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satisfied. Section 530(a)(1) provides in relevant part:
(1) In general.-–If
(A) for purposes of employment taxes, the
taxpayer did not treat an individual as an
employee for any period * * *, and
(B) in the case of periods after December
31, 1978, all Federal tax returns (including
information returns) required to be filed by
the taxpayer with respect to such individual
for such period are filed on a basis
consistent with the taxpayer's treatment of
such individual as not being an employee,
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 Mr. Yeagle as an employee during the
period in issue. Since its incorporation, petitioner filed its tax
returns reflecting all withdrawals by Mr. Yeagle as distributions
of petitioner’s net income, not wages.
However, the second condition of Section 530(a)(1) is not
satisfied because petitioner had no reasonable basis for not
treating Mr. Yeagle 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 of judicial
precedent, published rulings, technical advice with respect to the
taxpayer, a letter ruling to the taxpayer, or longstanding
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Last modified: May 25, 2011