- 9 -
it is created for business purposes or actually conducts business
after incorporation. See Moline Properties, Inc. v.
Commissioner, 319 U.S. 436 (1943). Where a corporation relies
upon personal services of an employee to produce income, the
question arises whether it is the employee or the corporation
that is actually conducting the business. The relevant test is
who controls the earning of the income. See Haag v.
Commissioner, 88 T.C. 604, 610-611 (1987), affd. without
published opinion 855 F.2d 855 (8th Cir. 1988); Johnson v.
Commissioner, 78 T.C. 882, 890 (1982), affd. without published
opinion 734 F.2d 20 (9th Cir. 1984); Vercio v. Commissioner, 73
T.C. 1246, 1254-1255 (1980). In Johnson v. Commissioner, supra,
this Court articulated two requirements that must be met before a
corporation, rather than its service-performer employee, will be
considered the controller of income and therefore taxable on it:
First, the service-performer employee must be just
that--an employee of the corporation whom the
corporation has the right to direct or control in some
meaningful sense. Second, there must exist between the
corporation and the person or entity using the services
a contract or similar indicium recognizing the
corporation’s controlling position. [Johnson v.
Commissioner, supra at 891; citations omitted.4]
4 In cases involving members of religious orders obligated
to turn over outside income to the order, some courts have
rejected the two-part test used in Johnson v. Commissioner, 78
T.C. 882 (1982), in favor of a flexible facts and circumstances
approach. See Kircher v. United States, 872 F.2d 1014 (Fed. Cir.
1989); Schuster v. United States, 800 F.2d 672 (7th Cir. 1986);
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011