In Uncategorized on 06/23/2014 at 16:53

No, not Paul Simon’s 1970 opus that appeared on his final album with Art Garfunkel, but rather the story of Tarri M. Harrold-Jones, spouse of Darryl L. Jones, leading man in the eponymous 2014 T. C. Memo. 125, filed 6/23/14, as narrated by Judge Goeke.

Darryl is an Alaskan lawyer with a nonchalant approach to depositing clients’ checks (he only deposits them when he needs money; how delightful that must be, but I have never had that luxury. When I get a check, it never sees sunset in my hands.). This befuddles IRS when they do the bank account reconstruction, so some of Darryl’s unreported income slips by. But then Darryl’s claimed NOL goes down unsubstantiated.

And there’s the usual argy-bargy about business deductions, both by Darryl and by Tarri.

But Darryl and Tarri, who file MFS, escape the 20% chop because they told their CPA Darlene Dotzler, whose 10 years of CPA-hood convinces Judge Goeke, the whole story, and Darlene so testifies.

Tarri claimed to be an IC, but IRS said she was an EE, did a reclassification as against Darryl, which Darryl didn’t petition.

But when a deficiency arises out of a reclassification, those affected can raise the reclassification in their petition on the deficiency.

Now the link to Paul Simon’s ditty. I’ll let Judge Goeke furnish it.

“Mr. Jones regularly hires extra workers to help him manage his caseload, and … he enlisted Mrs. Harrold-Jones to work on two of his largest cases. Petitioners were concerned that working together might damage their marital relationship, so they carefully arranged their business relationship to give Mrs. Harrold-Jones as much freedom as possible. Mrs. Harrold-Jones did not work at the law office; she worked from petitioners’ home, which was about 45 miles away. Mr. Jones told Mrs. Harrold-Jones what he needed her to do, but he allowed her to accomplish her tasks in her own time and in her own way. Petitioners agreed that Mr. Jones could discharge Mrs. Harrold-Jones if the arrangement became unproductive.

“One of the cases on which Mrs. Harrold-Jones worked involved a protracted criminal investigation against Mr. Jones’ client. The client had an eccentric personality but got along well with Mrs. Harrold-Jones, so Mr. Jones appointed her to review documents with the client and keep her calm and focused. Mrs. Harrold-Jones also performed basic legal research for the law office. She did not receive regular wages; her cases settled…, and she received a percentage of the fees Mr. Jones collected.” 2014 T. C. Memo. 125, at pp. 5-6.

So, says Judge Goeke, weighing the usual IC-EE factors: “Mr. Jones did not control the details of Mrs. Harrold-Jones’ work. He told her what he needed done, and she was free to decide how to accomplish it. Mrs. Harrold-Jones’ most important responsibility was keeping an important client calm in the face of a lengthy criminal investigation. The client was eccentric but got along well with Mrs. Harrold-Jones, so Mr. Jones trusted her to interact with the client and review documents with her. Mr. Jones cared only about the client’s satisfaction and did not control how Mrs. Harrold-Jones achieved it. These facts suggest that Mrs. Harrold-Jones was an independent contractor.” 2104 T. C. Memo. 125, at pp. 14-15.

Just tryin’ to keep the customer satisfied really helped. Also it helps that Tarri worked from home and got paid a piece of the collected fees, rather than fixed wage (although fee-splitting with a nonlawyer might be a separate issue, Judge Goeke doesn’t need to go there).

So Tarri wins the IC-EE face-off.


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