In Uncategorized on 04/03/2014 at 16:54

Today’s T. C. involves the lineman leasing game. Remember that dodge? No? See my blogpost “The Wichita Linewoman”, 5/23/12, for the story of Kathleen Murray and her sidekick, Ernie The Cable Guy.

But now it’s the ostensible lessor who’s on the line, in SECC Corporation, 142 T. C. 12, filed 4/3/14, with Judge Colvin writing for a galaxy of Tax Court jurists: Ch J. Thornton, and JJ. Halpern, Foley, Vasquez, Gale, Wherry, Kroupa, Holmes, Gustafson, Paris, Morrison, Buch, Lauber, and Nega.

SECC claims their linebackers are ICs, but IRS says no, they’re EEs, so SECC owes FICA, FUTA, penalties and interest. However, IRS didn’t say “no” by certified or registered mail.

Both SECC and IRS claim Tax Court has no jurisdiction, but come to very different conclusions therefrom. “Respondent [IRS] contends that dismissal would deprive this Court of jurisdiction over this case, leave the assessment in place, and allow the IRS to proceed with collection.

“In contrast, petitioner contends that the failure to issue an NDWC means the assessment is invalid and the IRS may not collect the disputed employment taxes unless and until an NDWC is sent. Under petitioner’s theory, issuance of an NDWC would trigger the right to file a petition and seek our determination under section 7436.” 142 T. C. 12, at p. 8.

The problem with this, of course, is that if either side is right about no jurisdiction, Tax Court has no jurisdiction to decide anything, but must toss the case altogether.

By the way, a NDWC is a Notice of Determination of Worker Classification, Letter 3523 to you. And IRS never issued one, but Appeals sent a letter to SECC telling them they owed the FICA, etc. And that was enough for the Tax Court majority to find there was a determination, but to start the 90-day clock it had to go registered or certified, and it didn’t. But we’re getting ahead of ourselves here.

Tax Court of course has jurisdiction to decide if they have jurisdiction. And guess what? They decide they do, although Judges Kerrigan and Goeke wish they hadn’t, and dissent accordingly.

Section 7436 gives Tax Court jurisdiction over worker status claims. The key is whether there is a determination by IRS after audit one way or the other. Judge Colvin parses Appeals’ letter at length and says it is; the dissent disagrees, of course, but reading the letter it looks like one to me. How about this? “Unfortunately, we were unable to reach an agreement on your case. The employment tax liability as determined by Appeals will be assessed and you will receive a Notice and Demand for payment of the tax, penalty, and interest owed.

“If you would like to challenge our determination in court, you may file a complaint in the United States District Court or the United States Court of Federal Claims. If you decide to do this, you must first pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Once the claim for refund is denied or 6 months elapse without any action by the Service, you may initiate suit.” 2014 T. C. 12, at p. 7.

Well, notwithstanding no NDWC was ever sent, and the petition came months too late if the ninety-day bar for SNOD and NOD reviews applied, and that an IRS Notice says the NDWC is a jurisdictional prerequisite to a Tax Court proceeding, Judge Colvin goes for the jugular in a footnote.

“We disregard the Commissioner’s statement in Notice 2002-5, 2002-1 C.B. 320, 321, that ‘[b]ecause the Notice of Determination constitutes the Service’s determination described in §7436(a), * * * [it] is a jurisdictional prerequisite for seeking Tax Court review of * * * determinations regarding worker classification, §530 treatment, and the proper amount of employment tax under those determinations.’ We owe no deference to what an administrative agency says about our jurisdictional bounds. See Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1038-1039 (D.C. Cir. 2002). This is so even if an agency directly or indirectly interprets the bounds of our jurisdiction through the implementation of regulations construing a statute which it administers. See also Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990) (the delegation of power to an agency to administer a statute does not empower that agency to ‘regulate the scope of the judicial power vested by the statute’). The dissenting opinion argues that we lack jurisdiction because the IRS did not intend for us to have jurisdiction. See dissenting op. pp. 35-36. The concurring opinion, which is joined by 11 of the Judges who voted yes, makes a similar point, see concurring op. pp. 27-28; and we note that it is the statute, not the IRS, that grants us jurisdiction.” 2014 T. C. 12, at p.16, footnote 5.

The dissent is upset about the two-track SNOD-NOD vs. classification procedures the majority seems to be adopting, but the statute is clear. If not sent registered or certified, the clock hasn’t started.

And Judge James S. (“Big Jim”) Halpern, concurring, is even more emphatic about IRS game-playing if IRS could hold off sending a NDWC and relegate a taxpayer to the USDC or USCFC (requiring them to pay first, ask for a refund and sue later).

“Moreover, respondent’s position, reflected both in this case and in Notice 2002-5, 2002-1 C.B. 320, 321, that only his issuance of a notice of determination as described in Notice 2002-5 may confer jurisdiction on this Court to resolve a worker classification or RA ’78 sec. 530 issue would improperly permit the Commissioner to determine, in his sole discretion, whether a taxpayer shall have access to this Court in order to resolve any such issue raised on audit. Were we to adopt respondent’s position, the Commissioner, by refusing to issue a notice of determination, would be able to deny the taxpayer access to this Court, which he may be tempted to do whenever he feels his chance of success on a worker classification or RA ’78 sec. 530 issue is better in either the District Court or the Court of Federal Claims than in this Court.” 2014 T. C. Memo. 12, at p. 27.

Or when a taxpayer can’t afford to pay a monumental assessment of FICA, FUTA, penalties and interest without going out of business altogether.

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