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(5) employees not wishing to become independent contractors would
be discharged prior to January 1, 1992.
After January 1, 1992, there was no change in the activities
petitioner’s workers performed (i.e., in 1992, the workers did
much of the same work). The reason petitioner wanted to convert
its employees to independent contractors was to protect
petitioner from lawsuits6 and to have better control over the
activities of its workers. Petitioner was advised by an attorney
to convert the employees to independent contractors to limit
petitioner’s liability. Petitioner continued directly paying its
workers.
Several of petitioner’s checks issued to its workers, and
signed by Miller, in 1992 bear the notation “payroll”.
Additionally, there was a debit slip dated July 3, 1992, for
petitioner’s bank account that noted that cash was withdrawn for
payroll.
For 1991, petitioner reported salaries and wages of $196,433
on its Federal corporate income tax return, and it issued 51
Forms W-2 to its employees reporting total wages of $196,432.60.
Petitioner also reported $81,143 of subcontractual labor, and it
issued 10 Forms 1099-MISC reporting total payments of $37,930.74.
6 In 1991, some of petitioner’s workers were stealing and
sabotaging its products. There were walnut shells in the cookies
and nails in the brownies. Consumers of petitioner’s products
had retained attorneys and were suing petitioner.
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