Robert C. and Patricia C. Humphrey - Page 16

                                       - 16 -                                         
               The taxpayer has the burden of proving the existence of an             
          employment relationship.  Rule 142(a); Ellison v. Commissioner,             
          55 T.C. 142, 152 (1970).                                                    
               Similar to section 422(a)(2), section 1.421-7(h)(1) and (2),           
          Income Tax Regs., provides that for purposes of determining                 
          whether section 421 applies to a statutory option,16 the taxpayer           
          must be an employee of the corporation granting the option at all           
          times from the date the option is granted until 3 months before             
          the date of exercise.  To determine whether the taxpayer is an              
          employee, the rules contained in section 3401(c) and the                    
          regulations thereunder are applicable.  Sec. 1.421-7(h)(1),                 
          Income Tax Regs.                                                            
               Section 3401(c) and the regulations thereunder define                  
          “employee” for purposes of withholding from wages.  In relevant             
          part, section 31.3401(c)-1(b), Employment Tax Regs., provides:              
               (b) Generally the relationship of employer and employee                
               exists when the person for whom services are performed                 
               has the right to control and direct the individual who                 
               performs the services, not only as to the result to be                 
               accomplished by the work but also as to the details and                
               means by which that result is accomplished. That is, an                
               employee is subject to the will and control of the                     
               employer not only as to what shall be done but how it                  
               shall be done. In this connection, it is not necessary                 
               that the employer actually direct or control the manner                
               in which the services are performed; it is sufficient                  
               if he has the right to do so. The right to discharge is                

               16 The term “statutory option” means “a qualified stock                
          option, as defined by section 422(b)”.  Sec. 1.421-7(b)(1),                 
          Income Tax Regs.  Sec. 422(b) defines an “incentive stock                   
          option”.                                                                    





Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011