Joseph M. Grey Pub v. Commissioner IRS , 93 F. App'x 473 ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
4-7-2004
Joseph M. Grey Pub v. Commissioner IRS
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-4417
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NOT PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 02-4417, 03-2756 and 03-2757
JOSEPH M. GREY PUBLIC ACCOUNTANT, P.C.,
Appellant in No. 02-4417
v.
COMMISSIONER OF INTERNAL REVENUE
WATER PURE SYSTEMS, INC.,
Appellant in No. 03-2756
v.
COMMISSIONER OF INTERNAL REVENUE
MIKE J. GRAHAM TRUCKING, INC.,
Appellant in No. 03-2757
v.
COMMISSIONER OF INTERNAL REVENUE
______________
On Appeal from the United States Tax Court
No. 02-4417
Tax Judge: The Honorable James S. Halpern
(Tax Ct. No. 00-4789)
No. 03-2756
Tax Judge: The Honorable Mary Ann Cohen
(Tax Ct. No. 01-11344)
No. 03-2757
Tax Judge: The Honorable Mary Ann Cohen
(Tax Ct. No. 00-4799)
________________________________
Submitted under Third Circuit LAR 34.1
March 23, 2004
Before: FUENTES, SMITH and GIBSON,* Circuit Judges
(Filed: April 7, 2004)
_________________
OPINION OF THE COURT
_________________
SMITH, Circuit Judge.
The Internal Revenue Service (“IRS”) classified an officer and shareholder of each
of the appellant corporate taxpayers as an employee for purposes of federal employment
taxes. The Notice of Determination sent to each of the taxpayers and advising of them of
this classification also indicated that the taxpayer was not entitled to relief under Section
530 of the Revenue Act of 1978.1 As a result, each of the corporate taxpayers was
assessed employment taxes for its respective employee under the Federal Insurance
Contributions Act (“FICA”), 26 U.S.C. §§ 3101-3128, and the Federal Unemployment
*
Honorable John R. Gibson, Senior Circuit Judge for the United States Court of
Appeals for the Eighth Circuit, sitting by designation.
1
See Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. 2763 (amended by Act of Dec.
29, 1979, Pub. L. No. 96-167, 93 Stat. 1275; Act of Dec. 17, 1980, Pub. L. No. 96-541,
94 Stat. 3204; Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96
Stat. 324; Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085; and Small
Business Job Protection Act of 1996, Pub. L. No. 104-188, 110 Stat. 1755) (hereinafter
cited as “Section 530").
2
Tax Act (“FUTA”), 26 U.S.C. §§ 3301-3311.
Taxpayer Joseph M. Grey Public Accountant, P.C. (“JMG”) received a Notice of
Determination in February 2000 advising that the IRS had classified Mr. Grey as JMG’s
employee. JMG, a subchapter S corporation, operated as a public accounting,
bookkeeping and tax return preparation business. M r. Grey was JM G’s president and sole
shareholder. During the tax years at issue, Mr. Grey solicited the corporation’s business,
transacted its affairs, handled the financial aspects of the operation and “performed all
accounting, bookkeeping and tax preparation services.” JMG did not make any regular
payments to Mr. Grey for the services he rendered during the tax years at issue. Instead,
Mr. Grey received money from JM G’s bank account as his needs arose. Those payments
were reported on Mr. Grey’s federal return as non-passive income.
Taxpayer Mike J. Graham Trucking, Inc. (“MJG”) also received a Notice of
Determination issued in February 2000. The classification pertained to Mr. Graham,
MJG’s majority shareholder and president. MJG was also a subchapter S corporation,
operating as a trucking company. M r. Graham solicited business for the company,
handled its business transactions, managed its finances and performed the driving services
rendered by the company. MJG did not provide Mr. Graham with a salary or wages
during the tax years in dispute. Rather, Mr. Graham distributed money to himself from
MJG’s bank account as his needs arose, or he paid certain personal expenses which he or
his family incurred from the business account. Mr. Graham reported the payments as
3
non-passive income on the K-1 Schedule of his federal return.
Water Pure Systems, Inc. received a Notice of Determination dated June 8, 2001,
classifying Martin Ridge as Water Pure’s employee for federal employment tax purposes.
Water Pure, a subchapter S corporation, “provided sales and service of water filtration
and purification systems.” Mr. and Mrs. Ridge each owned 50% of Water Pure’s shares
and M r. Ridge was Water Pure’s president and sole officer. Mr. Ridge was the only
person performing any services for Water Pure. Water Pure did not distribute any
dividends to any shareholder during the tax years at issue. Nor did Mr. Ridge receive
regular payments from Water Pure. Instead, he received money from the corporation as
his needs arose and those payments were reported as non-passive income on his Schedule
K-1 of his federal tax return.
Taxpayers JMG, Water Pure and MJG challenged both the worker classifications
and the determination that they were not entitled to relief under Section 530. The Tax
Court concluded that the classifications were appropriate and that relief was not available
under Section 530's safe harbor provision. These appeals followed. 2
Each of the taxpayers contend that the Tax Court erred because the taxpayer
neither controlled nor employed the worker who was classified as an employee. Rather,
they contend that the remuneration each worker received was attributable to his status as
2
We exercise jurisdiction pursuant to 26 U.S.C. § 7482(a). We give “plenary review of
the Tax Court’s findings of law, including its construction and application of the Internal
Revenue Code.” PNC Bancorp, Inc. v. Comm’r, 212 F.3d 822, 827 (3d Cir. 2000).
4
an officer and shareholder of his respective corporation. They urge this Court to
disregard the statutory definitions of “employee” in the Internal Revenue Code and in the
Treasury regulations, and to apply the usual common law rules for determining whether
an individual is an employee. Alternatively, the taxpayers argue that they had a
reasonable basis for not treating each worker as an employee and are entitled to relief
from the assessment of the FICA and FUTA taxes under Section 530.3
We have recently addressed and rejected in Nu-Look Design, Inc. v.
Commissioner, 356 F.3d 290 (3d Cir. 2004), a similar challenge to the Tax Court’s
determination that the IRS’s classification of a corporate officer and shareholder as an
employee was appropriate and that the taxpayer was liable under the FICA and the
FUTA. After careful review of each record, we are unable to distinguish any of these
appeals from Nu-Look Design. Accordingly, Nu-Look Design controls and we will
affirm the decisions of the Tax Court.
______________________________________
3
The taxpayers also argue that the IRS erred by classifying the workers as employees
because it failed to consider 26 U.S.C. § 3121(d)(3). This argument was not raised before
the Tax Court and we will not consider it for the first time on appeal. Harris v. City of
Philadelphia, 35 F.3d 840, 845 (3d Cir. 1994).