Donald G. Cave A Professional Law Corp., Petitioner

CLC T.C. Memo. 2011-48 UNITED STATES TAX COURT DONALD G. CAVE A PROFESSIONAL LAW CORP. , Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Doaket No. 2717-08.

Filed February 28, 2011.

Jerry F. Pepper, for petitioner.

Donna Mayfield Palmer, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge:

This case is before the Court on a petition for redetermination of employment status filed pursuant to section 7436.1 In a notice of determination of wòrker Unless otherwise indicated all section references are to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. All (continued. .

.

) SERVED Feb 28 2011 classification (notice of determination) issued to petitioner, respondent determined that Donald G. Cave (Donald Cave), Michael L. Cave (Michael Caië), David LaHaye (Mr. LaHäye), Michael Matthews (Mr. Matthëws), and Renee Coopet Willis (Ms. Willis) were petitioner's employees för all taxable periods of calendar years 2003 and 2004 and that petitioner was not entitled to relief under the Revenue Act of 1978, Pub. L. 95-600, sec. 530,

Tax Quarter/Year Amount Sec. 6656 Penalty FICA, withholding FÍCA, withholding FICA, withholding FICA, withholding FUTA FICA, withholding FICA, withholding FICA, withholding FICA, withholding FUTA 3/31/2003 6/30/2003 9 /30 /20 03 12/31/2003 2003 3/31/2004 6/30/2004 9/30/2ØØ4 12/31/2004 2004 $13,774 15,085 12, 527 11,727 2,170 16,523 19,416 37,158 17,784 2,170 $952 1,015 1, 061 1,022 1,473 1,557 1,521 1,247 The issues for decision are:

(1) Whether petitioner is a proper party before this Court; (2) whether Donald Cave, Miahael (...continued) monetary figures have been rounded tò the nearest dollar.

2For convenience, we use the term "esployment refer to taxes under the Federal (FICA), secs. 3101-3128, and the Federal Úhemployment Tax Act (FUTA), secs. 3301-3311, and Federal secs. 3401-3406.

indose tax withholding, taxes" to Insurance Contribution Act Cave, Mr. LaHaye, Mr. Matthews, and Ms. Willis were petitioner's employees for employment tax purposes in 2003 and 2004; (3) whether petitioner is entitled to act section '530 relief; and (4) whether petitioner is liable for the failure to deposit penalty under section 6656.

I.

Backqtound

FINDINGS OF FACT

Some of the facts have been stipulated.

We incorporate the stipulated facts into our findings by this reference.

On the date the petition was filed, petitioner was a Louisiana corporation with a principai place of business in Baton Rouge, Louisiana.

On March 5, 2009, after the filing of the petition, petitioner was dissolved under Louisiana law, and petitioner's assets were transferred to Cave Law Firm, L.L.C., which continued petitioner's business.

Petitioner was incorporated on February 18, 1993, as a Louisiana professional iaw corporation. Petitioner's business consisted primarily of representing individuals injured in accidents.

Fees generated from the próŸision of legal services were petitioner's only source of income in 2003 and 2004.3 Ali attorney's fees and reimbursements of case expenses were paid directly to petitioner, which then paid a portion of the gross 3Although petitioner handled most cases on a contingency basis, Ms. Willis handled some family law matters on an hourly basis in 2003 and 2004.

fee (generälly one-half or one-third) tò the attorney who handled the case.

Petitioner was an S corporation for Federal income tax purposes in 2003-and 2004. At all relevant times, Dònald Cave was petitioner's president and sole sharehölder.

II. Donald Cave Donald-Cave has beeh lidensed to practice law in the state of Louisiana since May 15, 1969, and he maintained an active trial practice with petitioner in 2003 and 2004.

In addition, Donald Cave performed the following services for petitioner in 2003 and 2004:

(1) He selected the associate attorneys who would work for petitioner; (2) he hired law clerks to provide legal services to petitioner; (3) he hired petitioner's support staff, which in 2003 and 2004 included an investigator, a receptionist, and several secretaries; (4) he set the suppòrt staff members' hours; , (5) he determined whether petitioner's workers would receive bonuses and in what amounts; (6) he approved petitioner's payroll; and (7) he decided whether to make advance payments or reimburse petitioner's workets foi àase-reläted and wörk-related expenses.

In addition, Donald Cave owned the professional office building in which petitioner's principal place of business was located änd arranged for petitioner to lease space in the building.

In 2003 and 2004 petitioner's attorneys and support staff occupied only 1 of the 12 offiae suites in the building, and Donald Cave, as lessor, leased or held out for lease the remaining office suites.

e Petitioner maintained several client trust accounts, operating accounts, and banking lines of credit in 2003 and 2004.

Case recoveries generally werë deposited into the client trust accounts, Which were under the control of Donald Cave.

In addition, Donald Cave was one of only two authorized signatories on petitioner's checking accounts and was the only attorney permitted to access any.of petitióner's banking lines of credit in 2003 and 2004.

Donald Cave delegated some of petitioner's day-to-day responsibilities to petitioner's office manager, Elizabeth Wells (Ms. Wells).

In 2003 and 2004 Ms. Wells' responsibilities included preparing petitioner's payroll, drafting and signing - workers' checks, maintaining petitioner's books and records, monitoring petitioner's bank balanoës, interviewing potential employees,' and approving advance payment and reimbursement requests for less than $100.

Donald Cave received a portion of the fees generated in cases he handled in 2003 and 2004.

" He also received draws from petitioner of $48,000 in 2003 and $360,000 in 2004.

III. The Associate Attorneys Donald

Cave considered petitioner an s'attornëy incubator" because he generally hired recent läw school graduates with little prior professional experience.

In 2003 and 2004 the following attorneys (in addition to Doñald Cave) worked for petitioner: Michael Cave, Mr. LaHaye, and Ms. Willis.

For convenience, we will refer to Michael Cave, thr. LaHaye, and Ms.

Willis collectively as the associate attorneys. Michael Cave is the son of Donald Cave. Mr. LaHaye and Ms. Wiliis are not related to Donald Cave.

Each of the associate attorneys joined petitioner as a law clerk before graduating from law school and continued to work for petitioner as an attorney after graduating from law school and passing the Louisiana-bar exam.⁴ Petitioner treated the associate attorneys as employees for employment tax purposes during their tenures as law clerks.

4Ms. Willis, admitted to the Louisiana bar on Oct. 8, 1993, worked for petitioner as an associate attorney from that date through 2005. Mr. LaHaye, admitted to the Louisiana bar on Oct. 18, 2002, Worked for petitioner as an associate attorney from that date through 2005. Michael Cave, admitted to the Louisiana bar on Apr. 23, 1999, worked fór petitioner as an associate attorney until Cave Law Firm, L . L . C .

its dissolution, whereupon he began working for Petitioner did not require the associate attorneys to work from petitioner's principal office, to work set hours, or to account for their time 5 Petitione did not reQuire the associate attorneys to sign written contracts of employment or association, nor did it require thë attorneys to sign noncompetition agreements.

The record contains no evidence, however, that any of the associate attorneys either offered services to or performed servicës for other law firms while they worked for petitioner, nor is there any evidence- in the record that the associate attarneys offered their services to the public other than as representatives ofipetitioner.

None of the associate attorneys had any clients or cases when they joined petitioner as attorneys, and Donald Cave referred cases to them to help them develop their practices.

The associate attorneys also occasionally-worked on cases Donald Cave was personally handling. Donald Cave expected the associate attorneys to generate new business for petitioner, and he provided an incentive for them to do sò.

In 2003 and 2004 the associate attorneys received one-half of the gross fees collected in cases they generated but only one-third of the gross fees collected in cases referred to them by or on behalf of petitioner.

The associate attorneys did notI receive any other sIndeed, following the birth of her child in July 2003 Ms.

Willis worked part tide from home for the rëst of 2003 and throughout 2004.

compensation from petitioner in 2003 or 2004.

The balance of the fee remaining after payment of the associate attorney's share went to petitionér and was used to pay firm expenses, including support staff salaries, telephone bills, and computer and software expenses, and distributions to Donald Cave.

When a new associate attorney joined petitioner, Donald Cave recommended (but did not require) that the new attorney attend seminars in maritime law and trial practice, suggested articles for the new attorney to.read, and asked the new attorney to attend one or two of his trials. Petitioner did not review pleadings or correspondence prepared by the associate attorneys in cases they generated but did review pleadings -and correspondence prepared by the attorneys in cases referred to them. Petitioner generally did not reQuire the associate attorneys to give oral or written status updates regarding their cases but did require oral status updates in cases that were independently generated by one of the associate attorneys and in which petitioner had made an advance payment of case expenses.'

'Although Ms. Willis testified that neither petitioner nor Donald Cave reviewed any of the pleadings or correspondence she prepared in 2003 and 2004 or requirëd oral status updâtes in any the cases she handled, her testimony is not necessarily of inconsistent with the parties' stipulátion that petitioner reviewed pleadings and correspondence and required oral status Indeed, Donald Cave testified updates in at that by 2003 and 2004 Ms. Willis had developed her own clients and that the matters she handled rarely, if ever, advances.

least some cases.

required Petitioner paid each of the tassociate attorneys a stipend during the attóraëy's first few months on the job but discontinued the stipend once the attorney's äases began.generating fees.

Petitioner did not require the assóciate attorneys to accept or reject párticular cases or kinds of cases, and at least one of the associate attorneys, Michael Cave, rejected some of the cases that Donald Cave referred to him. However, Donald Cave còuld not recall either'of- the other associate attorneys ever rejecting a case he referred to him or her.

Petitioner provided the associate attorneys with the following:

(1) Professional office space (including office furniture', utilities, janitorial services, and security monitoring); (2) secretarial services; (3) letterhead and professional business cards identifying the associate attorneys-as petitioner's attorneys; (4) computers, printers, telephones, copy machines, fax machines, and other office equipment and supplies; (5) access to petitioner's law library, Internet service, and computer server; (6) premisës liability insurance coverage; and (7) advances for certain case expenses.

To receive advances for case expenses, the associate attorneys were required to make written requests.' As'noted above, requests for less than $100 could be approved by Ms. Wells, but requests.

for more- than $iOO rëquired Donald Cave'á authorization.

Petitioner recovered the advances when it receivëd a recovery in the case.

If a case did not result in a recovery, petitioner absorbed, the loss.

Petitioner also paid or reimbursed the associate attorneys for other wòrk-related eXþenses in 2003 and 2004, including mandatory Louisiana State Bar Association dues and disciplinary assessments, the cost of 12.5 hours per year of continuing legal education (CLE), and gasoline expenses.⁷ Petitioner also paid Michael Cave's and Mr. LaHaye's automobile expenses in 2003 and 2004, including·automobile payments, insurance premiums, and repairs. Dona-ld Cave- decided on a case-by-case basis whether to pay an associate attorney's autömobiler expenses.

Petitioner did not maintain firewide malpractice insurance in 2003 and 2004 and did not pay or offer to pay the associate attorneys' malpractice insurance premiums.- Petitioner did not offer the associate attorneys hëalth or medical insurance, paid vacation or sick leave, retirement contributions, student loan repayment assistance, òr child care allowances.

I 7Petitioner paid the assòàiate áttorneys' gasoline expenses by issuing them credit aards that they coula use to purchase gasoline. also use the credit cards to pay other work-related expenses.

It is not clëar whëther thë associate attorneys dóuld IV. Mr. Matthews In January 1999 Donald Cave hited Mr..Mattheus to provide legal services to petitioner as a law clerk. Mr. Matthews was hired on a nonexclusive basis, meaning he was permitted to work for other attorneys who were not associated with petitioner. Mr.

Matthews also was allowed to pursue other business interests, which included serving as a motoräycle safety training instructor and as a consultant in litigation involving motorcycle äacidents.

but. Matthews'' work for petitioner in 2003 and 2004 consisted primarily of doing legal research and preparing pleadings and briefs for Donald Cave. Mr. Matthews also worked on occasion for the associateiattorneys.

Mr. Matthews was paid a 'set amount--generally -$1,250 every other week.

He also received bonuses-from petitioner totaling $4,000 in 2003.

Mr. Matthews generally performed his wórk either at his home or at petitioner's office." Petitioner provided Mr. Matthews with most of the säme amenities it provided to the associate attorneys, including a shared office, office equipment and supplies,.Internet access, and access to petitioner's law library in 2003 and 2004. Petitioner also reimbursed Mr. Matthews for some of the expenses incurred in his work. Petitioner did not provide Mr. Matthews with secretarial services, letterhead, or business cards and did not offer him health insurance, retirement contributions, or other benefits.

Mr. Matthews continued to work for-petitioner until its dissolution.

As of the trial date, Mr. Matthews did occasional work for Cave Law Firm, L.L.C., but did not use or have access to an office at the fire.

V.

Petitioner's Tax Returns Petitioner filed Forms 1120S, U.S.

Income Täx Return for an S Corporátion, for 2003 and 2004; Forms 941, Émployer's Quarterly Federal Tax Return, for all quarters of 2003 and 2004; and Forms 940-EZ, Employer.'s Annual Federal Unemployment (FUTA) Tax Return, for 2003 and 2004. Petitioner did not treat Donald Cave, the associate attorneys, or Mr. Matthews as employees for employment tax purposes on its 2003 and 2004 Federal tax fi'lings.

Petitioner issued Forms 1099-MISC, Miscellaneous Income, to the associate attorneys and to Mr. Matthews for 2003 and 2004.

Petitioner did not issue a Form W-2, Wage and Tax Statement, or a Form 1099-MISC to.Donald Cave for 2003 or 2004.

Donald Cave believed it was appropriate for petitioner to treat the associate attorneys and Mr. Matthews as independent .

contractors because he did not haie sufficient control over their work."

The record does not disalose, however, the basis on which "Donald Cave testified thät his treätment of attorneys was affected by a prior audit the aesociate in the early 1970s of a (continued...)

Donald Cave determined it was appropriate for petitioner to treat the associate áttorneys, Mr. Natthews, and himself as independent contractors.

Richard Roberts (Mr. Roberts), the certified public accountant who assist~ed; in the preparation of petitioner's 2004 Form 1120S, reviewed petitioner's books and records and had discussions with Donald dåve before preparing the return. Mr.

Roberts agreed with Donald Cave that pet'itioner's attorneys and law clerks should be classified as independent contractors for employment tax purposes but did not investigate the facts or do any research to verify Mr. Cave's position.

OPINION

I.

Proper Party As an initial matter, we must determine whether petitioner, which was dissolved under= Louisiana law after the filing of the petition, is a proper party before the Tai Court.

The capacity of a corporation to engage in litigation in the Tax Court shall be determined by the law under which the corporation was organïzed. Rule 60(c); see also Bloomington Tfansmiasion Servs., Inc. v. Commissioner, 87 T.C. 586, 589 (1986). Petitioñèr was a Louisiana corporation before its dissolution. Accordingly, "(...continued) law firm with which he was then affiliated. However, does not contain any details with respect including whether worker classification for employment tax purposes was even an issue in the prior audit.

to the prior audit, the record Louisiana law governs petitioner's right to prosecute an action in this Cdurt.

Louisiana law provides:

"Upon issuance of the certificate of dissolution, the corporate existence shall cease as of the effective date stated in the certificate, except for the soie purpose of any action or suit commenced theretofore by, or commenced timely against, the corporation."

La. Rev. Stat. Ann.

sec. 12:148(C) (2010); see also Grubbs v. Gulf Intl. Marine, Inc., 13 F.3d :168, 172 (5th Cir. 1994).

In Mayfair Sales,.Inc.

v. Sams, 339 So. 2d 1277, 1279 (La. Ct. App. 1976), the court of appeal of Louisiana explained:

The purpose of * * * [La. Rev. Stat. Ann. sec.

12:148(C)] is to allow for the extension of corporate existence to finalize litigation previòusly-commenced by or against the corporation. Without this statute, unresolved claims by or against a corporate,entity asserted prior to dissolution would abate upon the corporation. dissolution of [Citation omitted.]

Petitioner commënced an action in this Court by filing a petition. Although petitioner was subsequently dissolved under Louisiana law, petitioner is entitled under Louisiana law to prosecute this action.

See La. Rev. Stat. Ann. Sec. 12:148(C); Grubbs.v. Gulf Intl. Marine, Inc., supra. Consequently, petitioner is a proper party before the Court.

II. Employees.v..Independent Contractórs Sections 3111 and 3301 impose FICA and FUTA taxes, respectively; on eaþloyers on the basis of wages they päy to 15 - employees.

Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 126 (2Ò02), affd. 93 Fed. Appx. 473 (3d Cir. 2004).

Section 3121(d) (2) provides that for FICA tax purposes the- term "employee" inaludes any indivi'dual who has the status of an employee under common law. Section 3121(d) (1), (3), and (4) describes other individuals who are considered.employees for FICA tax purposës regardless of their status undet common law.

Individuals who are described in section 3121(d) (1), (3), and (4), including an officer of a corporation, are commonly referred to as "statutory" employees.

Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, supra at 126. With certain exceptions not relevant in this casë, the section 3121(d) definition of "employee" álso applies for FUTA tax purposes.

Sec. 3306(i).

For purposes of income tax withholding, the term "employee" includes, inter alia, "an officer of a corporation."

Sec.

3401(c).

The term also includes "every individual performing services if the relätionship between him and the person for whom he performs such services is the legal relationship of employer and employee."

Sec. 31.34Ø1(c)-1(a), Employment Tax Regs.

The existence of an employer-employee relationship for income tax withholding purposes is determined generally tur reference to the usual.common law rules applicable in determining such relationships.

See sec. 31.3401(c)-1, Employment Tak Regs.; see also Rev. Rul. 75-343, 1975-2 C.E. 403.

A.

Burden of Proof The Commissioner' s determinations are presumed correct, and the taxpayer bears the burden óf proving that they are incorrect.

Rule 142(a); Welch v. Hëliering,, 290 U.S. 111, 119 (1933). This principle applies to the Òommissioner's determinations that a taxpayer's workërs arë employees.

Eéens & Miller, Ind.- v.

Commissióner, 117 T.C. 263, 268 (2001) (citing Boles Trucking, Inc. v. United States, 77 F.3d 236, 239-240 (8th.Cir. 1994)).

B. Whether Donald Cave Was Petitioner's Employee An officer of a corporation who performs substantial services for the corporation and receives remuneration for such services is an employee for employment tax purposes.

Secs.

3121(d) (1), 3306(i); see also Veterinary Surgical Consultants, P.C. v. Commissioner,.117 T.C. 141, 144-145 (2001), affd. sub nom. Yeagle Drywall Co. v. Commissioner, 54 Fed. Appx. 100 -(3d Cir. 2002); sect. 31.3121(d)-1(b), Employment Tax Regs. However, an officer-of a corporation who does nót perform any services or performs only minor services and who neither receives nor is entitled to receive any remuneration, directly or indirectly, is not an employee of the corporation. Sec..31.3121(d)-1(b)., Employment Tax Regs .

In Ve teriñary Surgi cal Consult ants , P . C . v .

Commissioner, supra, we held that a surgeon who was the president and sole shareholder of an $ dorporation and performed services for the corporation was an employee for employment tax purposes.

See also Joseph M. Grey Pub. Aacountant, P.C. v. Commissioner, - 17. - supra at 130.

In 2003 and 2004 Donald Cave was petitioner's president, made virtually all corporate d.ecisions with respect to petitioner, received a percentage of the legal fees recovered.in cases he handled, and receifed dräws from petitioner of $48,000 and $360,000.

in 2003 and 2004, respectively.

These facts tend to establish that Donald Cave was petitioner's eeployee within the meaning of section 3121(d) (1).

There is no evidence in the record, such as a service agreement, to support a finding that Donäld Cave performed services for petitioner in some capacity other than as president.

See Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, supra at 129-130; see also-Rev. Rul. 82-83, 1982-1 C.B. 151, 152 ("It is a question of fact in all cases whether officers of a corporation are performing services within the scope of their duties as officers or whether they are performing services as independent contractors."). Roreover, the manägement services Donald Cave performed for petitioner were fundamental to - petitioner's operations, and such services rarely are performed by independent dontraators.

See Rev. Rul. 82-83, supra, 1982-1 C.B. at 152. Finally, the fact that Donald Cave delegated some day-to-day responsibilities with respect to petitioner to Ms.

Wells is immaterial because the record reflects that Ms. Wells was acting on Donald Cave's behalf and she performed only those tasks that Donald Cave delegated to her.

In summary, we conclude that Donald Cave was a statutory employee of petitioner for'employment tax purposes in 2003 and 2004.

See secs. 3121(d) (1), 3306(i); sec. 31.3121(d)-1(b), Employment Tax Regs.

C. Whether the Associate Attorneys and Mr. Matthews Were Petitioner's Employees Section 3121(d) (2) defines an employee as "any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee".

See also sec. 3306(i).

The regulations provide additional guidance with respect to a worker's classification as a common law employee. Specifically, section 31.3121(d)-1(c) (2), Employment Tax Regs., provides:

relationship exists when the [An employer-employee] 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 which that result is accomplished. necessary that the employer actually direct or control the manner sufficient if he has the right to do so. discharge is also an important factor indicating that in which the services are performed; it is The right to [I]t is not * * * "Even if we were to evaluate Donald Cave's worker classification taking into account only those services he personally performed for petitioner,. we would still conclude that Donald Cave was petitioner's employee in 2003 and 2004 because he was petitioner's president, he personally performed substantial services for petitioner, and he received remuneration from petitioner.

I - 19 thë person possessing that right is an employer. Øther factors characteristic of an employer, but not necessarily present of tools and the furnishin of a place to work, individual Nho performs the services.

in evëry case, a e the furnishiñg to the * * * Absent a stipulation to the doutrary, this case is apþealablë to the Court of Appëäls for the Fifth Circuit.

See sec. 7482(b) (1) (B).

'Ï'he Court of Apþeals for the Éifth Circuit considers the following factors in deciding whether a worker is a common law employee:

(1) The degree of control the principal has over the worker, (2) the workër's opportunity for- profit or loss, (3) the worker's invëstment in facilities, (4) the permanende of the relationship, and (5) the skill required in the operation."

Breaux &.Daigle, Inc.. v. United States, 900 -F.2d 49, 51 (5th Cir.

1990).

No single factor is determinative, all facts and circumstances must be taken into accouñt, and doubtful questions should be resolved in favor of employee status.

Id. at 51-52.

"This Court añd the Internal Rëvenue Service use similar (5) Whether the worker's (1) The degree of control (3) (4) whether the principal hás the tests. This Court considers: exercised by the principal over the worker, ¯ (2) which party invests in wožk facilities used by the worker, opportunity for profit or loss, right to discharge the worker, the principal's regular business, relationship, and (7) were creating. 117 T.C. 263, 270 (2001); see also Weber v. Commissioner, 103 T.C. 37$, 387 (1994), affd. 60 F.3d 1104 (4th Cir. 1995). No single factor is determiñative and all must be consideted. Weber.v..Commissioner, supra ät 387. Internal Revenue Service applies a 20-factor analysis, which also requires an examination of all relévant See Rev. Rul. 87-41, 1987-1 C.B. 296, 298-299.

the relationship the parties believed they Sea, e.g., Èwens Miller, .Inc. v. Commissioner, fäcts and circumstances.

facts and dircumstánces the work is part of the permanency of The the (6) 1.

Degree of.Control In determining the existence of an employer-employee relationship, the crucial test is the principal's right to control the worker not only as to the result to be obtained but also as to the manner in which thë service is to be performed.

Weber v. Commissioner, 103 T.C. 378, 387, 390 (1994), affd. 60 F.3d 1104 (4th Cir. 1995); sec..31.3121(d)-1(c) (2), Employment Tax Regs.

The degree of control necessary to find an employer- employee relationship varies depending on the nature of the services provided by the worker.

Ewens & Miller, Inc. v.

Commissioner, 117 T.C. at 270.

The level of control necessary to find employee status generally is lower when applied to professionals than when applied to nonprofessionals. Weber v.

Commissioner, supra at 388; James v. Commissioner, 25 T.C. 1296, 1301 (1956) (noting that "there are many eminent lawyers.who are full-time employees of corporations and who carry on their professional work with a minimum of direct supervision or control over their methods on the part of their esployer").

In order for the principal to retain the requisite control over the details of a worker's work, it is not necessary that the principal stand over the worker and direct every move made by the worker. Weber. v. Commissioner, suprä at 388; sec. 31.3121(d)- 1(c) (2), Eàploymënt Tai Regs. Rather, the crucial test is whether the principal had the right to impose control. Weber.v.

Commissioner, supra at 387-388.

In Nëber v. Commissioner, supra at 388-390, we concluded that the takpayer, a United Methodist Church minister, wäs subject to significant control where, inter alia, he was required to perform numerous duties, lacked authority to discontinue the church's régular services, wäs required to be "amenable" to the church's governing authority, and was subject to discipline, including termination, for ineffectiveness or unfitness. Conversely, in Simpson v.

Commissioner, 64 T.C. 974, 985-987 (1975), we concluded that the taxpayer, an insurance agent, was not subject to- significant control where, inter alia, he set his own work schedule, submitted no written reports, and was.not provided with any "leads" to help him sell-insurunce policies.

a.

Associate Attorneys Whether petitioner had the right to control the details of the associate attorneys' work is'an intensely factuäl question.

On the one hand, petitioñër provided the associate attorneys with minimal training and supervision. Donald Cave suggested (but did not require) that new attorneys attend one or two of his trials, attend particular seminars, and read certain legal articles.

The associate attorneys were not required to work from a particular location, to work particular hours, or to account for their time.

The associate attorneys were not required to accept or reject certain cases or kinds of cases and were free to reject cases referred- to them by Donald Cafe.

On the other hand, petitioner, acting through its president, Donald Cave, controlled the assignment of dašes to the aasociate attorneys and determined whether the associate attorneys would be reimbursed for case-related and other work-related expenses.

These facts are highly probativë that petitioner had substantial control over the manner in which the associate attorneys performed their work. Petitioner, acting thróugh Donald Cave, also reviewed pleadings and correspondence prepared by the associate attorneys in at least some cases and required them to give oral status reports in certain circumstances.

In addition, Donald Cave made suggestions to the associate attorneys about how to handle particular cases, and he expected the associate attorneys to help out occasionally with cases he was personally handling. Finally, unlike the firm in Simpson v. Commissioner, supra, which did not provide the taxpayer with any "leads" to help him develóp business, petitioner routinely referred cases to the associate attorneys to help theä génefate fees and develop practices.

.

On balance, we cònclude thàt the analysis regarding control tips in favor of an employer-employee relationship.

Pëtitioner's ability tö affect the course of litigation by its decisions tëgarding the funding of litigation, work assignments, l and workind conditions, including the supervision of associate attorneys who worked on cases generated by petitioner and/or Donald Cave, weighs in favor of an employer-employee relationship.

-The independence ?of the associate attorneys in dealing with cases they originated for petitioner" is not sufficient to overcome the control that petitioner exercised, and had the right to exercise, over the operätion of the firm and the funding and conduct of ,fire litigation in general.

This factor is indicative of an employer-employee relationship.

b.

Mr. Mattheus Like the associate attorneys, Mr. Matthews was not required to work from a particular location, to work partieuiar hours, or to account for his time. But unlike the associate attorneys, who were expected to generate cases and clients for petitionet "The Internal Revenue Service issued two revenue rulings least regarding the worker classification status of registered nurses in part the effect änd practical nurses that discussed at of a worker's education and professional credentials. See Rev. Rul. 75-101, 1975-1 C.B. 318; Rev. Rul. 61-196, 1961-2 C.B. 155. Both revenue rulings state that whether a nurse is to be treated as an independent contractor or as an empioyee depends on the facts and circumstances of rulings conclude that registered nutses and practical nurses may be considered as selflemployed if they are engaged in private duty nursing under circumstances where they function independëntly ás licensed profëssióñals, state thät such nurses are.employees if they are on the regular staff of a hospital, clinic, nursing home, or physician and are thóse that engaged them. subject The revenue rulings do not cónflict with the conclusions we reach in this case.

the c4äse. Although both revenue to the direction and control of the revenue rulings also and who had discretion to managé their cases as they saw fit, Mr. Matthews received all of his assiguments directly from Donald Cave or, in räre instänces, from one of the associate attorneys, and there is no evidence that Mr. Matthews was free to reject assignments.

This factor is indicative of an employer-employee relationship.r 2.

Investment in.Faci-lities The fact that a worker provides his or her own tools generally indicates the worker is an independent contractor.

Ewens & Millerr. Inc..v. Commissioner, 117 T.C. at 271.

Conversely, the fact that a worker has no investment in the facilities used in the work is indicative of antemployer- employee relationship.

See id., Where the value of the tools provided by the worker is-minimal, this factor is not of greät weight.

See Breaux & Daigle, Inc. v. United States, 900 F.2d at 53.

a.

Associate Attórneys Petitioner provided the associate attorneys with all of the tools and facilities necessary to complete their work, including office space, office furniture, computers, telephones, fax " machines, copying machines, and office supplies. Petitioner also provided the associate attorneys with sedretarial services, telephone and Internet service, and access to petitioner's computer server, law library, and online legal research ' services.

In some instancess petitionër even-paid or reimbursed the associate attorneys' automobile e penses. Althòugh some of the associate attòrneys used their own funds to decorate their offices or to set up home offices, therë is no credible evidence that the associate attorneys had more than a de minimis investment in thë facilities used in their work.

This factor is indicative of an employer-employee relationship.

b.

Mr. Matthews Petitioner provided Mr. Matthews with most of the säme amenities it provided to the associate attorneys, including office space, office furniture, a dòmputer, office supplies and equipment, and access to petitioner's law library, online research services, and computer server. Although Mr. Matthews sometimes worked from home, there is- no evidence that he had a significant investment in any of the facilities used in connection with his work for petitioner in 2003 or 2004.

This factor is indicative of an employer-employee -relationship.

3.

Profit or Loss A compensation arrangement in which an individual works on commission may be indicative of an independent contractor relationship.

See Simpson v. Commissioner, 64 T.C. at 988 (characterizing än 'individual ad an independent contraatòr where, inter alia, his."opportunity for, and the'degree to which 26 - he might sake, asyfofit or loss in any giŸèn year Nás solëly dependent upon his own efforts änd skiil"). Ooñverseiy, a compensation arranéeeent in Which an individual canhôt increase his profits through his own effofts and is not at risk for loss is indicatiÝë óf sán emplayénemylöyee rëiationship.

Sëe Juliard v. Commissioner, a.C.

iviemo. 1991-23Ò (chafactë iziné áñ individual as an eäployee where, inter alia he nas paid a salary and reimbutsëd for expenses incurred with respeat to his work).

a.

Associate Attörneys The associate attorneys' coápensation in 2003 and 2004 consisted of a percentage of the gross -fees pëtitioner dollected in the cases they händled.

The percentage varied depending on who securëd the case.

Thus, the assòciate attorneys could increase their profit by developing new clients-and cases and by securing larger fees in the cases they handled. However, the associate attorneys bore little, if any, risk of loss froá petitione 's cases and clients thät they hándled, even if they brought them into the fife. Petitioner gravided the associate attorneys with virtually all of the tools, facilities, and services necessary to compiété theif work. Moreóvèr, petitioner paid òr teimbursed the associatë attorneys for most case-related expenses and absorbed the loss if a case never gëneràted a fee.

Petitioner álso paid or reimbursed the assòciate lattorneys for various other professional eigenses, including Louisiana $tate Bar Assoaiationi dues, CLE courses',2 and voluntäry professional association memberships.

In summary, the associäte attofñeys cóuld increase their profits through their own efforts and skill but bórë no risk of loss.

This factor is neutfal.

b.

Nr. MåttheWe Unlikë the assodiatë attorheys, Mr. Matthews had'no ability to increase his profits by attracting new cliënts or securing larger fees in the matters he wörked on.

Instead, Mr. Mattheus was paid a fiat ämount to perform legäl services for petitioner and was reimbursed for the costs incurred in his work.

Thus, Mr. Matthews could not increase his profits through his own effort and skill and bore no risk of loss with respect to his work for petitioner.

This factor is indicative~of an employer- employee relationship.

4 .

Petülanence of the elat ionship a.

Associate-Attorneys Petitioner did not require the associate attorneys to sign written contracts of employmënt or covenants nôt to coepete.

Nevertheless, the record reflects that the relationship betWeen petitionet and the associate attoineys wäs ääntinuous, permaneht, 'and ekclusive. Ms. Ñillis worked for petitioner as an attörney for 12 yeätä, Mr. -LaHayé worked for petitioner de an attorney foi 3 yeafs, and Miahael Caie had worked for petitioner and its successor, Cave Law Firm, L.L.C., as an attorney for 10 years as of the trial date. Although the associate attorneys were nòt requirëd to work exclusiveiy fór petitioner, thete is no credible evidence that any of the assoniate attorneys ever provided or offered tò provide services tá añóther law firm during the periods at issue, nor did they offer sërvices directly to the public other than in their capacity as attorneys working for petitioner.

This factor is indicative of an employer-employee relationship.

b.

Mr. Matthews Although Mr. Matthews was not required to sign a written contract of employment or a covenant not to compete, the record reflects that Mr..Matthews' relationship with petitioner was permanent rather- than temporary.

Indeed, as of the trial date Mr. Matthews hâd been assòciated with petitioner and its successòr for around 10 years.

HoWëVer, Mr. Matthews routinely provided legal and other serviaes to lawyers, law firms, and orgänirations unaffiliated with petitióner, including petitioner's competitors. This factor is neutrál.

5.

Skill-Required irtDÿeration a.

Assodiatë Attótñeys In Bréau & DäiqlësInc. V.sÙnited.Stätës, 900 F.2d at 52- 53, the Court of Ayþeals far the.Èîfth dìÝcúit òbserved that a worker's minimai skill arguëd ägäinst a finding of independent contractor status.

"'.[T]he workers were nöt specialists called in to soive a problem,.but unskilled laboters who performed the essential, everyday chores of * * * [the taipayer's] operation.'" Id.

(Quoting MaUau4hlin 2. Seafood, Ind., 841 F.2d 4$0, 4$2 (5th Cir. 1988), modified 863 È.2d 875, 876-877 (5th Cir. 1959). Unlike the workers Whose classification was at issue in Breaux & Daigle, the assoaiate attorneys were highly educated professionals.

On the, other händ, the associate attorneys, who were newly licensed lawyers when first hired by petitioner, were not sÿecialists called in to solve a particular problem but instead performed the essential; everyday professional tasks,in petitioner's business.

This factor is neutral.

b.

Mr. Matthews The preceding paragraph applies with equal force to Mr.

Matthews. Although Mr. Matthewe' work for petitioner arguably required less skill than the work përformed by the associate attorneys, Mr. Matthews wäs an educated and skilled professional whose responsibilities included essential, everyday profesäional tasks in petitioner's busiñess. This-factor is neutral.

6.

Other.Paators As noted abóve, in detereining whether a worker is an employee or än independent contractór för employment tax - purposes, no single factor is determinative, and all facts and ciräumstances must be taken into account.

Somë of the other factors that the Court of Appeais for the Fifth Circuit and this Court consider include whether the work-is an integral part of the principal's business and whether the principai has the right to discharge the worker.

See id. at 53; Webet v. Commissioner, 103 T.C. at 387.

a.

Associate Attorneys Fees generated from the provision of legal services were petitioner's onÍy source of income in 2003 and 2004. Petitioner hired the associate ättorneys to provide legal services to existing clients and to develop new- clients.

The services the associate attornëys provided petitioner in 2003 and 2004 were therefore an integral part of petitioner's business.

This factor suggests the associate attorneys were petitioner's employees.

The record does not contàin any information regarding whether petitioner had the right to discharge the associate attorneys and, if so, whether there were any limitations on this right.

This factor is neutral.

b.

Mr. Matthews Mr. Matthews' work was also an integral part of petitioner's business. Although Mr. Matthews was a law clerk rather than ä licensed attorney, his respòñsibilities-- conducting legal fesearch and draftiñá. legal pleadings--were cruaial to petiåionet's län pfàötiaë.

This fäätor suggests än employer-engloyee "relätionship. A The record does ñot contain ahý information fë§arding whether getitioner had the right tó dišohai-ge Mr. Matthews and, if so, whether there wëre any limitätions añ this fight. This factor is neutral.

7.

Sumeáry a.

The Associäte..Attorneys In sumääry, we conclude on the basis of all of the relevant facts and circumstances that the associate attorneys were petitioner's common law employees.

Thrëë of the five specific factors--degree of control, investment in facilities, and permanence of the relationship--indicate an employer-employee relationship, and the remaining 'factors are neuträl.

In addition, the fact that the Wörk performed by the associäte attorneys is än integfal part of petitioner's business supports our conclusion. Keeping in mind that petitioner bears the burden of proof and that doubtful Questions should be resolved in favor of empioyër-employee status; wë conclude that the associate attorneys were pétitiðñër's employees for employaent tax purposes in 2003 and 2004.

32 - b.

Mr ..

. Matthews Most of the five: specific factors we considered äre indicative of an eëþloyer-employee relationship.

In partidular, petitioner's control over Mr. Matthews' work and compensation arrangements ströngly suggests that he wäs petitioner's employee in 2003 and 2004.

Keeping in mind that respondent's determinätions are presumed coffect, that petitioner has the burden of proof, and that doubtful questioñs, should be resolved in favor of employment, and after considering all the facts and circumstances, we conclude that Mr. Matthews was petitionër's employee for empioyment tax purposes in 2003 and 2004.

III. Act Section 530 Relief" .

.

When applicable, act section 530 relieves a taxpayer from employment- taxes, notwithstanding that the relationship between the taxpayer and the individual performing services would otherwise require payment of such taxes. Chärlòtte's Office Boutique, Inc..V. Commissioner, 121 T.C. 89, 106 (2003), affd.

425 F.3d 1203 (9th Cir. 2005).

To qualify for act section 530 relief the taxpayer (1) must not have treated the individual- as an employee for any period, (2) must have consistently treated the individual as not being an employee on all täx returns for periods after Deeëmber 31, 1978, and (3) must have had a .

Petitióñer suggestéd ón brief that We need not rêâch the merits óž pëtitioner's claim for aat sec. 530 reiief and made no argument with respect to act sec. 530 relief.

reasonable basis for not treating the individual as an employee.

Act sec. 530(a) (1); Joseph M. Grev Èub. Accountant, P.C. v.

Commissioner, 119 T.C. at 130.

A taxpayer is treated as having had a reasónäble basis for not treating an individual as án employee if the taxpayer's treatment of the individual was in reasonable reliance on (1) judicial precedent, (2) published rulings, (3) technical advice with respect to the taxpayer, (4) a letter ruling to the taxpayer, (5) a past Internal Revenue Service audit of the taxpayer that entailed no assessment attributable to the täxpayer's employment tax treatment of individuals holding positions substantially similar to the position held by the individual whose status is at issue, or (6) a longstanding recognized practice of a -significant segment of the industry in which the individual was engaged. Act sec. 530(a) (2); Veterinary Surgical Consultants, P.C. v... Commissioner, 117 T.C.

at 147; see also Ewens & Miller Inc. ,v. Commissioner, 117 T.C.

at 276-277.

' A taxpayer mäy aise-quaiify fór act section $30 relief if it establishes that it had sòme òther reasonable basis for treating its workers as independent contractors.

see, e.g., Images in Motion.of -El Päso Inc.

Conmissioner, T.C. Memo.

2006-19.

If a taxpayer estäblishes- a priää facie case that it meets the reporting consistency and sübstantive cónsistency I l requirements of act section 530 (a) (1) , relied on one of the reasonable basis safe harbors in act section 530 (a) (2) , and cooperated with all reasonable requests from the Secretary, then the burden shížtä tò thë Commissionet to establish that the taxpayer is not entitled to act sectidh 530 relief . Act sec .

530 (e) (4) (added by the Small Business Job Protection Act of 1996 , Pub. L . 104 -1$8 , sec . 1122 (a) , 110 Stat . 1766 ) . With this background in mind, we now consider whether petitioner is entitled to act section 530 relief with respect to any of the workers that respondent determined were employees in 2003 and 2004.

A.

Donald Cave Although act section 530 (a) is not by its terms limited to situations involving worker classification under common law, we have held that act section 530 relief is not available with respect to statutory employees.

Jos;eph M. Orey Pub. Accountant, P.C. v. Commissioner, supra at 132-134; see also Charlotte's Office Boutique Inc. v. Commissioner, supra at 109 n.10.

Donald Cave was petitioner's statutory émployee in 2003 and 2004.

Sëe supra p.

la. Consequently, act section 530 relief is not available to petitioner with respect to Donald Cave .

B.

The Associate Attorneys Respondent appears to concede that petitioner did not treat any of the associate attorneys as employees for any period - 35 during which they performed serviaea för petitioner äs attorneys" änd that petitioner issued Forme. 1099 to the associate attoineys in 2OO³ and 2ØØ4. However, petitioner has not established that it relied on any of the authorities listed in the act section 530(ä) (2) safe harbor or that it had any other reasonable basis for-treating the associate attorneys as independent contfactors.

Donald Caie testif ied at trial that he believed the associate attorneys were appropriately classified as independent contractors because he did not have control over them. However, there is no credible evidenae that Donald, Cave did any research or conducted any meäningful investigation with respect to the associate ättorneys' worker classification or that he rëlied on the informed advice of Mr. Roberts.

On the contrary, the record suggests that Mr. Roberts acaepted Donald Cave's conclusion that the assoaiate attorneys were independent contractors without thoroughly investigating the issue. Consequently, we conclude that petitioner is not entitled to act section 530 relief with respect to the associate attorneys.

C.

Mr. Matthews Act seation 53O (a) (3.) clarifies act section 53'O (á) (1) by providing that aat section 530 relief-is not äváilable "if the "As noted above, petitionet treated the associate attorneys as employeës during their tenures as law clerks.

taxpayer (or a predecessor) has teeáted,any individual holding a substantially similar position as an employee for purposes of the employment tàkes for any period beginning after Dedember 31, 1977." Petitioner treated Mr. Matthews as än independent contractor in 2003 and 2004. Howevér, þetitioner treäted the associate attorneys as employees during their tenures as läw clerks--when they held positions substantially similar to the one Mr. Matthews held in 2003 and 2004. Consequently, act section 530 relief is not available to petitioner with respect to Mr. Matthews.

IV. Section..6656 Penalty Section 6656 imposes a penalty equal to 10 percent of the portion of an underpayment of tax that is required to be deposited, if the failure to deposit is for more than 15 days.

Charlotte's Office Boutique, Inc. v. Commissioner, 121 T.C. at 109.

The taxpayer may avoid the peñalty under section 6656 if the taxpayer's failures to deposit a tak was due to reasonable cause and not wiliful neglect.

Id.

A taxpayer's reliance -on - the advice of a competent professional adviser may constitute reasonable cause Nhere the taxpayer establishes by a prepònderanoë af the ëVidence that:

(1) The adviser was a competent professional who had sufficient expertise to justify reliance, (:2) the tarpayet provided the adviser with necessary and accurate inforåätiðñ, and (3) the taxyäyer actually relied in good faith on the adviser's judgåent. Neonatology Associates, P.A. v. Commissiòñer, 115 T.C. 43, 99 (2000), a'ffd.

299 F.3d 221 (3d Cir. 2ØÒ2); see also Charlotte's Office Bout ique , Inc . v . Cominis s iònež, supre at 110 -111.

Reåpóndent has demóñstrated that petitioner faiÍed to deposit employment tax With fespect to Donald Cáve, the associate attorneys, and Mr. Mattheus., Cónsequently, petitioner must come forward with evidence'sufficient to persúade the Court that respondent's determination is incorrect.

See Higbee v.

Commissioner, 116 T.C. 438, 447 (2001).

Petitioner has nòt offered any argument that respondent's determination of a penalty is incorrect or inappropriate, nor has petitioner argued that its failure to deposit employment tax was due to reasonable cause and not to willful neglect.

Petitióner does not argue that it relied on Mr. Roberts' advice and, in any event, petitioner has not established that it provided him with all necessary and accurate information or relied in good faith on his judgment. Consequently, we sustain respondent's determination that petitioner is liable for the section 6656 penalty for 2003 and 2004.

V.

Conclusión In summary, we hold that (1) Èëtitioner is a pedper party before this dourt, ( ) Donald Cave, the assoaiate attorneys, and Mr. Matthews were petitioner's" eeßloyees for employment tax I purposes in 2003 and 2004, (3) þetitioner is not entitled to act section 530 relief, and (4) petitioner is liable for the section 6656 penálty.

We have considered the remaining arguments of both parties for resuits contrary to those exyteased hërein, and to the extent not discussed above, we conclude such arguments are irrelevant, moot, or without merit .

To refleet the foregoincj, Decision will be entered fór respondent.

92. Stät. 2885, as amended (act section 530). Conséquently, respondent detettined that petitioner was liable for employment taxes² and penalties in the following amounts: