Independent contractor vs. employee.

In a case of first impression, Ewens and Miller, Inc., 117 TC No. 22 (2001), the Tax Court determined that it has jurisdiction to determine additions to tax and penalties arising from worker classifications or determinations under Section 530 of the Revenue Act of 1978 (RA '78).

Although the amendment to Sec. 7436 by the Community Renewal Tax Relief Act of 2000 (CRTRA) provided the Tax Court with retroactive jurisdiction to redetermine deficiencies arising from IRS worker-classification determinations, it did not explicitly state that the Tax Court had jurisdiction to determine additions to tax and penalties. However, the Tax Court concluded that the Sec. 6656, 6665 and 7436 jurisdictional provisions allow it to make such determinations.

The taxpayer, a corporate manufacturer of bakery products, disputed employment taxes and penalties owed. The Tax Court dismissed on the grounds that it lacked jurisdiction over employment tax liabilities. Subsequent to the dismissal, the CRTRA amended Sec. 7436.

The Tax Court sustained the IRS's determination that the workers were employees, rather than independent contractors, during the tax year at issue. Factors such as the degree of control, investment in facilities, opportunity for profit or loss and permanency of the relationship between the taxpayer and the payroll workers, bakery workers and outside sales workers indicated an employer-employee relationship with common-law employees.

Moreover, the route distributors were deemed statutory employees, because they fell within the definition of agent-driver and commission-driver as provided in Sec. 3121 and the regulations.

Finally, the taxpayer did not qualify for safe-harbor relief under RA '78 Section 530, because it failed to present evidence of a reasonable basis for not treating its workers as employees.