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then, for purposes of applying such taxes for such period
with respect to the taxpayer, the individual shall be
deemed not to be an employee unless the taxpayer had no
reasonable basis for not treating such individual as an
employee.
Here, the first of the two conditions is satisfied.
Petitioner did not treat Dr. Sadanaga as an employee during the
period in issue. Since its incorporation, petitioner filed its tax
returns reflecting all withdrawals by Dr. Sadanaga as distributions
of petitioner’s income, not wages.
However, the second condition of Section 530(a)(1) is not
satisfied because petitioner had no reasonable basis for not
treating Dr. Sadanaga as an employee. For purposes of Section
530(a)(1), a taxpayer is treated as having a reasonable basis for
not treating an individual as an employee if the taxpayer’s
treatment of the individual was in reasonable reliance on judicial
precedent, published rulings, technical advice with respect to the
taxpayer, a letter ruling to the taxpayer, or longstanding
recognized practice of a significant segment of the industry in
which the individual was engaged. Section 530(a)(2).
Section 3 of Rev. Proc. 85-18, 1985-1 C.B. 518, provides
several alternative standards that constitute safe havens in
determining whether a taxpayer has a reasonable basis for not
treating an individual as an employee. That revenue procedure
provides that reasonable reliance on any one of the following safe
havens is sufficient:
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Last modified: May 25, 2011