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II. Classification of Murdock for Employment Tax Purposes
A. Status Under FICA and FUTA Provisions
In contending that Murdock should not be classified as an
employee under the FICA and FUTA provisions of the Internal
Revenue Code, petitioner focuses on Murdock’s status as an
S corporation shareholder and alleged lack of status as a common
law employee. We briefly address these contentions seriatim.
1. Contentions Regarding S Corporation Shareholders
Petitioner cites sections 1366, 1372, and 6037(c) and
Durando v. United States, 70 F.3d 548 (9th Cir. 1995), presumably
in support of an argument that S corporation shareholders should
not be deemed employees. Sections 1366 and 6037(c) generally
require that income items of S corporations be passed through to
shareholders on a pro rata basis and reported by such
shareholders in a manner consistent with treatment on the
corporate return. These rules, however, pertain to calculation
of income tax liability under subtitle A and have no bearing on
computation of Federal employment taxes. Veterinary Surgical
Consultants, P.C. v. Commissioner, 117 T.C. 141, 145 (2001),
affd. sub nom. Yeagle Drywall Co. v. Commissioner, 54 Fed. Appx.
100 (3d Cir. 2002). Furthermore, an employer cannot by the
expedient of characterizing moneys paid in remuneration for
services as distributions of net income, rather than as wages,
avoid FICA and FUTA liabilities. Id. at 145-146. Thus, as in
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