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Financial employees. He backs up his argument by pointing to
Lykins Inc.’s allocation of payroll costs to Lykins Financial,
and Lykins Financial’s reimbursement of those costs as proof that
those employees who were performing investment services were
employees of Lykins Financial.
An unstated assumption of the Commissioner’s position is
that someone is the employee only of the firm he’s producing
income for. There is no caselaw interpreting the regulation’s
phrase “employees of the corporation, serving in their capacity
as such,” sec. 1.448-1T(e)(4)(i), Temporary Income Tax Regs., and
the Commissioner’s argument is at least plausible. But
“employer” and “employee” are legal terms with a rich history of
construction in the many other places that they are found in
Federal law. The Supreme Court has, moreover, laid down as a
general rule that “when Congress has used the term ‘employee’
without defining it, we have concluded that Congress intended to
describe the conventional master-servant relationship as
understood by common-law agency doctrine;” see also Nationwide
Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-323 (1992). The
Commissioner has likewise adopted common law rules to distinguish
employees from independent contractors. See Rev. Rul. 87-41,
1987-1 C.B. 296; Darden, 503 U.S. at 324 (citing that revenue
ruling with approval); Clackamas Gastroenterology Associates,
P.C. v. Wells, 538 U.S. 440, 448 (2003)(calling the common law
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