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IRS, 72 F.3d 938, 944-947 (1st Cir. 1995), affg. T.C. Memo. 1995-
51. To determine the appropriate treatment of petitioners’ legal
fees, we must determine whether petitioner was an employee of RHB
before his termination.
Although the income tax treatment of a taxpayer’s trade or
business expense deductions depends on whether the taxpayer is
“[performing] * * * services * * * as an employee”, subtitle A of
the Internal Revenue Code does not define “employee”. Under
these circumstances, we apply common law rules to determine
whether the taxpayer is an employee. Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. 318, 323-325 (1992); Weber v. Commissioner, 103
T.C. 378, 386 (1994), affd. 60 F.3d 1104 (4th Cir. 1995);
Hathaway v. Commissioner, T.C. Memo. 1996-389.
Whether an individual is an employee must be determined on
the basis of the specific facts and circumstances involved.
Profl. & Executive Leasing, Inc. v. Commissioner, 89 T.C. 225,
232 (1987), affd. 862 F.2d 751 (9th Cir. 1988); Simpson v.
Commissioner, 64 T.C. 974, 984 (1975). Relevant factors include:
(1) The degree of control exercised by the principal over the
details of the work; (2) the relationship the parties believe
they are creating; (3) whether the work is part of the
principal’s regular business; (4) which party invests in the
facilities used in the work; (5) the individual’s opportunity for
profit or loss; (6) the permanency of the relationship and the
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