The U.S. Supreme Court has denied a petition for review in Cencast Services, L.P., CA-FC. A payroll services company that was a statutory employer for purposes of paying, withholding and paying over employment taxes was not a common-law employer for purposes of applying limits on the wages that were subject to those taxes. The obligation to pay, withhold and pay over Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes was imposed on “employers,” a term that included both statutory and common-law employers. However, the FICA and FUTA wage caps were imposed on wages paid to “employees” in the course of their “employment,” and those terms were defined by reference to common law. A common-law employer was the employer for which the employee provided services, even if a statutory employer paid and processed the employee’s wages. In this case, the payroll services company paid and processed wages for the workers it provided to television and movie production houses, but the production houses actually hired and supervised the workers. Since the production houses were the common-law employers, the FICA and FUTA wage caps applied to wages paid to an employee by each production house, rather than the total wages the payroll services company paid to that employee for work at multiple production houses.
The company was also barred from arguing that it had erroneously paid the employer’s share of employment taxes for some workers who were actually its independent contractors. The substantial variance rule barred the argument because it significantly differed from the arguments made in the company’s original refund claim and suit. Equitable recoupment did not provide an exception to the rule because the government did not raise any new arguments in its counterclaim. The IRS also did not waive the substantial variance doctrine by considering the independent contractor issue during the investigation and litigation of the company’s refund claim. In addition, the company’s entire employment tax assessment was put in issue by the refund claim it made after paying just a portion of the divisible employment taxes; thus, a subsequent refund claim for amounts collected by levy during the dispute did not allow it to raise new arguments. Finally, the government would be prejudiced if the company were allowed to raise the issue for the first time so late in the dispute. (Cencast Services, L.P., CA-FC, 2013-2 ustc ¶50,511.)
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