Corporation had to pay penalties for reclassified workers

A corporation was liable for employment taxes for workers reclassified as its employees. The corporation had treated all of its workers as independent contractors, and it had not issued Forms W-2 to the workers, nor had it filed Form 941, Employer’s Quarterly Federal Tax Return, or Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return for the year at issue. Two of the three employees were officers of the corporation, and the president of the corporation supervised and controlled the corporation’s activities. In addition, he assigned work to the two other workers, supervised their activities, and determined their compensation. The two corporate officers performed more than minor services, for which they received remuneration; therefore, they were statutory employees for employment tax purposes. The third worker was an employee of the corporation as the factors used to determine worker status as a common law employee favored employee status. The president of the corporation exercised control over the worker’s activities; the worker was not in a position to increase his profits through his own efforts; he did not employ his own tools; he received compensation categorized as wages every month; and the work he performed was integral to the corporation’s regular business.

The corporation was liable for the additions to tax under Code Sec. 66521(a)(1) and for a penalty under Code Sec. 6656. The corporation filed no employment tax returns, paid no employment taxes, and deposited no required employment taxes into a federal depository. Although the president of the company hired return preparers to prepare tax returns for the company, he did not establish that he had sought specific advice from a tax professional regarding the legal status of the company’s workers for employment tax purposes. The corporation failed to establish reasonable cause for its failure to file returns, its failure to timely pay taxes due and its failure to deposit. (Central Motorplex, Inc., TC Memo. 2014-207, Dec. 60,047(M).)

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