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bakery workers, (2) any of the cash payroll workers,9 (3) any of
the route distributors, and (4) three outside sales workers.10
Petitioner did not demonstrate that it reasonably relied
upon judicial precedent, published rulings, technical advice, a
letter ruling, or a past audit. Petitioner argues that it relied
on a longstanding practice in the industry in which it was
engaged--“co-packing”.
“Co-packing” is where a company does not produce its product
itself; it hires others to produce its goods for it. Petitioner
presented no evidence, however, on how the practice of co-packing
related to the treatment of its workers as employees.
Furthermore, petitioner did not offer any witnesses to testify
about an industry practice of co-packing and the treatment of
“co-packers” as independent contractors. See, e.g., Gen. Inv.
Corp. v. United States, 823 F.2d at 341.
Additionally, petitioner did not demonstrate, in some other
manner, a reasonable basis for not treating the bakery workers,
cash payroll workers, route distributors, and outside sales
workers as employees. We conclude that petitioner had no
reasonable basis for treating the bakery workers, cash payroll
9 Miller agreed with the revenue officer who testified at
trial that the cash payroll workers were not a corporation.
10 We note that only 7 of these 38 workers earned less than
$600. See sec. 6041 (information returns required for payments
of $600 or more); sec. 1.6041-1, Income Tax Regs.
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