Friday, September 02, 2011
In Schramm v. Comr., T.C. Memo 2011-212 (30 August 2011), the Tax Court held that the taxpayer was an employee and not an independent contractor. The court analyzed eight factors in reaching its conclusion. The facts supporting employee classification overwhelmed those supporting independent contractor classification.
Degree of Control: Supporting employee classification: university specified textbook taxpayer was required to use, university determined the topics to be covered, university set the length of the course, university managed enrollment of students, university provided web site used for online portion of courses, university imposed employment policies, such as sexual harassment, drug use, and conflicts of interest, on taxpayer, university treated taxpayer as employee. Supporting independent contractor classification: taxpayer followed independent approach in teaching classes.
Investment in Facilities: Supporting employee classification: university financed staff for recruiting, registering, and keeping records with respect to students. Supporting independent contractor classification: taxpayer maintained home office for teaching purposes, purchased office supplies, paid for an internet connection and computer.
Opportunity for Profit or Loss: Supporting employee classification: taxpayer’s pay based on number of classes taught, with no opportunity to change it. Supporting independent contractor classification: none.
Right to Discharge: Supporting employee classification: despite lack of evidence, it appeared university could terminate taxpayer’s services at any time, university could decline to pay taxpayer to teach additional courses. Supporting independent contractor classification: none.
Work is Part of Principal’s Regular Business: Supporting employee classification: university’s regular business is education of students and evaluation of their work, for which taxpayer was hired to do. Supporting independent contractor classification: none.
Permanency of Relationship: Supporting employee classification: taxpayer had long-term, consistent contractual relationship with university. Supporting independent contractor classification: none.
Relationship the Parties Thought They Created: Supporting employee classification: university and taxpayer acted as though relationship was employment, university withheld taxes, issued a Form W-2 to taxpayer, and did not check the statutory employee box on that form, university informed taxpayer it had classified taxpayer as employee. Supporting independent contractor classification: none.
Provision of Employee Benefits: Supporting employee classification: none. Supporting independent contractor classification: despite lack of evidence, university did not offer taxpayer or other adjunct faculty the types of benefits offered to other categories of workers.
The taxpayer’s situation in Schramm is very similar to that of adjunct faculty generally. It certainly is very similar to the manner in which my Law School treats adjuncts. The major difference is that adjuncts are permitted to select textbooks rather than being told what textbook to use, though they do receive advice and recommendations on that point. It is possible that some of our adjunct faculty do not maintain home offices for their teaching activities, but I’ve never asked and I don’t think anyone has ever asked. Newly-hired adjunct faculty, of course, lack the permanency of relationship that existed in Schramm, though that factor alone will not change the outcome. Next time I speak with one of our adjuncts, I need to remember to ask if they receive a Form W-2 or a Form 1099. Strange that I’ve never had this conversation, but I’ve never been involved in the payroll side of things. Perhaps I’ll also ask if they have any deductible expenses related to their teaching, because the school does make available to adjuncts computers and similar equipment. My guess is that, like me, they do have computers used for teaching and other business purposes, and pay for an internet connection through which they connect to the on-line classrooms and exchange emails with students, other faculty, and law school administration.
I know I will get a response even before I see any of our adjuncts. Why? Because some of them read MauledAgain.
Addendum: As expected, I've heard from our adjuncts. They are treated as employees and receive Forms W-2. It has been this way for about five years. Previously, they had been the recipients of Forms 1099.
Wednesday, August 31, 2011
Repairing the damage that the hurricane caused to public infrastructure requires money. To the best of my knowledge, few, if any, of these structures and facilities are insured. Self-insurance might exist in the form of contingency funds, but several years of recession have caused many, if not most, governments and public agencies to dip into those funds. Money can be taken from other portions of the locality’s budget, but what’s left to afflict with a shortage? Should the fire department be eliminated? Should half of the police force be pink-slipped? Should public sewage treatment plants be closed?
Sometimes, no matter what people want, we, and those representing us in government, must do what we prefer not to do. That’s life. That’s also why I shudder in horror at the total inanity and stupidity of the anti-tax pledge. Technically, there are four pledges, one for House members, one for Senators, one for governors, and one for state legislators. All share, however, a promise to oppose and vote against “any and all efforts” to increase taxes. With respect to the type of situation now facing more than a dozen states, the anti-tax pledge advocate explains:
Can the language of the Pledge be altered to allow exceptions?So in the anti-tax world, the county that wants to replace the washed out bridge or the city that wants to restore train service needs to eliminate police departments, lay off fire fighters, close down the sewage treatment plant, or reduce already bare-bone services to the citizenry. I can’t imagine what these ideologues would have argued on December 8, 1941.
No. There are no exceptions to the Pledge. Tax-and-spend politicians often use “emergencies” to justify increasing taxes. In the unfortunate event of a real crisis or natural disaster, the legislator should propose spending cuts in other areas to finance the emergency response.
Monday, August 29, 2011
One of the questions that popped into my head was a consequence of my curiosity. “What’s in the trucks?” Occasionally, the answer was apparent. Those hauling new cars or cattle pretty much reveal their cargoes. Most of the trucks, however, consist of a tractor and a box trailer or container on a flatbed. “What’s in there?” Food? Is more food being shipped by truck than in the past? Despite recessions, people eat, so I’ve figured that the trucks carrying necessities, such as food, don’t change in number very much. So what’s in these trucks? Not too long into the trip, when I caught sight of this news, a possible answer appeared. Were these trucks filled with $9,010 Chanel sequined tweed coats? Were they carrying $775 Christian Louboutin “Bianca” platform pumps? Even if I had the audacity to find a way to look into the truck trailers (not that I would and not that I’d see much but cartons and crates), I wouldn’t have recognized these things. I’m just copying what I read, because I have no clue as to what these items are and why they are so expensive other than the ever-present desire of the elite to possess something most others cannot afford and to have a name or tag attached so that they are certain the world recognizes them as special and elite. And wealthy.
One of the feelings I encountered during this trip was the rattling, shaking, and banging that is experienced when driving off-road. Yet I did not drive off-road. About the time that I embarked, I had noticed a puzzling statement by Peter King in his MMQB column. He wrote, “Then Lou [the driver of the bus] climbed into the driver's seat and we started buzzing up I-85 toward Redskins camp in Northern Virginia, 490 miles of bumpy bliss while writing this column. Let's just say I would have written longer overnight if the interstate highway system in this country weren't as much of a roller coaster.” Haven’t ventured on interstates during the past two years other than those within a few miles of home, I wondered what he meant. I found out, when I reached I-70 in Illinois. I thought I had crossed the border into a still-developing country. I was reminded of stories from people I know who have driven in some of the countries formerly behind the Iron Curtain. My thought that perhaps it was “last on the list” to be repaired was quickly dispelled as I encountered more and more interstate miles marked with PERMANENT “rough road” signs. On the return leg of the journey, I traversed the Indiana Toll Road, hailed by advocates of privatization of public assets as proof of the superiority of their “shrink government” mentality. Guess what? Parts of that road rivaled the atrocious condition of I-70 in Illinois. There’s no guessing in determining why these roads are a mess. The anti-tax movement is succeeding in wrecking the nation’s infrastructure, banking on an exasperated public giving in to the “private milking of public assets” game that, in the long run, as seen in Indiana, leaves the country no better off and a few special elites wealthier. Perhaps they’re trying to save up to buy a few more dozen pairs of shoes.
My conclusion is that there are two Americas. One, inhabited by the wealthy, is nowhere near a recession, doesn’t worry about highways because helicopters and private jets don’t use them, and detests paying taxes. The other, inhabited by everyone else, is in the economic doldrums, if not ready to fall into another recession or depression, endures deteriorating infrastructure and reduced services, suffers from unemployment or employment at wages falling in real dollar terms, and yet despite holding an overwhelming number of votes, manages to perpetuate the system that keeps them down. Perhaps after paying for more shock absorber and tire replacements, front end alignments, and suspension adjustments, they will decide that it’s cheaper, in the long run, to pay increased tolls.
Friday, August 26, 2011
A story broke last week, reported by the Associated Press and other sources, that the Republican members of Congress are opposed to extending the social security tax cut that was put into effect for this year. This tax cut applies to a tax imposed on the first $106,800 of wages, and reduced the 6.2% employee portion of the tax to 4.2%. The purpose of the reduction was to put more cash in the hands of ordinary consumers, whose increased purchasing stimulates the economy and creates jobs.
Failing to extend the cut, in other words, permitting the tax rate to return to 6.2%, is viewed by many as a tax increase. As I explained about a month ago in Tax Semantics, allowing a temporary tax cut to remain temporary is not a tax increase, though arguing that point is a distraction from the real issue. But for purposes of this discussion, calling it a tax increase drives home the larger point.
A rational person who pays attention to national politics would not be amiss in concluding that the anti-tax crowd, and that includes almost every Republican member of Congress, would be horrified at the idea of letting the temporary social security tax cut expire. After all, they are livid at the idea of letting the Bush tax cuts benefitting the wealthy terminate. Yet these anti-tax crusaders do not hesitate in their willingness to let the social security tax cut expire. Representative Jeb Hensarling claims that although lower taxes are better than higher taxes, “not all tax relief is created equal.” In other words, for these anti-tax Republicans, tax relief for the wealthy apparently is much more important than tax relief for low and middle income wage earners. Representative David Camp, who chairs the Ways and Means Committee, explained that tax reductions, “no matter how well-intended,” will increase the deficit and make the task of reducing the deficit “that much harder.” Camp gets points for that obvious bit of wisdom. If tax reductions, however, are a problem, then are not the Bush tax cuts even more of a problem, considering that they dwarf the social security tax cut? Where was Camp when those cuts were scheduled to expire and his colleagues went all out, in the face of spiraling deficits, to extend those tax cuts? Do we sense a double standard?
According to anti-tax Republicans, there is consistency in opposing a tax cut extension for ordinary Americans while heaping tax reductions onto the mega-rich. It is better, they say, to reduce corporate taxes and the tax burdens of the wealthy than it is to extend the social security tax cut. A spokesperson for House Majority Leader Eric Cantor claims that Cantor “has never believed that this type of temporary tax relief is the best way to grow the economy.” If he means that temporary tax cuts are not the answer to economic growth, then why the support for the extension of the temporary Bush tax cuts? If he means that temporary tax cuts for low and middle income individuals is not the answer, but that tax reductions for corporations and upper income individuals is the solution to the nation’s economic problems, can he please explain why the Bush tax cuts, rather than helping the economy, contributed to its downturn?
The answer might not be an extension of the social security tax cut. After all, the social security trust fund needs to be maintained and expanded to cover the benefits that are due to retirees in future years. The answer is to let the Bush tax cuts expire, and, ideally, to recoup the tax breaks from those who took them under the pretext of creating jobs that they had no need to create and no intention of creating.
So is there a double standard? Indeed there is. Perhaps a better word is hypocrisy. It’s interesting to watch the anti-tax group get painted into a corner as they are compelled to confess that they are not anti-tax across the board, but opposed to taxation of corporations and wealthy individuals. That does make sense from one perspective. Consider who contributes to the cost of acquiring elective office.
Wednesday, August 24, 2011
Today I close the series with a Supreme Court tax case involving a Thomas Maule descendant.
Sarah Prudence (Sally) Ordway (1910-1997), 7-great-granddaughter of Thomas Maule of Salem, Mass., and my 8th cousin: Sarah’s interest in a trust set up by her father, John Gilman Ordway (6-great-grandson of Thomas Maule of Salem, Mass.) was the subject of a gift tax disclaimer case, U.S. v. Irvine, 511 U.S. 224 (1994).
Monday, August 22, 2011
Today I continue with two members of the single tax movement.
Louis Blaul (1854-1909), married to Mary Conard Clendenon, 3-great-granddaughter of Thomas Maule of Salem, Mass., and my 3rd cousin four times removed: According to the Single Tax Review (1910), on googlebooks, “The death of Louis Blaul of West Philadelphia, robs that city of an earnest and devoted Single Taxer.” His funeral, we are told, was conducted “as he had desired, not according to the rites of any church, but by officiating Single Taxers.” One of many explanations of the single tax, and its chief advocate Henry George, can be found in this article.
Earl Harrington Foote (1882 - ?), 6-great-grandson of Thomas Maule of Salem, Mass., and my 7th cousin once removed: In 1920, Earl was a candidate for governor of Ohio on the single tax party ticket. According to Our Campaigns, he received 1407 votes, 0.07% of the total. In the 1930 census of Ohio, his occupation is listed as real estate agent. Earl was a 4th cousin three times removed of Louis Blaul’s wife Mary Conard Clendenon, but it is not known if Louis and Earl knew each other or knew of each other, though both were adherents of the single tax.
Friday, August 19, 2011
Today I continue with a tax return preparer.
Evelyn Newton (1919-2002), 7-great-granddaughter of Thomas Maule of Salem, Mass., and my 8th cousin: Among the many careers juggled by Evelyn was tax return preparer employed by H&R Block. Her interests and skills reached beyond taxation, as she was employed by Utah Power and Light, and the Bureau of Reclamation. She also was an Herbal Life and Vanda Make-up distributor for more than a quarter of a century. (Primary source: her obituary in the 5 July 2002 Salt Lake City Deseret News)
Wednesday, August 17, 2011
Today I continue with tax accountants.
Willard Clinton Warren (1922-2009), 5-great-grandson of Thomas Maule of Salem, Mass., and my 3rd cousin twice removed: Willard ended his long career as senior tax principal of KPMG Peat Marwick’s Boston office. After serving in the Army Air Corps during World War II, he returned to Bowdoin College to complete his degree, and then joined the family business, Warren Publications. After a few years as manager of Pro-Con, he joined Mount and Carter, a Boston accounting firm, which through a series of mergers, became part of KPMG Peat Marwick. (Primary sources: his obituary in the 16 April 2009 Portland (Maine) Press Herald, in the Bowdoin College Magazine, and in the Conway Daily Sun.
Charles Banks King (1927-2008), 6-great-grandson of Thomas Maule of Salem, Mass., and my 5th cousin once removed: Charles as a CPA, educated at Principia College and the University of Miami Graduate School of Business Administration. He was director of the Estate Planning Council of Greater Miami, was a member of committees of the Florida Institute of CPAs, and served in leadership capacities at many other civic and professional organizations. He was a director and treasurer of the Miami Beach Taxpayers Association. (Primary source: his obituary in the 21 Dec 2008 Miami Herald)
Monday, August 15, 2011
Today I continue with members of local tax boards.
Frederick William Savory (1927-2004), 7-great-grandson of Thomas Maule of Salem, Mass., and my 8th cousin: Frederick was a dairy farmer and crop supply company owner who served for many years on the Town of Greene (N.Y.) Tax Grievance Board. (Primary source: his obituary in the 11 August 2004 Binghamton Press & Sun Bulletin)
Richard Edgar Hewitt (1920 - ?), 5-great-grandson of Thomas Maule of Salem, Mass., and my 5th cousin twice removed: According to a 1982 clipping in an Evansville newspaper archive, Richard, who was president of the Hoover Abstract Corp., served on the Vanderburgh County Tax Adjustment Board as well as on several other civic and governmental boards and commissions.
Friday, August 12, 2011
Today I continue with two local tax officials.
George Perry Worrell (1863-1942), married to Mary Louisa Ogden, 4-great-granddaughter of Thomas Maule of Salem, Mass., and my 4th cousin 3 times removed (in addition to being a cousin through my Ogden ancestry): In the 1930 census of Pennsylvania, George’s occupation is listed as tax collector. On the three previous census enumerations, he had been listed as a salesman for a grocery store, but it’s not known if the tax collector position followed a career path change or a second job. I haven’t been able to learn anything more about his public service as a tax collector.
Joseph M. J. Flaig (1882-1933), married to May P. Neave, 4-great-granddaughter of Thomas Maule of Salem, Mass., and my 4th cousin 3 times removed: In the 1930 census of Missouri, Joseph’s occupation is listed as tax assessor for the city of St. Louis. According to his death certificate, at the time of his death he was deputy assessor for the city of St. Louis. I know nothing else about him.
Wednesday, August 10, 2011
Today I continue with two IRS employees.
Juanita Maude Tucker (1922-2006), 4-great-granddaughter of Thomas Maule of Salem, Mass., and my 3rd cousin three times removed: According to her obituary, Juanita “retired in 1988 after an exemplary 20-year career with the IRS.” Before working for the IRS, she was a co-owner and operator of the Powder Puff Beauty Shoppe in Bloomington, Texas, a business she started after raising her children. I do not know in what capacity she worked at the IRS. (Primary source: her obituary.
Rose Marie Randolph Agnes Maule (living), 6-great-granddaughter of Thomas Maule of Salem, Mass., and my aunt: After raising her and uncle Joe’s children, aunt Rose worked for many years as an IRS tax examiner in Philadelphia before retiring some years ago. I’ve never tried to pry into the details of what she did, respecting the confidentiality restrictions to which she was subject. My career with the Chief Counsel to the IRS began before I had learned that Aunt Rose was a tax examiner, though shortly after she had taken the position.
Monday, August 08, 2011
Today I continue with two employees of predecessors to the IRS.
Roy Levi Maule (1889-1940), 4-great-grandson of Thomas Maule of Salem, Mass., and my 4th cousin three times removed: In the 1930 census of Oregon, Roy’s occupation is listed as deputy collector for the Bureau of Internal Revenue. Many years ago, his cousin and son described his occupation as a public accountant, making no mention of his career with the BIR. In the 1920 census his occupation is listed as bank teller and in the 1910 census he is listed as a confectionary salesman.
Joshua Clendenon (1813-1892), great-great-grandson of Thomas Maule of Salem, Mass., and my 2nd cousin five times removed: During 1865 and 1866, Joshua was employed as a clerk by the Office of Internal Revenue, Department of the Treasury, in Washington, D.C. According to the 1860 census of Pennsylvania, he was working as a conveyancer before he moved to Washington. He eventually returned to Philadelphia, presumably after he retired. (Primary source: Congressional Serial Set, Issue 1293)
Friday, August 05, 2011
Today I continue with an IRS and a Treasury official.
James Albert Mackey (1943-1999), 6-great-grandson of Thomas Maule of Salem, Mass., and my 7th cousin once removed: From 1971 through 1980, Jim was an assistant commissioner of the IRS. He had worked at Deloitte and Touche after completing military service, and after his departure from the IRS he founded the accounting firm of Mackey and Kirkner in Newtown Square, Pa., where I grew up. His son Jim was a student of mine at Villanova’s Law School in the 1990s. (Primary source: his obituary in the 23 Nov 1999 Philadelphia Inquirer)
Lorin Blodgett (1823-1901), 3-great-grandson of Thomas Maule of Salem, Mass., and my 4th cousin four times removed: Among Lorin’s many careers were positions as manager of the Treasury Department’s financial and statistical reports, as appraiser-at-large of customs, and as special assistant in the Treasury Department. When not busy with Treasury matters, he made time to found the U.S. Weather Bureau, serve as assistant at the Smithsonian Institution in charge of climatology research, present papers on atmospheric physics, direct the surveying and determination of gradients and altitudes for the Pacific railway, work in the War Office, write at least 150 books, 350 pamphlets, thousands of editorial articles, and countless reports, edit newspapers, serve as secretary of the Philadelphia Board of Trade, and take the industrial census of Philadelphia four times. His “Commercial and Financial Resources of the United States” was reprinted in Germany and was a significant factor in maintaining the nation’s credit in European money markets. (Primary source: Famous Americans)
Wednesday, August 03, 2011
Today I begin with a legislator.
Francis E. Holman (1915-1991), 7-great-grandson of Thomas Maule of Salem, Mass., and my 8th cousin: Fran Holman, judge, state senator, and member of the state house in Washington, built his reputation as an independent legislator who “served the public rather than special interests” and was free from political influence. Former governor Dan Evans remarked, “Mr. Holman couldn’t be budged even by The Boeing Co., taking a stand involving taxation that Boeing opposed.” Reportedly that stand cost him his partnership in one of the state’s largest and most elite law firms. While in the state legislature, he was active in tax reform, “making [the issues] understanable to the public.” (Primary sources: his obituaries in the 11 June 1991 Seattle Post-Intelligencer and the 6 June 1991 Seattle Times)
Monday, August 01, 2011
The first edition dealt with six types of what I call qualified distressed areas. Early in the “use the tax law rather than spending grants” game, Congress created things such as empowerment zones, enterprise communities, renewal communities, and the District of Columbia Enterprise Zone. By 2011, the six had grown to 14, with the addition of an array of disaster areas, economically distressed production areas, and recovery zones. Though each of the 14 share the characteristic of being an area that has suffered or is suffering from economic set-backs, each one is defined differently.
The first edition of the Portfolio discussed 11 types of qualified assets, including enterprise zone businesses, renewal community businesses, qualified zone property, qualified renewal property, and DC Zone assets. The number of qualified asset types addressed by the second edition grew to 17. Added were things such as qualified equity investment and recovery zone property. Again, though these assets share the characteristic of being used in a qualified distressed area in some manner, the technical details buried in the definitions can make eyeballs spin. For example, try to imagine the differences among these types of property: qualified recovery assistance property, qualified section 179 recovery assistance property, qualified disaster assistance property, and qualified section 179 disaster assistance property.
The first edition analyzed 19 specific tax benefits available to taxpayers who meet the requirements for operating a business or making investments in a qualified distressed area. By 2011, the number had grown to 93. You read that correctly. From 19 to 93. Sounds like the title to the biography of someone’s adult life. The number of exclusions and deductions grew, and to that list were added more than a dozen credits. For example, there is a deduction for qualified disaster expenses and special rules for federally declared disaster area casualty losses.
Finally, the first edition described 12 tax detriments imposed on taxpayers who claimed one or more of the tax benefits. For example, amounts for which a deduction is provided cannot be used to increase basis, and in some instances, if property ceases to be a qualified asset, some sort of recapture applies. In the second edition, there are 51 tax detriments that need attention.
If that doesn’t demonstrate the unchecked growth of the tax law, try this. The manuscript for the first edition consisted of 172 single-spaced pages, with 1,708 footnotes. Using the same margins, font, and other parameters, the manuscript that I completed last week consists of 325 single-spaced pages, with 3,916 footnotes.
Isn’t it time that people get a handle on how much spending has been enacted in the tax law? Ought not economic benefits be treated in the same manner, whether they are direct grants or disguised grants hiding in complex Internal Revenue Code provisions? Is it not possible to create one set of rules for economically distressed areas? Why was it not enough to have empowerment zones? Why add renewal communities? And enterprise zones? Why are some tax benefits available to the Kansas disaster area but not the Hurricane Ike disaster area? Why are the special rules for the Midwestern disaster area different, and in some instances slightly different so as to catch the unwary off-guard, than those applicable to the Rita GOZone? Why are there different rules for the Hurricane Katrina disaster area and the GOZone, considering that the former is pretty much the latter? It’s not as though each time around, Congress refined the provisions and made them better or easier to understand. To the contrary, each of the many dozens of times Congress has added, modified, twisted, or tinkered with the provisions, the language became denser and longer. Why?