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Court has followed a two-prong test under which the PSC is taxed
on the income when: (1) The service provider is an employee of
the PSC, whom the PSC has the right to direct and control in a
meaningful sense, and (2) the PSC and the service recipient have
a contract or similar indicium recognizing the controlling
position of the PSC. Leavell v. Commissioner, 104 T.C. 140,
151-152 (1995); Haag v. Commissioner, 88 T.C. 604, 611 (1987),
affd. without published opinion 855 F.2d 855 (8th Cir. 1988);
Bagley v. Commissioner, supra at 675-676; Johnson v.
Commissioner, supra at 893; see also sec. 31.3121(d)-1(c)(2),
Employment Tax Regs. When either of these prongs is not met, the
individual (rather than the PSC) is taxed on the income.
We apply this test to the facts at hand. With respect to
the first prong, we look to the record for indicia of an
employment relationship between CAI (the PSC) and petitioner (the
provider of the services that generated the commissions).
We find no employment contract or other evidence of an employment
relationship between the two. Indeed, petitioner acknowledged at
trial that he was not CAI's employee. Given the absence of the
necessary employer/employee relationship between petitioner and
CAI, we are unable to conclude that CAI had the ability to direct
or control petitioner's provision of the relevant services in a
meaningful sense so as to satisfy the first prong of the test.
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