                        T.C. Memo. 2003-265



                      UNITED STATES TAX COURT



               FREDERICK C. KUMPEL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14339-01.             Filed September 10, 2003.



     Frederick C. Kumpel, pro se.

     Milton B. Blouke, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   The petition in this case was filed in

response to a Notice of Determination Concerning Worker

Classification Under Section 7436 regarding petitioner’s

liabilities pursuant to the Federal Insurance Contributions Act

(FICA) and the Federal Unemployment Tax Act for 1993, 1994, 1995,

1996, and 1997.   The issues for decision are whether Nanci Smith
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(Smith) and Teanna Mawson (Mawson) were employees of petitioner

for Federal employment tax purposes during 1993 through 1997;

whether petitioner is subject to the addition to tax for failure

to file Forms 941, Employer’s Quarterly Federal Tax Return, as

required under section 6651 for all four quarters of each of the

years in issue; and whether petitioner is subject to the addition

to tax for failure to make a deposit of FICA taxes as required

under section 6656 for the years in issue.   Petitioner concedes

that he is not entitled to relief under section 530 of the

Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2885, as amended,

and he has not sought relief under section 3509, relating to the

wages paid during any of the four quarters of each of the years

in issue.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue.

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.

Petitioner’s principal place of business was in Bakersfield,

California, at the time the petition was filed.

     In 1985, petitioner began practicing law as a licensed

attorney in California.   From 1985 through 1993, petitioner

worked for private law firms in California on litigation matters.

While working with the law firm Young Wooldridge, petitioner met

Smith and trained her in spelling, typing, and court procedure.
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     In 1993, petitioner began his own practice as a sole

practitioner.   Petitioner’s practice included personal injury,

employment, real estate, and litigation.     Prior to opening his

law practice, petitioner consulted a certified public accountant

who offered to get petitioner an employer identification number

(EIN).   Petitioner did not obtain an EIN.

     Once petitioner began practicing as a sole practitioner,

Smith contacted him requesting work.   There was no written

employment contract, and petitioner agreed to allow Smith to set

her own work schedule at a rate of $10 per hour.     Smith would

generally telephone petitioner when she was unable to come into

the office on a particular day.   Petitioner required Smith to

keep track of the hours that she worked.     Petitioner paid

membership dues to the Bakersfield Legal Secretaries Association

on behalf of Smith.   Petitioner had the authority to fire Smith

at any time, and Smith could quit her job at any time.     Smith was

free to accept another position if it would offer her more money.

     Petitioner did not request that Smith work for him on

Saturdays or Sundays.   From 1993 through 1997, Smith took a

2-week vacation each summer.   Smith worked for third parties

while working for petitioner and sometimes completed work for

petitioner at her home.

     During the initial years of the law firm’s existence,

petitioner operated his law practice out of his home, where Smith

performed her job duties.   In 1994, petitioner began to rent
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office space.   Smith used petitioner’s file cabinet, photocopier,

stationery, computer, and computer printer to perform tasks for

petitioner.   Smith performed general typing, answered the

telephone, did bookkeeping, helped track expenses and pay bills,

ran errands, filed papers in court, and filed records for

petitioner.   Smith answered petitioner’s telephone when she was

in the office, although she shared this responsibility with the

receptionist of the office space that petitioner rented.

Petitioner requested that Smith type mailing labels, form letters

for medical records, disputed billing letters, Judicial Council

forms, lists of closed cases, and billing statements.    Smith did

not type any pleading for petitioner.    Petitioner would review

Smith’s work for errors, and he instructed her to review his work

for errors.   Smith also prepared invoices to be mailed to

clients.

     Petitioner controlled the errands that Smith ran for

petitioner.   Smith also purchased supplies for petitioner.

Petitioner reimbursed her for expenses that she incurred.

     Petitioner controlled the method of handling his incoming

and outgoing office mail.   Smith opened the incoming mail for

petitioner but did not sort it or discard any unsolicited mail.

If petitioner received a bill, he would place a note on it and

place it in the pile for unpaid bills.    Smith paid the bills when

she was in the office.   Smith handled outgoing mail.   Petitioner

directed Smith as to whether to send mail by certified mail,

express mail, return receipt requested, or regular mail.
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Petitioner determined which enclosures were to be mailed with a

document, and Smith prepared the enclosures.

     Petitioner controlled how and when a document was filed in a

court by his office.    Smith filed petitioner’s pleadings with the

courts.   Petitioner required Smith to retain an endorsed or “file

stamped” copy of each pleading that was filed.

     Petitioner controlled where each document was to be filed in

the clients’ binders.   Petitioner noted instructions on

particular documents explaining to Smith where documents should

be filed.   Petitioner designated the file into which documents

should go and in what section of the file.    Petitioner also

controlled when Smith would make photocopies of documents to be

used at trial.

     Smith assisted petitioner in closing his legal files during

the years in issue.    Petitioner controlled when each file was to

be closed and the method of closing the file.    Smith prepared a

storage list of closed files.   Petitioner would review the

storage list to ensure that he could find the closed files.

     In 1997, Smith moved and terminated her working relationship

with petitioner.   During the second quarter of 1997, petitioner

hired a college student, Mawson, on terms similar to those

involving Smith.   Petitioner trained Mawson as to the work that

needed to be done at the law practice.    Mawson arranged her work

schedule around her college classes.    Mawson’s duties included
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running errands, filing, photocopying, preparing outgoing mail,

and tracking and paying bills.

     Petitioner did not file Forms 941 for any of the years in

issue for either Smith or Mawson.    Petitioner did not file any

Forms 1099-MISC, Miscellaneous Income, for the work that Smith

and Mawson performed.   During the years in issue, petitioner

reported income from his law firm on a Schedule C, Profit or Loss

From Business.   Petitioner reported payments to Smith and Mawson

as “negative receipts” on the Schedule C and failed to indicate

that deductions were being taken for payments made for

secretarial services.

                               OPINION

Employment Status

     Whether an employer-employee relationship exists in a

particular situation is a factual question.    Weber v.

Commissioner, 103 T.C. 378, 386 (1994), affd. per curiam 60 F.3d

1104 (4th Cir. 1995).   For the purposes of employment taxes, the
term “employee” includes “any individual who, under the usual

common law rules applicable in determining the employer-employee

relationship has the status of an employee”.    Sec. 3121(d)(2);

sec. 3306(i).    Section 31.3121(d)-1(c)(2), Employment Tax Regs.,

defines the common law employer-employee relationship as follows:

          (2) Generally such relationship exists when the
     person for whom services are performed has the right to
     control and direct the individual who performs the
     services, not only as to the result to be accomplished
     by the work but also as to the details and means by
                               - 7 -

     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. The right to discharge
     is also an important factor indicating that the person
     possessing that right is an employer. Other factors
     characteristic of an employer, but not necessarily
     present in every case, are the furnishing of tools and
     the furnishing of a place to work, to the individual
     who performs the services. In general, if an
     individual is subject to the control or direction of
     another merely as to the result to be accomplished by
     the work and not as to the means and methods for
     accomplishing the result, he is an independent
     contractor. * * *

Although the determination of employee status is to be made by

common law concepts, a realistic interpretation should be

adopted, and doubtful questions should be resolved in favor of

employment.   Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263,

269 (2001).

     This Court considers the following factors to decide whether

a worker is a common law employee or an independent contractor:

(1) The degree of control exercised by the principal; (2) which

party invests in the work facilities used by the individual;

(3) the opportunity of the individual for profit or loss;

(4) whether the principal can discharge the individual;

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

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

the parties believed they were creating.   Id. at 270; Weber v.

Commissioner, supra at 387.   All of the facts and circumstances

of each case are considered, and no single factor is dispositive.
                                 - 8 -

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

Commissioner, supra at 387.   Because we decide this case on the

preponderance of the evidence, we need not discuss the burden of

proof.

     1.   Degree of Control

     The control factor is the “crucial test” to determine the

nature of a working relationship.        Weber v. Commissioner, supra
at 387.   The degree of control necessary to find employee status

varies with the nature of the services provided by the worker.

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

Commissioner, supra at 388.   To retain the requisite control over

the details of an individual’s work, the employer need not stand

over the individual and direct every move made by the individual;

it is sufficient if the employer has the right to do so.        Weber

v. Commissioner, supra at 388.

     Similarly, the employer need not set the employee’s hours or

supervise every detail of the work environment to control the

employee.   Gen. Inv. Corp. v. United States, 823 F.2d 337, 342

(9th Cir. 1987).   Workers who set their own hours are not

necessarily independent contractors.        Id.; Ewens & Miller, Inc.

v. Commissioner, supra at 270.

     Petitioner argues that “Smith and Mawson were subject to

control and direction of petitioner merely as to the result to be

accomplished by the work and not as to the means and methods to

accomplish the result”.   Petitioner relies on Rev. Rul. 57-109,
                                - 9 -

1957-1 C.B. 328, which determined that a part-time bookkeeper was

an independent contractor.    In Rev. Rul. 57-109, the bookkeeper

worked without corporate direction or supervision over his work,

provided his own working papers, and paid his own expenses.     The

company actually controlled the result of his work and not the

manner in which he completed it.    Petitioner’s case is

distinguishable, in part, because of the level of control that

petitioner exercised over Smith and Mawson.    Petitioner further

argues that he had no control over either Smith’s or Mawson’s

work because they were free to set their own hours and were able

to come and go as they pleased.    This one aspect of the

relationship, even if true, is not determinative.    Petitioner’s

proposed findings of fact recite many aspects of Smith’s and

Mawson’s job over which petitioner exercised control.      Petitioner

agreed with respondent’s proposed findings of fact that

petitioner had the authority to control how any file was closed

by a secretary, to control what errands a secretary would run for

him, to control how and when a document was filed in a court, to

control how any incoming mail was handled, to control what went

into the outgoing mail and how it was sent, and to control what

documents were photocopied.   In addition, petitioner states in

his brief that he had “authority to control the manner in which

Smith’s tasks were performed” subject to Smith’s schedule.

     Petitioner emphasized at trial and in his brief that, if

Smith or Mawson were not in the office on a particular day, he

would complete the tasks that they normally would complete.
                               - 10 -

Petitioner’s reliance on Smith’s and Mawson’s flexible schedules

is misplaced.   The hours were flexible because of the agreement

between petitioner and the secretaries and not by unilateral

action by the secretaries.    While Smith and Mawson were

performing services for petitioner, they were under the direct

control of petitioner, who determined the manner in which they

would perform their jobs.    Petitioner controlled both Smith and

Mawson in the completion of their job functions in a manner

consistent with employee status.

     2.   Investment in Facilities

     Respondent emphasizes that petitioner invested in the

facilities of the law practice, claiming deductions over the

years in issue of over $49,000 for supplies and office expenses

used by Smith and Mawson.    Respondent also emphasizes that

petitioner reimbursed Smith for supplies she purchased for the

office.

     In this case, petitioner supplied the office space, a

computer, and other equipment used by Smith and Mawson to perform

their functions.   Although petitioner testified that Smith

sometimes worked from her home, her choice to work at home, using

her own computer, was her preference.    It appears that Smith’s

work at home was de minimis as well as voluntary.    Smith was not

required to make any investment.     See, e.g., Weber v.

Commissioner, supra at 390.    These facts are indicative of an

employer-employee relationship.
                               - 11 -

     3.   Opportunity for Profit or Loss

     Respondent argues that Smith and Mawson had no opportunity

for profit or loss beyond the $10 per hour that they earned for

work completed.   Petitioner claims, without reason and contrary

to authority, that this factor is irrelevant to the analysis.

Because Smith and Mawson did not have an opportunity for profit

from petitioner’s law practice and because they were not at risk

for loss, this factor weighs in favor of an employer-employee

relationship.   See, e.g., Weber v. Commissioner, supra at 391.

     4.   Right To Discharge

     Respondent argues that petitioner had the right to discharge

Smith or Mawson at any time.   Petitioner argues without evidence,

reason, or authority that Smith and Mawson could not be

discharged for “the reasons usually associated with the firing of

an employee”.   The evidence shows that petitioner could discharge

either Smith or Mawson at any time, consistent with employee

status.

     5.   Integral Part of Business

     Respondent emphasizes that the activities completed by Smith

and Mawson were all in relation to petitioner’s practice of law.

Petitioner admits on brief that Smith and Mawson “performed work

which was part of petitioner’s regular business”.   He claims,

however, that Smith and Mawson were also free to work for other

people, complete school work, or handle family matters.

Petitioner’s claim is irrelevant to the analysis and lacks merit.
                                - 12 -

During the years in issue, the functions that petitioner hired

Smith and Mawson to complete were functions of the operation of

his law practice, including filing court documents, photocopying,

running errands, and sending outgoing mail.    These facts indicate

employee status.

     6.   Permanency of the Relationship

     Smith worked for petitioner for 4 years, and Mawson worked

for petitioner for three quarters of 1997.    Respondent asserts

that these time periods are sufficient to create a permanent

relationship.    Petitioner argues that “there was never anything

permanent about the relationship with either Smith or Mawson.

The relationship was loose and transitory in every respect.”

     A transitory work relationship may point toward independent

contractor status.    See Ewens & Miller, Inc. v. Commissioner, 117
T.C. at 273.    Smith, however, did not have a transitory

relationship with petitioner.    Petitioner testified that Smith

could leave at any time for a better offer; however, this

possibility does not demonstrate a transitory relationship.

Although Smith and Mawson did not always work regular schedules

and Smith sometimes worked for third parties, they worked in the

course of petitioner’s regular business, and their respective

relationships with petitioner were not transitory in nature.

     7.   Relationship the Parties Thought They Created

     Petitioner argued repeatedly at trial and on brief that he

intentionally established Smith and Mawson as independent
                                - 13 -

contractors because he could not afford employees.     Respondent

argues that Smith and Mawson should be considered employees of

petitioner despite the parties’ understanding to the contrary.

It is respondent’s position that, although petitioner informed

Smith and Mawson that they were independent contractors, this is

not a significant factor in the analysis because petitioner

failed to file Forms 1099-MISC for either secretary to

demonstrate an intent to treat Smith and Mawson as independent

contractors.

     A contract between an employer and its staff establishing an

independent contractor relationship may be set aside if the

common law principles defining an employer-employee relationship

dictate otherwise.    See Vizcaino v. U.S. Dist. Ct. for W. Dist.
of Wash. (In re Vizcaino), 173 F.3d 713, 716, 723 (9th Cir. 1999)

(applying common law analysis of Nationwide Mut. Ins. Co. v.

Darden, 503 U.S. 318, 323-324 (1992), in determining worker

classification).     The parties’ characterization of the

relationship is not controlling.     See Ewens & Miller, Inc. v.

Commissioner, supra at 268-269; sec. 31.3121(d)-1(a)(3),

Employment Tax Regs.

     Petitioner did not follow consistent procedures in treating

Smith and Mawson as independent contractors, namely securing an

employer identification number and filing Forms 1099-MISC.     The

record confirms that he and his secretaries intended to avoid

rules applicable to employees, but the intent was inconsistent

with the reality of their relationship.     (His manner of reporting
                                - 14 -

payments for secretarial services on his Schedules C suggests an

intention to conceal the relationship and the employment tax

issue.)   Where, as here, common law factors compel a finding that

an employer-employee relationship exists, the parties’ intentions

to the contrary will not be given effect.

     8.   Conclusion

     After considering all of the facts and circumstances in this

case, we conclude that both Smith and Mawson were employees of

petitioner during the years in issue.

Additions to Tax

     Under section 6651, a taxpayer who fails to file timely or

fails to pay employment taxes shall be assessed an addition to

tax, unless it is shown that the failure is due to reasonable

cause and not due to willful neglect.    See Conklin Bros. of Santa

Rosa, Inc. v. United States, 986 F.2d 315, 317 (9th Cir. 1993);

Charlotte’s Office Boutique v. Commissioner, 121 T.C. ___, ___

(2003) (slip op. at 30).    To establish reasonable cause, the
taxpayer must show that ordinary business care and prudence were

exercised in providing for payment of the tax liability.    Sec.

301.6651-1(c)(1) and (2), Proced. & Admin. Regs.    Willful neglect

means a “conscious, intentional failure or reckless

indifference.”     United States v. Boyle, 469 U.S. 241, 245-246

(1985).

     Under section 6656, an addition to tax is imposed equal to

10 percent of the portion of an underpayment in tax that is
                              - 15 -

required to be deposited if the failure to deposit is more than

15 days late.   A taxpayer may avoid the addition to tax by

showing that the failure to deposit was due to reasonable cause

and not due to willful neglect.   Sec. 6656(a); Charlotte’s Office

Boutique v. Commissioner, supra at ___ (slip op. at 31).

     Petitioner asserts that he “refused to use” an employer

identification number and acknowledges the obligations of an

employer that he deliberately tried to avoid.   Petitioner’s

position is essentially that he did not want to incur the

obligations of an employer and therefore did not comply with the

applicable law.   Petitioner is liable for the additions to tax

under section 6651 and section 6656.

     We have considered all arguments made by the parties.     Those

arguments not discussed are irrelevant or without merit.    To

reflect the foregoing,

                                         Decision will be entered

                                    for respondent.
