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Murdock’s Tax Reporting
For each of the years 1995, 1996, and 1997, Murdock and his
wife filed a joint Form 1040, U.S. Individual Income Tax Return.
On these returns, Murdock reported as ordinary income from
“Rental real estate, royalties, partnerships, S corporations,
trusts, etc.” $29,671.48, $29,402.99, and $41,668.75 for 1995,
1996, and 1997, respectively. Attached Schedules E, Supplemental
Income and Loss, characterize the foregoing amounts as nonpassive
income from Schedules K-1.
The Notice of Determination
Prior to the audit underlying the instant case covering
1995, 1996, and 1997, respondent neither audited petitioner for
employment tax purposes nor challenged petitioner’s treatment of
Murdock as other than an employee. Thereafter, on February 23,
2000, respondent sent to petitioner the notice of determination
at issue in this proceeding. The notice was based on a
determination that Murdock was to be legally classified as an
employee for purposes of Federal employment taxes and that
petitioner was not entitled to relief from such classification
pursuant to Section 530. Enclosed with the notice was a schedule
setting forth petitioner’s liabilities for FICA and FUTA taxes.
The parties have stipulated that, if the Court decides that
Murdock is to be classified as an employee for Federal employment
tax purposes for all periods in 1995, 1996, and 1997, the amounts
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Last modified: May 25, 2011