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Dr. Katz prepared and filed employment tax returns (Forms
940 and 941) for the corporation. Petitioner did not treat Dr.
Katz as an employee for employment tax purposes. Petitioner
never issued Dr. Katz a Form 1099 or Form W-2, Wage and Tax
Statement, reflecting the payments made by the corporation to Dr.
Katz. On its 1996 and 1997 corporate returns, petitioner
deducted $93,803.78 and $115,884.75, respectively, as management
fees. Dr. Katz reported these amounts as income on Schedule C,
Profit or Loss From Business, on the joint returns filed for both
years.
The Internal Revenue Service audited the 1977 and 1980 joint
returns of Dr. and Mrs. Katz. The agent conducting the audit did
not have the authority to examine the corporate or employment tax
returns of the corporation. There is no record of petitioner’s
corporate or employment tax returns then being examined. In
2000, respondent determined that Dr. Katz was an employee of
petitioner during 1996 and 1997, and petitioner was liable for
employment taxes for both years.
The parties have stipulated that, if petitioner is
recognized as a corporate entity for tax purposes, Dr. Katz was a
“statutory employee” of petitioner from 1971 to and including
1997, and during these years he performed “substantial services”
for petitioner. There is also no dispute as to the amount of tax
due if section 530 does not apply.
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Last modified: May 25, 2011