NewsNotes

Lesli S. Laffie, J.D., LL.M.

Independent Contractor vs. Employee • Package X • Patriot Bonds • Credit/Debit Card Tax Payments • Most Important Future International Tax Issues (chart)

Court Decisions

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 the 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.

From the IRS

Package X

According to the IRS Website, issuance of Volume 2 of Package X, Reference Copies of Federal Tax Forms and Instructions, and Pub. 1132, Reproducible Federal Tax Forms and Instructions, will be delayed. The package was originally scheduled for shipment on Dec. 31, 2001; the IRS has not yet determined a new shipping schedule.

If enacted, pending legislation (including an economic stimulus package) could require form changes. For more information, at www.irs.gov, select "Tax Info For Business," "Tax Professional's Corner" and "News for the Tax Professional."

Miscellaneous

Patriot Bonds

According to Treasury News Release PO-854, a new series of EE Savings Bonds have been designated as "Patriot Bonds" after the Sept. 11, 2001 terrorist attacks.

The funds raised by the bonds will contribute to the Federal government's overall effort to fight global terrorism. Series EE savings bonds sold through financial institutions will be specially inscribed with the legend "Patriot Bond." The legend will also appear on Series EE bonds available at the Bureau of the Public Debt's Savings Bond Direct Website, www.publicdebt.treas.gov .

Series EE savings bonds earn 90% of five-year Treasury securities yields. The rate in effect through April 2002 is 4.07%. The bonds sell at half face value and are available in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000.

Series EE bonds increase in value monthly; interest is compounded semiannually. Interest is exempt from state and local income taxes. Federal tax can be deferred until the bond is redeemed; it stops earning interest at 30 years. Bonds can be redeemed anytime after six months (a three-month interest penalty applies to bonds redeemed before five years).

Regulations

Credit/Debit Card Tax Payments

In TD 8969, the IRS adopted final regulations authorizing the IRS to accept payment of taxes by credit or debit card and to limit the use and disclosure of information on such payments. The final rules apply to payments of taxes made after Dec. 13, 2001.

Under the final rules, only IRS-approved credit or debit cards may be used to make tax payments. The IRS has entered into contracts with third-party service providers to process such transactions. The Service cannot impose a fee on taxpayers making credit or debit card payments; however, other persons participating in the program (including third-party service providers) are not prohibited from charging fees.

The final regulations ensure that disputes on the merits of a tax liability will be resolved in the traditional administrative and judicial forums and not raised in any dispute with the card issuer, financial institution or other person participating in the credit or debit card transaction. Further, the IRS can return funds erroneously received due to errors in the credit or debit card account by arranging for a credit to the taxpayer's account. Returns of funds through account credits are available only to correct errors relating to the account, not to refund tax overpayments.

As to the use and disclosure of payment information, the final rules provide that information received by any person as to the payment of tax by credit or debit card is to be treated as confidential by all persons who receive the information. IRS personnel can disclose to card issuers, financial institutions and other persons information necessary to process a tax payment or to bill or collect a charged or debited amount. Selling the information, sharing it with credit bureaus or using it for any marketing purpose is prohibited.

The final regulations clarify that sending receipts or confirmation of a transaction to a taxpayer (including secured electronic transmissions and faxes) is permissible. Further, the disclosure of information necessary to complete a transaction by the taxpayer with a state or local government agency is permissible when explicitly authorized by the taxpayer.