Marjorie Cathey Miller - Page 2

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            indicated, all section references are to the Internal Revenue                              
            Code in effect for the years in issue, and all Rule references                             
            are to the Tax Court Rules of Practice and Procedure.                                      
                  At the time the petition in this case was filed, petitioner                          
            resided in Deer Park, Washington.  During 1984, 1985, and 1986                             
            (the taxable years in issue), Marjorie Cathey Miller (petitioner)                          
            operated a beauty salon known as “About Face” and employed                                 
            several individuals.  Petitioner treated these individuals as                              
            independent contractors for tax purposes and did not file                                  
            employment tax returns (Form 940, Employer’s Annual Federal                                
            Unemployment Tax Return, and Form 941, Employee’s Quarterly                                
            Federal Tax Return) or issue Forms W-2 for the taxable years in                            
            issue.  In 1987, respondent initiated a tax examination of                                 
            petitioner’s 1984, 1985, and 1986 business activities and, at the                          
            conclusion of this examination in August 1987, concluded that                              
            petitioner should have treated the individuals as employees                                
            rather than as independent contractors.                                                    
                  On August 25, 1987, respondent prepared Form 4666, Summary                           
            of Employment Tax Examination, indicating that the following                               
            employment taxes and penalties were owed by petitioner:                                    

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