by the applicable provisions
                                      of Tenn. Code Ann. secs. 62–2–101 to 62–2–406, 62–2–601,
                                      and 62–2–602 (2009) and regulated by the State Board of
                                      Examiners for Architects and Engineers.
                                         A person who has not practiced surveying for at least 10
                                      years and who wishes to practice land surveying in Ten-
                                      nessee must pass the fundamentals of land surveying exam-
                                      ination prepared by the National Council of Examiners for
                                      Engineering and Surveying (NCEES). Tenn. Code Ann. sec.
                                      62–18–109. A person wishing to practice engineering in Ten-
                                      nessee must pass two examinations prepared by NCEES—the
                                      fundamentals of engineering examination (not required with
                                      undergraduate engineering degree and 12 or more years of
                                      progressive engineering experience) and the principles and
                                      practice of engineering examination. 4 Id. secs. 62–2–401, 62–
                                      2–402, 62–2–405.
                                        4 The NCEES prepares separate fundamentals of engineering exams for the seven major engi-

                                      neering disciplines (chemical, civil, electrical, environmental, industrial, mechanical, and other
                                      disciplines); two-thirds of the questions cover all disciplines (breadth part) and one-third covers
                                                                                                      Continued




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                                         Tennessee statutes and regulations do not define the prac-
                                      tice of engineering. However, Tenn. Code Ann. sec. 62–18–
                                      102(3) defines the ‘‘Practice of land surveying’’ as follows:
                                      ‘‘Practice of land surveying’’ means any service of work, the adequate
                                      performance of which involves the application of special knowledge of the
                                      principles of mathematics, the related physical and applied sciences and
                                      the relevant requirements of law for adequate evidence to the act of meas-
                                      uring and locating lines, angles, elevations, natural and man-made fea-
                                      tures in the air, on the surface of the earth, within underground workings
                                      and on the beds of bodies of water for the purpose of determining areas
                                      and volumes, for the monumenting of property boundaries and for the plat-
                                      ting and layout of lands and subdivisions of land, including the topog-
                                      raphy, drainage, alignment and grades of streets, and for the preparation
                                      and perpetuation of maps, records, plats, field notes, records and property
                                      descriptions that represent these surveys * * *

                                        There is some overlap between the functions of a licensed
                                      engineer and those of a licensed land surveyor; e.g., either a
                                      registered engineer or a registered land surveyor may pre-
                                      pare a detailed topographic map to accompany an application
                                      for a coal surface mining operations permit pursuant to
                                      Tenn. Code Ann. sec. 59–8–407 (2002). The Tennessee State
                                      Board of Examiners for Architects and Engineers has
                                      adopted the following delineation of engineering and sur-
                                      veying:
                                      1. Land surveying, measurement and calculation of areas, boundaries,
                                      property lines, the subdivision of property and the plotting thereof must
                                      be done by a surveyor and his drawing must bear his seal.
                                      2. Subdivision road alignment, road grades, cutting and filling of subdivi-
                                      sion lots, and changes to the topography which involves a final grading
                                      plan may be performed by either an engineer or a surveyor; the designer’s
                                      seal must be applied to the drawing. In localities where instability of final
                                      grades and slopes requires analysis of soils to prevent conditions haz-
                                      ardous to life and property, design of roads, slopes, ditches, and building
                                      sites must be done by an engineer.
                                      3. Culverts, storm drainage pipes, water lines, sewer lines, electric power
                                      lines or other utilities not existing prior to development shall not be shown

                                      the specific discipline (depth part). Eleven percent of the questions in the depth part of the fun-
                                      damentals of engineering examination for civil engineering are questions on surveying.
                                         NCEES prepares separate principles and practice of engineering examinations in 25 engineer-
                                      ing disciplines or subdisciplines. The civil engineering exam covers five subdisciplines–construc-
                                      tion, geotechnical, structural, transportation, and water resources and environmental—and con-
                                      sists of a breadth part and a depth part. The breadth part contains questions from all five sub-
                                      disciplines of civil engineering. The depth exams focus more closely on a single subdiscipline of
                                      civil engineering.




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                                      on a subdivision drawing unless that drawing bears the seal of the engi-
                                      neer who designed them.
                                      4. The issue of whether or not the design of storm water drainage systems
                                      may be conducted by a licensed land surveyor was addressed in an opinion
                                      by the Attorney General’s Office on February 9, 2004 (Opinion No. 04–
                                      018). That Opinion answers the question: ‘‘Does the statute (Tenn. Code
                                      Ann. §62–18–102(3), defining the ‘‘practice of land surveying’’) allow land
                                      surveyors to conduct and perform drainage design and calculations
                                      required for the construction of subdivisions, including determining the
                                      detention and retention of storm water as well as determining the size of
                                      ponds, basins, pipes and culverts which hold and through which storm
                                      water will flow?’’ The Opinion concludes, based on its analysis and past
                                      authorities, that a licensed land surveyor who is not a registered engineer
                                      may not conduct drainage design and calculations of this kind. * * *
                                        [Tennessee State Board of Architectural and Engineering Examiners,
                                      Reference Manual for Building Officials and Design Professionals, app. H,
                                      Design and Practice Policies, IV. Delineation of Engineering and Surveying
                                      (Adopted Jan. 26, 1990; rev. and adopted Oct. 4, 1997; rev. and adopted
                                      July 10, 2008).]

                                      IV.      Caselaw
                                         Petitioner asserts that because land surveying in Ten-
                                      nessee cannot be performed by a licensed engineer who is not
                                      also a licensed land surveyor, land surveying in Tennessee is
                                      not in the field of engineering. Petitioner concludes that, con-
                                      sistent with Grutman-Mazler Engg. Inc. v. Commissioner,
                                      T.C. Memo. 2008–140, and Alron Engg. & Testing Corp. v.
                                      Commissioner, T.C. Memo. 2000–335, its land surveying is
                                      not in the field of engineering. But cf. Rainbow Tax Serv.,
                                      Inc. v. Commissioner, 128 T.C. 42, 47 (2007) (whether serv-
                                      ices were within the field of accounting under section
                                      448(d)(2) not controlled by State licensing laws).
                                         In Alron Engg. & Testing Corp. v. Commissioner, supra,
                                      the taxpayer, a Wisconsin corporation, performed both
                                      engineering services and geotechnical testing services. At
                                      issue was whether the geotechnical testing was within the
                                      field of engineering under section 448(d)(2). We observed that
                                      under Wisconsin law an engineer licensed with the State
                                      must meet certain minimum education, experience, and
                                      examining board requirements but that there are no
                                      standard minimum requirements for technicians who per-
                                      form geotechnical testing services under the laws of Wis-
                                      consin. We concluded that geotechnical testing did not




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                                      require the same education, training, and mastery as
                                      engineering and held that it did not constitute engineering.
                                         In Rainbow Tax Serv., Inc. v. Commissioner, supra, we
                                      held that tax return preparation and bookkeeping services
                                      provided by a Nevada corporation were within the qualifying
                                      field of accounting under section 448(d)(2). In that case,
                                      although we examined State law, we noted that section
                                      448(d)(2) requires only that the services be in the ‘‘field of
                                      accounting’’ and is not limited to public accounting. Id. at 46.
                                      We declined to limit services performed in the field of
                                      accounting to those requiring State licensure. Rather, we
                                      applied the regulations promulgated under section 448 and
                                      the ordinary meaning of the words ‘‘accounting’’ and ‘‘book-
                                      keeping’’ (defined as a branch of accounting), noted that
                                      under Nevada law ‘‘public accounting’’ includes ‘‘the prepara-
                                      tion of tax returns’’, and considered that the ‘‘field of
                                      accounting’’ historically included tax return preparation and
                                      bookkeeping services. Id. at 46–47. Thus, although neither
                                      tax return preparation nor bookkeeping requires the same
                                      education, training, and mastery as accounting, we held that
                                      those activities were services in the field of accounting. Cf.
                                      Alron Engg. & Testing Corp. v. Commissioner, supra.
                                         In Alron Engg. & Testing Corp. we looked primarily to
                                      State law in holding that geotechnical testing was not in the
                                      field of engineering. We did not consider other indicia that
                                      might indicate that geotechnical engineering is a branch of
                                      civil engineering that historically includes geotechnical
                                      testing. 5 See supra note 4. However, Rainbow Tax Serv., Inc.
                                      instructs us to consider other indicia in deciding whether a
                                      service is performed in a qualifying field under section
                                      448(d)(2). We shall do so here in deciding whether section
                                      1.448–1T(e)(4)(i), Temporary Income Tax Regs., supra, prop-
                                      erly includes surveying in the field of engineering for pur-
                                      poses of section 448(d)(2).


                                         5 The NCEES principles and practice of engineering breadth examination for civil engineering

                                      includes questions on material testing (e.g., concrete, soil, asphalt) and subsurface exploration
                                      and sampling (soil classification and boring log interpretation). The depth exam for geotechnical
                                      civil engineering includes questions on subsurface exploration and sampling, covering drilling
                                      and sampling procedures, soil classification, general rock characterization, boring log interpreta-
                                      tion, and in situ testing.




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                                      V.      ‘‘Field of Engineering’’
                                         When a court reviews an agency’s construction of the
                                      statute which it administers, ‘‘if the statute is silent or
                                      ambiguous with respect to the specific issue, the question for
                                      the court is whether the agency’s answer is based on a
                                      permissible construction of the statute.’’ Chevron U.S.A. Inc.
                                      v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–843
                                      (1984). A regulation adopting a ‘‘permissible construction’’ of
                                      a statute is due deference ‘‘if the statute is silent or ambig-
                                      uous with respect to the specific issue’’. Id. at 843; see also
                                      Bingler v. Johnson, 394 U.S. 741, 751 (1969) (regulation was
                                      valid where definitions of terms in the regulation ‘‘[com-
                                      ported] with the ordinary understanding of ’’ the terms).
                                      Thus, we first must decide whether the temporary regula-
                                      tion’s inclusion of surveying in the field of engineering is a
                                      permissible construction of section 448(d)(2).
                                         The words of a statute should be given their normal
                                      meaning and effect in the absence of a showing that some
                                      other meaning was intended. Leocal v. Ashcroft, 543 U.S. 1,
                                      9 (2004). If the intent of Congress is clearly and unambig-
                                      uously expressed by the statutory language at issue, the
                                      Court must apply the statute according to its terms. Zuni
                                      Pub. Sch. Dist. No. 89 v. Dept. of Educ., 550 U.S. 81, 93–94
                                      (2007) (‘‘normally neither the legislative history nor the
                                      reasonableness of the Secretary’s method would be deter-
                                      minative if the plain language of the statute unambiguously
                                      indicated that Congress sought to foreclose the Secretary’s
                                      interpretation’’).
                                         Section 448 lists eight qualifying fields but does not define
                                      any of them. When interpreting the text of a statute, courts
                                      frequently begin by looking to the common and ordinary
                                      meaning of a word set forth in a dictionary. See, e.g., Carcieri
                                      v. Salazar, 555 U.S. ll, ll, 129 S. Ct. 1058, 1063–1064
                                      (2009); Rousey v. Jacoway, 544 U.S. 320, 326 (2005); Carlson
                                      v. Commissioner, 116 T.C. 87, 94 (2001). However, analyses
                                      of the legislative history and purpose of a statute are also
                                      traditional tools of statutory construction. ‘‘If a court,
                                      employing traditional tools of statutory construction,
                                      ascertains that Congress had an intention on the precise
                                      question at issue, that intention is the law and must be given
                                      effect.’’ Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.,




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                                      supra at 843 n.9. We begin our analysis with the legislative
                                      history because it provides evidence of congressional intent
                                      with respect to the precise point at issue. See Zuni Pub. Sch.
                                      Dist. No. 89 v. Dept. of Educ., supra at 105–106 (Stevens, J.,
                                      concurring).
                                           A.    Legislative History and Purpose
                                         Congress enacted section 448, which generally prohibits C
                                      corporations, partnerships that have a C corporation as a
                                      partner, and tax shelters from using the cash method of
                                      accounting, as part of the Tax Reform Act of 1986, Pub. L.
                                      99–514, sec. 801, 100 Stat. 2345. Before the enactment of sec-
                                      tion 448, taxpayers whose businesses did not involve inven-
                                      tories generally could elect to use any method of accounting
                                      that clearly reflected income and that was regularly used in
                                      keeping the taxpayer’s books and records under section 446.
                                      Congress enacted section 448(a) because it believed ‘‘that the
                                      cash method of accounting frequently fails to reflect
                                      accurately the economic results of a taxpayers’s trade or
                                      business over a taxable year.’’ H. Rept. 99–426, at 605 (1985),
                                      1986–3 C.B. (Vol. 2) 1, 605. However, Congress recognized
                                      that the simplicity of the cash method justified its continued
                                      use by certain types of taxpayers and for certain types of
                                      activities. Id. Congress recognized that individuals, especially
                                      those engaged in professional activities, personal service cor-
                                      porations, and entities where the income is taxed at the indi-
                                      vidual level (such as partnerships and S corporations)
                                      traditionally had used the cash method of accounting in the
                                      operation of their trades or businesses and should be able to
                                      continue to use that method. Id. Thus, in section 448(b) Con-
                                      gress provided exceptions to section 448(a), including the
                                      exception for qualified personal service corporations defined
                                      in section 448(d)(2).
                                         The conference report on the Tax Reform Act of 1986, Pub.
                                      L. 99–514, sec. 801, 100 Stat. 2345, states:
                                         A qualified personal service corporation is a corporation that meets both
                                      a function test and an ownership test. The function test is met if substan-
                                      tially all the activities of the corporation are the performance of services
                                      in the field of health, law, engineering (including surveying and mapping),
                                      architecture, accounting, actuarial science, performing arts or consulting.
                                      [H. Conf. Rept. 99–841 (Vol. II), at II–285 (1986), 1986–3 C.B. (Vol. 4) 1,
                                      285; emphasis added.]




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                                        The conference report shows that Congress intended sur-
                                      veying and mapping to be treated as services performed in
                                      the field of engineering for purposes of the function test. 6
                                      The temporary regulation reflects that intent.
                                           B.    Definitions of Engineering and Civil Engineering
                                        Webster’s Third New International Dictionary 752 (1993)
                                      defines ‘‘engineering’’ as:
                                      the science by which the properties of matter and the sources of energy
                                      in nature are made useful to man in structures, machines and products—
                                      see chemical engineering, civil engineering, electrical engineering,
                                      hydraulic engineering, industrial engineering, mechanical engineering,
                                      municipal engineering, sanitary engineering[.]

                                        The field of engineering includes any branch of
                                      engineering. See Rainbow Tax Serv., Inc. v. Commissioner,
                                      128 T.C. at 47 (the field of accounting includes bookkeeping,
                                      defined in Webster’s Third New International Dictionary
                                      (1981) as a ‘‘branch’’ of accounting).
                                        Webster’s Third New International Dictionary 413 (2002)
                                      defines ‘‘civil engineering’’ as ‘‘a branch of engineering con-
                                      cerned primarily with public works (as land surveying, the
                                      building of highways, bridges, waterways, or harbors * * *)
                                      but also embracing private enterprises (as railroad and air-
                                      port building, private building construction, and farm drain-
                                      age)’’. (Emphasis added.) Thus, land surveying is within the
                                      ordinary meaning of engineering.
                                           C.    Other Indicia
                                         ‘‘The traditional concept of civil engineering is the
                                      integrated practice of engineering embracing a number of
                                      related specialty areas including, but not limited to, construc-
                                      tion, transportation, structures, water resources and environ-
                                      mental, and geotechnical engineering.’’ American Society of
                                        6 The year after the enactment of sec. 448, in the Omnibus Budget Reconciliation Act of 1987,

                                      Pub. L. 100–203, sec. 10224, 101 Stat. 1330–412, Congress amended sec. 11(b), making qualified
                                      personal service corporations defined in sec. 448(d)(2) ineligible for the graduated income tax
                                      rates contained in sec. 11(b)(1) and imposing tax on them at the highest rate (34 percent at
                                      that time). The House Ways and Means Committee explained:
                                         The personal service income of corporations owned by its employees is taxed to the employee-
                                      owners at the individual graduated rates as it is paid out as salary. The committee believes that
                                      it is inappropriate to allow the retained earnings to be taxed at the lower corporate graduated
                                      rates. [H. Rept. 100–391 (Part 2), at 1097 (1987).]




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                                      178                134 UNITED STATES TAX COURT REPORTS                                         (167)


                                      Civil Engineers (ASCE) Policy Statement 432 (first approved
                                      1994, adopted May 2, 2008). 7
                                         ASCE recently adopted Policy Statement 333 (adopted April
                                      24, 2007) in response to ‘‘some confusion with respect to the
                                      role of civil engineers in the practice of surveying’’ and the
                                      ‘‘lack of understanding on the part of certain engineering dis-
                                      ciplines, other than civil, of the importance of surveying to
                                      the practice of civil, aeronautical, mechanical, and mining
                                      engineering, among others.’’ Id. Policy Statement 333 defines
                                      ‘‘Engineering surveying’’ as follows:
                                      Policy
                                        Engineering surveying is defined as those activities involved in the plan-
                                      ning and execution of surveys for the location, design, construction, oper-
                                      ation, and maintenance of civil and other engineered projects.
                                        Such activities include:
                                      The preparation of survey and related mapping specifications;
                                      Execution of photogrammetric and field surveys for the collection of
                                      required data, including topographic and hydrographic data;
                                      Calculation, reduction and plotting of survey data for use in engineering
                                      design;
                                      Design and provision of horizontal and vertical control survey networks;
                                      Provision of line and grade and other layout work for construction and
                                      mining activities;
                                      Execution and certification of quality control spatial measurements during
                                      construction;
                                      Monitoring of ground and structural stability, including alignment
                                      observations, settlement levels, and related reports and certifications;
                                      Measurement of material and other quantities for inventory, economic
                                      assessment and cost accounting purposes;
                                      Execution of as built surveys and preparation of related maps and plans
                                      and profiles upon completion of construction; and
                                      Analysis of errors and tolerances associated with the measurement, field
                                      layout and mapping or other plots of survey measurement required in sup-
                                      port of engineering projects.
                                        Engineering surveying may be regarded as a specialty within the
                                      broader professional practice of engineering and, with the exception of
                                      boundary, right of way, or other cadastral[8] surveying, includes all sur-
                                        7 The American Society of Civil Engineers, founded in 1852, is America’s oldest national engi-

                                      neering society, representing more than 147,000 members of the civil engineering profession
                                      worldwide. See http://www.asce.org/inside/.
                                        8 Webster’s Third New International Dictionary 311 (2002) defines ‘‘cadastral’’ as ‘‘1: of or re-

                                      lating to the records of a cadastre: concerned with assembling or keeping the records necessary
                                      to the cadastre 2 of a map or survey: showing or recording property boundaries, subdivision




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                                      (167)      KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER                                           179


                                      veying and mapping activities required to support the sound conception,
                                      planning, design, construction, maintenance and operation of engineered
                                      projects. Engineering surveying does not include surveys for the
                                      retracement of existing land ownership boundaries or the creation of new
                                      boundaries.

                                                                      *        *      *       *   *       *   *
                                      Rationale
                                        Engineering surveying is one of the necessary skills of a civil engineer.
                                      A civil engineer may specialize in engineering surveying, thereby devel-
                                      oping the necessary expertise in the execution and analysis of measure-
                                      ments to the highest level practicable. The engineering surveyor, as a spe-
                                      cialist, supports and serves other civil engineers in their task of designing
                                      and constructing manmade works for the benefit of mankind. While a civil
                                      engineer may not engage full time in engineering surveying and may not
                                      be considered an expert on all aspects of engineering surveying, they must
                                      be well qualified to perform those aspects of surveying relevant to their
                                      professional activities.

                                         Preparation of a detailed topographic map to accompany
                                      an application for a coal surface mining operations permit
                                      and subdivision road alignment, road grades, cutting and
                                      filling of subdivision lots, and changes to the topography
                                      which involves a final grading plan falls within the ASCE
                                      definition of surveying engineering. In Tennessee those
                                      activities may be performed by a licensed land surveyor as
                                      well as a licensed engineer.
                                         ASCE publishes various journals that provide technical
                                      information for the civil engineering profession, including the
                                      Journal of Surveying Engineering. An article on the history
                                      of engineering surveying by William E. Kreisle published in
                                      the Journal of Surveying Engineering traces the development
                                      of the engineering surveyor, his equipment, and his methods.
                                      Kreisle, ‘‘History of Engineering Surveying’’, 114 J. Surv.
                                      Engg. 102–124 (1988). In the abstract of the article, Kreisle
                                      observes that ‘‘The engineering surveyor, who evolved from
                                      the land surveyor, was the forerunner of all civil engineers,
                                      including the founders of the American Society of Civil Engi-
                                      neers.’’ Id. at 102.


                                      lines, buildings, and other details’’; Black’s Law Dictionary 195 (8th ed. 1999) defines ‘‘cadastre’’
                                      (also spelled ‘‘cadaster’’) as ‘‘A survey and valuation of real estate in a county or region compiled
                                      for tax purposes.’’




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                                           D.    State Licensing Laws Not Controlling
                                          The inclusion of surveying in the field of engineering is
                                      supported by the legislative history. Civil engineering is a
                                      branch of engineering, and land surveying falls within the
                                      ordinary meaning of engineering and historically is regarded
                                      as within the field of engineering. The fact that land sur-
                                      veying may be performed by an individual who is not a
                                      licensed engineer does not remove those services from the
                                      ‘‘field of engineering’’. See Rainbow Tax Serv., Inc. v.
                                      Commissioner, 128 T.C. at 46 (tax preparation and book-
                                      keeping services are within the field of accounting even when
                                      performed by a corporation that employs no licensed
                                      C.P.A.’s).
                                          ‘‘The meaning of the words or the legal status of cir-
                                      cumstances for federal tax purposes need not be identical to
                                      their meaning or their legal effect under state law.’’ Estate of
                                      Steffke v. Commissioner, 538 F.2d 730, 732 (7th Cir. 1976)
                                      (citing Commissioner v. Tower, 327 U.S. 280 (1946), and
                                      Lyeth v. Hoey, 305 U.S. 188 (1938). In interpreting a Federal
                                      taxing statute the Supreme Court said:
                                        Here we are concerned only with the meaning and application of a
                                      statute enacted by Congress, in the exercise of its plenary power under the
                                      Constitution, to tax income. The exertion of that power is not subject to
                                      state control. It is the will of Congress which controls, and the expression
                                      of its will in legislation, in the absence of language evidencing a different
                                      purpose, is to be interpreted so as to give a uniform application to a
                                      nation-wide scheme of taxation. * * * State law may control only when the
                                      federal taxing act, by express language or necessary implication, makes its
                                      own operation dependent upon state law. * * *

                                      Burnet v. Harmel, 287 U.S. 103, 110 (1932); see also United
                                      States v. Pelzer, 312 U.S. 399, 402–403 (1941); Lyeth v. Hoey,
                                      supra at 194. Thus, the provisions of the revenue laws ‘‘ ‘are
                                      not to be taken as subject to state control or limitation unless
                                      the language or necessary implication of the section involved
                                      makes its application dependent on state law.’ ’’ United States
                                      v. Irvine, 511 U.S. 224, 239 (1994) (quoting United States v.
                                      Pelzer, supra at 402–403).
                                        We can find no basis in the text of section 448(d)(2) or its
                                      legislative history to conclude that Congress intended to
                                      condition the meaning of ‘‘services in the field of engineering’’
                                      (or any other qualifying field) on State law. In NLRB v.




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                                      (167)      KRAATZ & CRAIG SURVEYING INC. v. COMMISSIONER                                       181


                                      Hearst Publns., Inc., 322 U.S. 111, 123 (1944), the Supreme
                                      Court rejected an argument that the term ‘‘employee’’ as
                                      used in a Federal statute should be defined by State law,
                                      explaining:
                                        Both the terms and the purposes of the statute, as well as the legislative
                                      history, show that Congress had in mind no * * * patchwork plan * * *.
                                      * * * Nothing in the statute’s background, history, terms or purposes
                                      indicates its scope is to be limited by * * * varying local conceptions,
                                      either statutory or judicial, or that it is to be administered in accordance
                                      with whatever different standards the respective states may see fit to
                                      adopt for the disposition of unrelated, local problems. * * *

                                         Similarly, nothing in the backgrounds, histories, terms, or
                                      purposes of sections 11(b)(2) and 448(d)(2) indicates that they
                                      are to be administered in accordance with different licensing
                                      standards States may adopt. Because State licensing laws
                                      governing engineering (and other qualifying fields) differ
                                      from State to State, defining a qualifying field by State
                                      licensing laws would mean that conduct in one State might
                                      constitute the performance of services in a qualifying field,
                                      whereas identical conduct in a neighboring State would not.
                                      ‘‘Congress has given no indication it intended the criminality
                                      of official conduct under federal law to depend on geography.’’
                                      United States v. Weyhrauch, 548 F.3d 1237, 1246 (9th Cir.
                                      2008).
                                         Whether a service is performed in one of the qualifying
                                      fields under section 448(d)(2) is to be decided by all relevant
                                      indicia, including the text of the statute, its legislative his-
                                      tory and regulations, application of the normal meaning of
                                      the term ‘‘health’’, ‘‘law’’, ‘‘engineering’’, ‘‘architecture’’,
                                      ‘‘accounting’’, ‘‘actuarial science’’, ‘‘performing arts’’, or ‘‘con-
                                      sulting’’, and examination of services historically regarded as
                                      within the qualifying field. See Rainbow Tax Serv., Inc. v.
                                      Commissioner, 128 T.C. 42 (2007).
                                      VI.      Conclusion
                                        We hold that section 1.448–1T(e)(4)(i), Temporary Income
                                      Tax Regs., supra, is a reasonable interpretation of the
                                      statute, supported by the legislative history; by the ordinary
                                      meaning of the word ‘‘engineering’’, which encompasses sur-
                                      veying; and by other indicia, that surveying is regarded as
                                      within the field of engineering. It implements the congres-




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                                      sional mandate in a reasonable manner and is not arbitrary,
                                      capricious, or manifestly contrary to the statute. Accordingly,
                                      it is valid under both Natl. Muffler Dealers Association v.
                                      United States, 440 U.S. 472 (1979), and Chevron U.S.A. Inc.
                                      v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). 9 We
                                      hold further that petitioner’s land surveying is within the
                                      field of civil engineering, which in turn is within the field of
                                      engineering, and that petitioner is a qualified personal
                                      service corporation defined in section 448(d)(2) and subject to
                                      the flat 35-percent income tax rate under section 11(b)(2).
                                         To reflect the foregoing,
                                                                     An appropriate order and decision for
                                                                   respondent will be entered.

                                                                               f




                                         9 Under Natl. Muffler Dealers Association v. United States, 440 U.S. 472 (1979), an interpreta-

                                      tive regulation is valid if it implements a congressional mandate in a reasonable manner. By
                                      contrast, under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984),
                                      a legislative regulation is upheld ‘‘unless arbitrary, capricious, or manifestly contrary to the stat-
                                      ute’’.




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