Veterinary Surgical Consultants, P.C. - Page 11




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          did not establish a prima facie case that its treatment of                  
          Sadanaga was reasonable, the burden of proof remains on                     
          petitioner.                                                                 
          II.  Classification of Sadanaga for Employment Tax Purposes                 
               A.  Status Under FICA and FUTA Provisions                              
               In contending that Sadanaga should not be classified as an             
          employee under the FICA and FUTA provisions of the Internal                 
          Revenue Code, petitioner focuses on Sadanaga’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. at 145.  Furthermore,           
          an employer cannot by the expedient of characterizing moneys paid           
          in remuneration for services as distributions of net income,                






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