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Finally, Dr. Willey indicates that “Most employee leasing
firms are charging anywhere between three and eight percent of
employee gross wages”. Id. at 217. Here, the partnerships
charged “overrides” of between 15 and 20 percent--more than twice
the going rates--in exchange for services that were merely
illusory.31
We conclude that Machise, through Bucci and Ingemi, filled
the role ostensibly claimed by the partnerships. Machise
operated its business without the aid of the partnerships. None
of the partnerships, and none of their partners, undertook any
substantive activities with respect to Machise's employees or
independent contractors. Machise, and not the partnerships, was
the employer and the party responsible for paying the payroll
costs. Accordingly, Machise, and not the partnerships, was
entitled to claim those costs as a deduction of ordinary and
necessary business expenses.
Petitioners' arguments to the contrary are unavailing. They
seek support from cases that impose liability for employment tax
obligations on the party that controls wage payments, e.g., Evans
31Fred has insisted that the inflated "overrides" included
interest paid to the partnerships for their "advances" of payroll
costs. We have found that the partnerships' "advances" are as
illusory as their services. The alleged interest components of
the overrides are also illusory. In addition, there is no
indication by Dr. Willey that a hallmark of conventional employee
leasing arrangements is that the subscribing company will defer
the reimbursement of payroll costs to succeeding years.
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