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taxpayer presented all relevant information under its control and
relevant legal arguments supporting its position to the
appropriate IRS personnel. Sec. 301.7430-5(c)(1), Proced. &
Admin. Regs. “Appropriate Internal Revenue Service personnel”
are those employees reviewing the taxpayer’s information or
arguments, or those employees who, in the normal course of
procedure and administration, would transfer the information or
arguments to the reviewing employees. Id.
1. The Dispute: Employee Versus Independent Contractor
The employment tax sections of the Internal Revenue Code are
in subtitle C. Sections 3111 and 3301 impose taxes on employers
under FICA and FUTA, respectively, based on wages paid to
employees. Section 3101 imposes a tax on employees under FICA
based on their wages paid, which the employer is required to
collect under section 3102. The term “wages”, as used in these
statutes, generally encompasses “all remuneration for
employment”. Secs. 3121(a), 3306(b). The term “employee”, for
FICA taxes purposes, is defined in section 3121(d), and, with
modifications not pertinent here, section 3306(i) makes this
definition applicable for purposes of FUTA taxes as well.
Section 3121(d)(2) provides that an “employee” includes “any
individual who, under the usual common law rules applicable in
determining the employer-employee relationship, has the status of
an employee”. Section 31.3121(d)-1(c)(2), Employment Tax Regs.,
defines the common law employer-employee relationship as follows:
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