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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.
Background
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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