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December 31, 1996, so has no bearing on petitioner’s liabilities
for 1996. Small Business Job Protection Act of 1996, Pub. L.
104-188, sec. 1122(b)(3), 110 Stat. 1767. For subsequent
periods, a taxpayer desiring to take advantage of Section
530(e)(4) first must establish a prima facie case that it was
reasonable not to treat an individual as an employee and must
have fully cooperated with the Secretary. Because, as explained
in detail below, petitioner did not establish a prima facie case
that its treatment of Stark was reasonable, the burden of proof
remains on petitioner with respect to 1997 and 1998 as well.
II. Classification of Stark for Employment Tax Purposes
A. Status Under FICA and FUTA Provisions
In contending that Stark should not be classified as an
employee under the FICA and FUTA provisions of the Internal
Revenue Code, petitioner focuses on Stark’s status as an
S corporation shareholder and alleged lack of status as a common
law employee. We briefly address these contentions seriatim.
1. Contentions Regarding S Corporation Shareholders
Petitioner cites sections 1366, 1372, and 6037(c) and
Durando v. United States, 70 F.3d 548 (9th Cir. 1995), presumably
in support of an argument that S corporation shareholders should
not be deemed employees. Sections 1366 and 6037(c) generally
require that income items of S corporations be passed through to
shareholders on a pro rata basis and reported by such
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