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Mr. Grey’s Returns
For each of 1995 and 1996, Mr. Grey made his return of
income on Form 1040, U.S. Individual Income Tax Return. He
reported income from petitioner in the amounts shown on the
Schedules K-1; i.e., $33,196 and $24,990, for 1995 and 1996,
respectively. For 1995, on Schedule C, Profit or Loss From
Business (Schedule C), he reported $6,000 classified as
“Management and Storage Rental of Office Space for Corporation,
and Management and Accounting Services: 1099-MISC received”.
For 1996, on Schedule C, he reported $7,200, without any
identification; on Form 4831, Rental Income, he reported $6,000
as rental income attributable to his personal residence.
Discussion
I. Statutory and Regulatory Background
A. Internal Revenue Code and Employment Tax Regulations
Sections 3111 and 3301 impose employment taxes upon
employers under FICA and FUTA, respectively, based on wages paid
to employees. Section 3121(d) defines the term “employee” for
purposes of the FICA tax. With certain modifications not
relevant here, this definition applies for purposes of the FUTA
tax as well. Sec. 3306(i).
Under section 3121(d)(2), the term “employee” includes any
individual who has the status of an employee under the common
law. Paragraphs (1), (3), and (4) of section 3121(d) describe
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