Taxing Lessons From Court Decisions

Right the First Time

Thanks for sharing!
1 minute read

One Way sign

Generally, workers prefer to be classified as employees rather than independent contractors. One reason: Employees do not have to file a Schedule C (Profit or Loss from Business (Sole Proprietorship)), or pay self-employment taxes.

The taxpayer in Schramm (T.C. Memo. 2011-212) chose the opposite course. As an adjunct professor of economics, he wanted to be treated as an independent contractor or a statutory employee rather than a common law employee. That way he could deduct teaching-related expenses on Schedule C instead of having those expenses limited on Schedule A (Itemized Deductions).

The university explained they’d already asked the IRS via Form SS-8 (Determination of Worker Status) whether adjunct professors should be treated as independent contractors or employees. Not surprisingly, the IRS determined adjunct professors were employees.

Even though the university agreed with the IRS determination and sent the taxpayer a Form W-2 (Wage and Tax Statement) at year end, he reported the income on Schedule C and claimed related expenses on that form.

The IRS, not surprisingly, sent a notice, assessing a $700 deficiency.

The court went through the exercise of an eight-factor test, and decided, not surprisingly, that the IRS was right–both times.

Taxing Lesson: Cost efficiency applies in tax law as well as economics.

***

Other posts you might enjoy

Decisions — Gifting business   Image source: Joanna Kosinska on Unsplash   When is a gift not a gift? According to the US supreme court, "determination in each individual case as to whether the transaction in question was a "gift" must be based ultimately on the application of the factfinding tribunal's expe...
Decisions — Counting the days Image source: Marcelo Leal on Unsplash All good things must end, including the amount of time the IRS is allowed to assess tax. That time frame is called the statute of limitations. In T.C. Memo. 2018-182 (Namm Trust), the taxpayer says the IRS did not mail a notice of deficiency before the e...
Decisions — Incoming Gift   Image source: lucas Favre on Unsplash   Pastors get by with a little help from parishioners. But is that help a gift? Or taxable income? In T.C. Memo. 2018-168 (Felton), parishioners gave their pastor over $200,000 in cash and personal checks in addition to regular church of...
Decisions — To be fair   Image source: Library of Congress Public domain, via Wikimedia Commons   All may be fair in love and war, but that's not necessarily true in taxes. In TC Memo 2018-117 (Grainger), the taxpayer made noncash charitable donations and claimed a deduction for what she believed wa...
Tagged , , ,