In Uncategorized on 01/13/2015 at 21:06

Caltex Oil Venture meets SECC Corporation up in the air; or rather, on the blocks as the pilot turns off the “fasten seatbelt” sign.

Sufficiently confused? Well, start by checking out my blogpost “Classified”, 4/3/13, for the story of SECC Corporation and when IRS has made a RA ‘78 Sec 530 determination, even if they haven’t told anybody. Then dig my blogpost “Drill, Baby, Drill”, 1/12/12, for how to construe a statute.

Now you should be cleared for takeoff in American Airlines, Inc., 144 T. C. 2, filed 1/13/15 (and Happy Birthday to a family member firmly on the ground).

AA is fighting Subtitle C employment taxes for the cabin attendants paid by its foreign branches (not subsidiaries) as AA and Judge Paris stress, 144 T. C. 2, at p. 5.

The cabineers are local nationals in the Coño Sur, hired by the local branches, paid in local currency (with local taxes withheld), fly from offshore to Miami, FL only, stay in the Land of the Free only for mandatory rest stops (24 hrs or less) and TDY ANACDUTRA (and if you know what TDY ANACDUTRA is, my condolences). They have C1/D aircrew nonimmigrant visas, prohibiting work in the USA. Moreover, “They currently are paid on a ‘block-to-block’ basis, meaning that they are compensated only for the period beginning when the aircraft pushes off from the blocks of the departure gate and ending when it arrives at the blocks of the destination gate. The foreign flight attendants are uncompensated for any other time they are required to be at work, including pre- and post-flight time and training sessions.” 144 T. C. 2, at p. 5.

No, Judge, the blocks are removed before pushback (not “pushoff”), but that’s a detail.

Notwithstanding anything to the contrary hereinabove stated, as my two-Martini-lunch colleagues say, and an earlier IRS audit that accorded the cabineers RA ’78 Sec. 530 relief (once a non-employee, always a non-employee), IRS comes back trying to hit AA with FICA, FUTA and all that jazz.

Now there is a material fact (did AA change how they treated the cabineers since the audit years they got off on?), so all we have is partial summary J: does Tax Court have jurisdiction?

You may well ask whether or not SECC Corporation settled IRS’ hash. But not a whit dismayed, IRS tries again–and loses.

IRS hangs its fifty-mission-crush on Section 7436(a), but wants to ignore Section 7436(a)(2), which specifically mentions RA ’78 Sec. 530 determination. IRS claims neither Section 7436(a)(1) nor Section 7436(a)(2) gives Tax Court jurisdiction.

Judge Paris doesn’t care about (a)(1), but says Tax Court has jurisdiction under (a)(2).

“As the Court has noted previously: ‘[I]n response to the expressed intent of Congress to provide a convenient, prepayment hearing, this Court and the Courts of Appeals have given the jurisdictional provisions a broad, practical construction rather than a narrow, technical meaning.’ Therefore, where a statute is capable of various interpretations, the Court is inclined to ‘adopt a construction which will permit the Court to retain jurisdiction without doing violence to the statutory language.’” 144 T. C. 2, at p. 13. (Citations omitted).

You can see there’s turbulence ahead for IRS.

There’s a four-part test for Section 7436 relief, and AA has it all. There’s an audit, a determination that RA ’78 Sec 530 doesn’t apply, a real controversy and an appropriate pleading. IRS caves on first and last, fights about “determination” (but Judge Paris shoots that one down based on SECC Corporation) and “controversy” (but no need for fight about employment status, only RA ’78 Sec 530 relief; read the statute, IRS).

No specific form for determination, and IRS’s deficiency notice says it all. As for statutory construction, see Caltex Oil Venture.

IRS claims that “failure to agree” by AA to IRS’ denial of RA ’78 Sec 530, which Judge Paris invokes, isn’t a determination, because it doesn’t start the 90-day petition clock running. OK, but as SECC Corporation pointed out, IRS must send a registered or certified letter that starts the clock. Taxpayer isn’t hurt until the letter is sent, so no hurt, no foul. 144 T. C.2, at p. 20, footnote 10.

Tax Court doesn’t need to decide now if AA treated the cabineers as its own employees, or whether RA ‘78 Sec 530 applies.

The issue here is: has Tax Court jurisdiction to decide that, and whatever else the parties are scrimmaging about.

The answer is “Yes.” Partial summary J for AA.

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