Dennis J. and Carol R. Kraus - Page 7

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               By determining a penalty under section 6662(a), respondent             
          had the “burden of production * * * with respect to the liability           
          of any individual for any penalty”.  Sec. 7491(c).  Because we              
          have decided that petitioners are not liable for a section 6662             
          penalty, there is no need to address the question of the burden             
          on that issue.                                                              
          B.  Petitioner’s Status as an Employee                                      
               Petitioner’s status as an employee is important in this case           
          with respect to his ability to claim deductions in arriving at              
          gross income on a Schedule C.  Petitioner claims that he is not             
          an employee and relies on sections 3121(d)(3) and 3508(b)(2).  In           
          effect, petitioner claims to be self-employed and engaged in a              
          trade or business.  Petitioner’s entitlement to claim that status           
          depends on whether petitioner is a “statutory” or “common law”              
          employee.  The use of the term “common law employee” has evolved            
          from the definition of an “employee” for employment tax purposes            
          in section 3121(d).  In particular, section 3121(d)(2) defines an           
          “employee” as “any individual who, under the usual common law               
          rules applicable in determining the employer-employee                       
          relationship, has the status of an employee”.                               
               The term “statutory employee” has been commonly used to                
          refer to employees whose status has been specifically provided              
          for in paragraphs (1), (3), and (4) of section 3121(d).  Those              
          paragraphs describe other individuals whose employment status               

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