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working at Maxi’s during the first quarter of 1994.4 The Forms
W-2 were not forwarded to the Social Security Administration or
the Internal Revenue Service (IRS) by petitioner or Mr. Brents.
In addition, petitioner did not provide Forms 1099 reflecting
amounts paid to the beauticians during the years at issue.5
Petitioner learned from others in the business that renting
chairs to beauticians was a common practice. Sometime during the
first quarter of 1994, petitioner and Mr. Brents spoke with a
representative of the State of Washington, Department of Labor
and Industry, which serves in an advisory capacity for small
businesses. After reviewing information provided by the
Washington Department of Labor and Industry, Mr. Brents advised
petitioner that it was appropriate to treat the beauticians as
independent contractors. Thus, beginning in the second quarter
of 1994, and throughout 1995, petitioner purportedly rented
chairs to the beauticians. Although petitioner believed that all
hired beauticians were independent contractors, written “rental
agreements” were not offered to each beautician who provided
4 We note that the record contains seven separate 1994
Forms W-2 for employees, which conflicts with petitioner’s
testimony that only the three or four beauticians hired during
the first quarter of 1994 were treated as employees.
5 Mr. Brents testified that the Forms 1099 were prepared
and furnished to each beautician; however, it was each
beautician’s responsibility to submit his or her respective Form
1099 to the Internal Revenue Service (IRS) with his or her
Federal income tax return. The purported Forms 1099 are not a
part of the record in this case.
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