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respondent reclassified as wages to Ridge 50 percent of the
nonpassive income distributed by petitioner. For 1997 and 1998,
respondent also reclassified as wages the Form 1099-MISC
“nonemployee compensation” paid to Ridge.
It is stipulated that, if the Court decides that Ridge is to
be classified as an employee for Federal employment tax purposes
for all periods in 1996, 1997, and 1998, the amounts of taxes due
and owing are as set forth in the notice of determination.
ULTIMATE FINDINGS OF FACT
Ridge, as president of petitioner, performed more than minor
services and received remuneration therefor.
Petitioner did not have a reasonable basis for failing to
treat Ridge as an employee during the years in issue.
OPINION
I. Statutory and Regulatory Provisions
A. Subtitle C of the Internal Revenue Code
Subtitle C of the Internal Revenue Code governs payment of
employment taxes. In particular, sections 3111 and 3301 impose
taxes on employers under FICA (pertaining to Social Security) and
FUTA (pertaining to unemployment), respectively, based on wages
paid to employees. The term “wages” as used in these statutes
generally encompasses “all remuneration for employment”. Secs.
3121(a), 3306(b). “Employee” is defined for purposes of FICA
taxes in section 3121(d), and, with modifications not germane
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