-9-
Despite petitioners’ claim that petitioner provided consulting
services to Arrowhead in 1989 as an independent contractor,
Arrowhead issued petitioner a Form W-2 (rather than a Form 1099)
for all payments it made to him in 1989; it also withheld State and
Federal income taxes from these payments. Moreover, petitioners
initially claimed on Schedule A attached to their 1989 tax return
all of petitioner’s business expenses as employee business
expenses. And finally, petitioner did not pay self-employment
taxes on the income he received from Arrowhead. The record thus
supports a finding that petitioner was an employee of Arrowhead,
not an independent contractor. The only evidence to support
petitioners’ independent contractor allegation is petitioner’s
self-serving testimony, which we do not believe.
To summarize, petitioners did not meet their burden of proof
that an employer-qualifying-SEP was established at any time by or
on behalf of petitioner, nor did they prove that an employer of
petitioner made a qualifying SEP contribution on petitioner’s
behalf. Consequently, petitioners are not entitled to the claimed
deduction for a SEP contribution.
Issue 2. Business Expenses
The second issue for decision is whether petitioners are
entitled to business expense deductions in excess of the amounts
allowed by respondent.
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Last modified: May 25, 2011