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less busy times, petitioner rejected requests from individuals to
be paid in cash.
Petitioner’s Internal Accountant
Ann Gerber (formerly Ann Melcher) served as the company’s
office manager from 1986 until the company was sold in 1994. Ms.
Gerber was responsible for all monetary aspects of the business.
In addition to collecting receivables and paying expenses, Ms.
Gerber maintained the company’s books and processed the payroll.
As part of her payroll obligations, Ms. Gerber calculated the
proper amount of employment taxes3 to be withheld from each
employee’s paycheck.
Each time petitioner notified Ms. Gerber that a worker was
to be paid in cash, he instructed her that the worker was to be
issued a Form 1099 to reflect the payment. Petitioner believed
that the issuance of a Form 1099 was sufficient to keep him in
compliance with relevant tax laws.
The workers submitted weekly timecards to Ms. Gerber, and
she would distribute the appropriate cash payments to them. In
order to generate the cash necessary to pay the workers, Ms.
Gerber would write a check from the company’s account to
3 For convenience, we use the term “employment taxes” to
refer to taxes under the Federal Insurance Contributions Act
(FICA), secs. 3101-3128, the Federal Unemployment Tax Act (FUTA),
secs. 3301-3311, and income tax withholding, secs. 3401-3406.
See Henry Randolph Consulting v. Commissioner, 112 T.C. 1, 1 n.1
(1999).
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