The Tax Court recently decided in two unrelated cases that, in one case, nurses hired for in-home care and, in the other case, the founder of a nonprofit company all were ruled to be employees rather than independent contractors.
In Pediatric Impressions Home Health, Inc. v. Commissioner (No. 5769-20), the Tax Court used the U.S. Court of Appeals for the Fifth Circuit’s non-exhaustive five-factor test to determine that the relationship between an at-home care business and its nurses was best characterized as a common law employment relationship. While the IRS uses a 20-factor test in determining whether a service provider is an employee, the Fifth Circuit’s posture as the court to which an appeal would lie influenced the Tax Court’s use of the pertinent five-factor test.
The Tax Court also ruled in The REDI Foundation, Inc. v. Commissioner (No. 23715-18) that the founder and treasurer of a nonprofit was a statutory employee of the nonprofit. The court relied on the Treasury regulations’ inclusion of corporate officers within the scope of the Section 3121(d) definition of “employee” in reaching its conclusion.
In both cases the court held that the service providers were subject to FICA, FUTA, and income tax withholding as employees. The determination of employee versus independent contractor is expected to come under increasing pressure as workforce arrangements evolve, and the two cases provide important insight into how the Tax Court will analyze the issue.
Contact:
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
More tax hot topics
No Results Found. Please search again using different keywords and/or filters.