                        T.C. Memo. 2006-44



                      UNITED STATES TAX COURT



                  SAMUEL A. COLE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11968-04.               Filed March 16, 2006.



     Samuel A. Cole, pro se.

     Beth A. Nunnink, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined a deficiency of $3,494

in petitioner’s Federal income tax for 2001 and an addition to

tax of $35 under section 6651(a)(1).    After concessions by

respondent, the issues for decision are:

     (1) Whether petitioner was a statutory employee in 2001

under section 3121(d)(3)(D);
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     (2) whether petitioner is entitled to deduct additional

expenses in 2001;

     (3) whether petitioner is liable for the 10-percent

additional tax on his Individual Retirement Account (IRA)

distribution under section 72(t)(1); and

     (4) whether petitioner received $17 of interest from the

Commonwealth of Virginia in 2001.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                        FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Knoxville, Tennessee, at the time that he

filed his petition.

      Petitioner was employed as a computer software consultant

by Metamor Enterprise Solutions, Inc. (Metamor), until his

position was eliminated and he was discharged on March 30, 2001.

While working for Metamor, petitioner traveled from his home to

temporary client sites to make sales presentations to businesses

regarding computer software, prepare proposals for implementation

of the software for the business, and, if it was purchased,

implement the computer software.    At times, petitioner’s job with
                               - 3 -

Metamor entailed traveling long distances to these client sites.

All travel or other expenses were subject to approval by Metamor.

In the letter discharging petitioner, Metamor informed him that

he would be reimbursed for any outstanding salary and vacation

pay that had accrued, as well as any reasonable business expenses

incurred on behalf of the company prior to his last day of

employment.   Additionally, petitioner was informed that his

medical benefits would continue until March 31, 2001.   While at

Metamor in 2001, petitioner received $32,483.41 in wages. Income

and payroll taxes were withheld from these wages.

     Between August and October 2001, petitioner worked as a

temporary employee, paid at an hourly rate of $16.50, for Robert

Half International, Inc. (Robert Half).   Robert Half provided

temporary employees to companies.   Robert Half would contact

petitioner to inform him of a client with a project that would

require someone with computer skills to complete.   Those projects

tended to be making presentations and implementing software.

Once the project was completed, petitioner was available for a

different project through Robert Half.    Petitioner was required

to have his time sheet signed by the client and sent to Robert

Half each week for payment.   While working for Robert Half in

2001, petitioner earned $4,760.25 in wages.   Income and payroll

taxes were withheld from these wages.
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     Because of the frequency of his travels during employment,

petitioner leased a Cadillac Escalade (SUV) on September 30,

2000, for $654.94 a month for 36 months.    Between September 30,

2000, and March 30, 2001, petitioner paid $580.30 for insurance

on the SUV.   While unemployed from March 31 through August 2001,

petitioner continued to make lease payments on the SUV, and,

between March 30 and September 30, 2001, petitioner paid $611.75

for insurance on the SUV.

     On or about August 2, 2001, petitioner requested a

distribution of $3,000 from his IRA funds with the Oppenheimer

Trust Co. (Oppenheimer).    On or about November 30, 2001,

petitioner requested an additional distribution of $1,000.

Oppenheimer issued Forms 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc., to petitioner showing distributions in 2001

totaling $4,000.   Petitioner was 47 years old at the time of the

distributions.

     Petitioner purchased a house in Alexandria, Virginia, in

1999 and refinanced it in 2001.

     Petitioner received interest of $17 from the Virginia

Department of Taxation in 2001.

     Petitioner electronically filed a Form 1040, U.S. Individual

Income Tax Return, for 2001 reporting his status as married

filing separately.   On Schedule C, Profit or Loss From Business,
                               - 5 -

attached to his tax return, petitioner claimed to be a statutory

employee and reported income of $37,243 and expenses of $32,638

for a profit of $4,605.   On his return, petitioner included the

$4,000 distribution of IRA funds, but he did not include the

10-percent additional tax on the early distribution.   Petitioner

also included unemployment compensation of $2,208 and deductions,

as claimed on Schedule A, Itemized Deductions, of $19,929.    He

did not report any interest income or State tax refunds on his

return.

     The Forms W-2, Wage and Tax Statement, issued by Metamor and

Robert Half did not have the “Statutory employee” box checked.

However, petitioner claimed to be a statutory employee when

completing Form W-2 information for his electronically filed

Form 1040 for 2001.

     The Internal Revenue Service (IRS) sent a statutory notice

of deficiency to petitioner on June 1, 2004.   In the notice, the

IRS disallowed petitioner’s claim to be a statutory employee and

transferred his wage income from the Schedule C to Form 1040 and

disallowed the expenses claimed against that income.   The notice

explained:

     Since your employer did not indicate on Form W-2 that
     you were a statutory employee, we disallowed the
     expenses you claimed against that income on Schedule C
     or Schedule C-EZ. If you are not a statutory employee,
     you must include the income as wages on your tax
     return.
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     Additionally, the notice applied a 10-percent additional tax

of $400 to petitioner’s distribution from his IRA funds, because,

according to the notice of deficiency, he did not roll over the

distribution into another qualified retirement plan, he was not

disabled, or he was not at least 59-1/2 years old at the time of

the distribution.     The notice also added the $17 of interest

received from the Commonwealth of Virginia to petitioner’s

income.

                                OPINION

Statutory Employee

     Statutory employees may report their compensation, less

related expenses, as business income on Schedule C and thus may

avoid limitations on deduction of employee business expenses and

other itemized deductions reportable on Schedule A of individual

income tax returns.    See Prouty v. Commissioner, T.C. Memo. 2002-

175; Hathaway v. Commissioner, T.C. Memo. 1996-389.     An

individual is a statutory employee under section 3121(d)(3) only

if such individual is not a common law employee under section

3121(d)(2).   Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263,

269 (2001).   Whether an individual is a common law employee under

section 3121(d)(2) is a question of fact.    See Nationwide Mut.

Ins. Co. v. Darden, 503 U.S. 318, 322-324 (1992); Profl. &

Executive Leasing, Inc. v. Commissioner, 89 T.C. 225, 232 (1987),
                               - 7 -

affd. 862 F.2d 751 (9th Cir. 1988); Simpson v. Commissioner, 64

T.C. 974, 984 (1975).   Section 3121(d) provides:

          SEC. 3121(d). Employee.–-For purposes of this
     chapter, the term "employee" means--

               (1) any officer of a corporation; or

               (2) any individual who, under the usual
          common law rules applicable in determining the
          employer-employee relationship, has the status of
          an employee; or

               (3) any individual (other than an individual
          who is an employee under paragraph (1) or (2)) who
          performs services for remuneration for any
          person--

           *      *       *      *      *      *      *

                    (D) as a traveling or city salesman,
               other than as an agent-driver or commission-
               driver, engaged upon a full-time basis in the
               solicitation on behalf of, and the
               transmission to, his principal (except for
               side-line sales activities on behalf of some
               other person) of orders from wholesalers,
               retailers, contractors, or operators of
               hotels, restaurants, or other similar
               establishments for merchandise for resale or
               supplies for use in their business
               operations;

          if the contract of service contemplates that
          substantially all of such services are to be
          performed personally by such individual; except
          that an individual shall not be included in the
          term "employee" under the provisions of this
          paragraph if such individual has a substantial
          investment in facilities used in connection with
          the performance of such services (other than in
          facilities for transportation) * * *

     Petitioner argues that he is a statutory employee under the

definition in section 3121.   He summarized in his testimony that
                                 - 8 -

he “was actually selling * * * computer software, and it was used

for the operation of the businesses” to which he was making the

sales presentation.    Petitioner’s employment does not fit the

specific categories of exceptions listed in section

3121(d)(3)(D).     The evidence shows that petitioner was a common

law employee under section 3121(d)(2).

     Some of the relevant factors used to decide whether an

individual is a common law employee are:    (1) The degree of

control exercised by the principal over the details of the

individual’s work, (2) the individual's investment in facilities,

(3) the individual's opportunity for profit or loss,

(4) permanency of the relationship between the parties, (5) the

principal's right of discharge, (6) whether the work performed is

an integral part of the principal's business, (7) what

relationship the parties believe they are creating, and (8) the

provision of employee benefits.    See Nationwide Mut. Ins. Co. v.

Darden, supra at 323-324; NLRB v. United Ins. Co. of Am., 390

U.S. 254, 258 (1968); Simpson v. Commissioner, supra at 984-985;

Hathaway v. Commissioner, supra; see also sec. 31.3121(d)-

1(c)(2), Employment Tax Regs.    No one factor is determinative.

Instead, all of the facts and circumstances of the relationship

must be weighed.     Nationwide Mut. Ins. Co. v. Darden, supra at

324; NLRB v. United Ins. Co. of Am., supra at 258; Ewens &

Miller, Inc. v. Commissioner, supra at 270; Hathaway v.
                                - 9 -

Commissioner, supra.   The factors should not be weighted equally

but should be weighted according to their significance in the

particular case.   See Del Monico v. Commissioner, T.C. Memo.

2004-92.

     The degree of control exercised by the principal over the

details of the individual’s work is one of the most important

factors in determining whether a common law employment

relationship exists.   Clackamas Gastroenterology Associates, P.C.

v. Wells, 538 U.S. 440, 448 (2003); Leavell v. Commissioner, 104

T.C. 140, 149 (1995); see also Hathaway v. Commissioner, supra.

All that is necessary is that the principal have the right to

control the details of the individual’s work.    Ewens & Miller,

Inc. v. Commissioner, supra.

     Petitioner, while working for Metamor and Robert Half, was

directed to the clients, was told where he needed to go, and was

told what needed to be done.    Petitioner was not allowed to

travel to clients’ sites or incur any expenses without Metamor’s

permission.   While at Robert Half, petitioner was required to

turn in time sheets signed by the client stating that the work

had been done satisfactorily.    Metamor and Robert Half both had

the right to and did exercise a considerable degree of control

over the details of petitioner’s work.

     Though petitioner testified that he worked from home, he has

not presented any evidence that he made any expenditures to
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establish a home office qualifying under section 280A or any

other investment in business facilities.    See Lewis v.

Commissioner, T.C. Memo. 1993-635.

     While working for Metamor, petitioner received a salary and

was reimbursed for his traveling and for approved expenses.

Robert Half paid petitioner an hourly rate that never changed in

the time that he was there.    The evidence shows no potential for

risk of loss or opportunity for profit to petitioner.

     Petitioner’s position at Metamor was terminable at will, and

he was, in fact, discharged.    Petitioner’s position at Robert

Half was temporary.    There was no permanency of either

relationship.

     Petitioner was a connection between the principal and the

client at both Metamor and Robert Half.    The work performed by

petitioner was within the scope of the principal’s business.

Metamor was in the business of computer software, and petitioner

made the sales presentations and proposals to implement the

software.   Robert Half was in the business of providing temporary

employees to businesses, and petitioner was a temporary employee

for computer businesses while at Robert Half.    Therefore,

petitioner was an integral part of each of the businesses.

     It is apparent that petitioner’s employers considered him a

common law employee.    The statutory employee box on the Forms W-2

provided by Metamor and by Robert Half was not checked.
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Additionally, Metamor and Robert Half withheld income tax and

applicable payroll taxes and did not issue Forms 1099 to

petitioner.

     Metamor’s letter terminating petitioner referred to vacation

and medical benefits and right to reimbursement for approved

expenses.

     None of the relevant factors discussed above supports

petitioner’s position.    Considering all of the facts and

circumstances, we conclude that petitioner was a common law

employee of both Metamor and Robert Half under section 3121(d)(2)

and was not a statutory employee under section 3121(d)(3).      See

Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263 (2001).

Therefore, petitioner is not entitled to report his income and

expenses on Schedule C.

Additional Expenses

     A common law employee may report business expenses on

Schedule A, subject to the limitations under section 67.     See

Lickiss v. Commissioner, T.C. Memo. 1994-103.    An individual

performing services as an employee may deduct expenses incurred

in the performance of those services as miscellaneous itemized

deductions on Schedule A only to the extent such expenses exceed

2 percent of the individual's adjusted gross income.    Secs.

63(a), (d), 67(a) and (b).
                               - 12 -

     The burden of showing a right to a claimed deduction rests

with the taxpayer.    INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); see also Banker v. Commissioner, T.C. Memo. 1999-351.

The taxpayer must establish that the expenses deducted are

ordinary and necessary and must maintain records sufficient to

substantiate the amounts of the deductions claimed.      Sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.      If the taxpayer does not

retain the required records, the burden of proof does not shift

to respondent.    Sec. 7491(a)(2)(A) and (B).

     Petitioner claimed deductions for advertising expenses, bad

debt expenses, car and truck expenses, mortgage interest, repairs

and maintenance expenses, and supplies expenses on his Schedule C

in 2001.    Petitioner provided no substantiation for any

advertising, bad debt, repairs and maintenance, or supplies

expenses.    Therefore, petitioner is not allowed to deduct any of

these claimed expenses on his Schedule A for 2001.

     Petitioner deducted mortgage interest of $14,803 on his

Schedule A for 2001 and an additional amount on Schedule C.

Respondent received information returns for petitioner showing

total mortgage interest paid of $14,802 and allowed that amount

on petitioner’s Schedule A.    Petitioner did not provide any

evidence showing that the deductible amount should be greater

than that allowed by respondent.
                              - 13 -

     Petitioner claimed expenses of $9,252 for his SUV.    Because

passenger automobiles are listed property under section

280F(d)(4)(A)(i), a deduction for automobile expenses requires

additional substantiation.   Sec. 274(d).   A taxpayer must

substantiate by adequate records or by sufficient evidence

corroborating the taxpayer’s own statement the amount of such

expense, the time and place of travel, and the business purpose

of the expense.   Id.; see also sec. 1.274-5T(b)(6), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     Though petitioner provided substantiation of his monthly

lease and insurance payments due on the SUV, he did not

substantiate the business use of the SUV.    Petitioner takes the

improbable position that all of his use of the vehicle was

business.   He did not provide substantiation of times or dates of

business use or mileage on the SUV for business use.    Because of

his failure to provide any records of use, petitioner may not

deduct the vehicle expenses in 2001.

10-Percent Additional Tax

     Section 72(t) provides for a 10-percent additional tax on

early distributions from a qualified retirement plan for the

taxable year in which such amount is received.    Petitioner does

not dispute that he received an early distribution from a

qualified retirement plan in 2001.
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     The 10-percent additional tax, however, does not apply to

certain distributions.    Section 72(t)(2) sets forth specific

exceptions.   Those exceptions include, but are not limited to,

distributions made on or after the date on which the employee

attains age 59-1/2; distributions made to the employee to the

extent such distributions do not exceed amounts paid for medical

care; distributions to unemployed individuals for health

insurance premiums; and distributions from certain plans for

first home purchases.    Sec. 72(t)(2)(A)(i), 72(t)(2)(A)(v),

72(t)(2)(B), 72(t)(2)(D), 72(t)(2)(F).

     Petitioner seeks relief from the 10-percent additional tax

on his IRA distribution based on hardship, medical expenses,

payment of health insurance premiums, and a first home purchase.

There is no exception under section 72(t) for financial hardship.

See Arnold v. Commissioner, 111 T.C. 250, 255 (1998); Gallagher

v. Commissioner, T.C. Memo. 2001-34; Deal v. Commissioner, T.C.

Memo. 1999-352.

     Petitioner argues that he falls within the exception for

distributions made for medical expenses under section 72(t)(2)(B)

because he was responsible for the health expenses of his minor

dependent and spouse during his period of unemployment.    No

medical expenses were claimed on petitioner’s Form 1040, and he

did not file jointly with his spouse.    Petitioner testified that,

though there were medical and dental expenses, he could not “lay
                               - 15 -

hands on those records”.    Because petitioner did not produce any

records or other evidence showing medical expenses incurred in

2001 for himself or his dependent, he has not shown that the

exception applies.

     Petitioner argues that he falls within the exception for

distributions made to unemployed individuals for health insurance

premiums under section 72(t)(2)(D) because he was unemployed for

12 weeks during 2001 and “solicited for individual health

insurance and was quoted health insurance premium [sic] over

* * * $400.00 per month for a family plan to include his spouse

and minor dependent child.”    However, petitioner has not produced

any evidence showing that he paid health insurance premiums

during that time.    Therefore, this exception does not apply to

petitioner.

     Finally, petitioner argues that he falls within the

exception for distributions made for qualified first-time home

buyers under section 72(t)(2)(F).    “Qualified first-time

homebuyer distribution” is any payment received by an individual

to the extent that the distribution is used by the individual

within 120 days to pay qualified acquisition costs with respect

to a principal residence of a first-time home buyer.    Sec.

72(t)(8)(A).   Qualified acquisition costs are costs of acquiring,

constructing, or reconstructing a residence.    Sec. 72(t)(8)(C).

A first-time home buyer is an individual who had no present
                               - 16 -

ownership interest in a principal residence during the 2-year

period ending on the date of acquisition of the principal

residence.    Sec. 72(t)(8)(D)(i).   The date of acquisition is the

date into which a binding contract was entered or when

construction or reconstruction of such a residence was commenced.

Sec. 72(t)(8)(D)(iii).

     Petitioner purchased his home in 1999 and refinanced it in

2001.   Petitioner had a present ownership interest in his home

during the 2-year period prior to 2001.    Petitioner did not

acquire, construct, or reconstruct a home in 2001.    Therefore,

this exception does not apply to petitioner.

     Thus, the IRA distribution received by petitioner is subject

to the 10-percent additional tax under section 72(t).

Interest Income

     Gross income means all income from whatever source derived.

Sec. 61(a).    Under section 61(a)(4), interest is includable in

gross income.

     Petitioner does not dispute that he received $17 of interest

income in 2001.    Petitioner did not report any amounts received

from the Virginia Department of Taxation on his 2001 Federal

income tax return and, therefore, is liable for the deficiency

caused by his failure to report the interest.
                        - 17 -

To reflect the foregoing,


                                  Decision will be entered

                             under Rule 155.
