Adult Care Facility Worker Was an Employee, Not an Independent Contractor.
(Parker Tax Publishing May 1, 2014)

A worker at an adult care facility was an employee rather than an independent contractor and thus was not liable for self-employment tax on the income he earned from working at the facility. Rahman v. Comm'r, T.C. Summary 2014-35 (4/15/14).

In March 2010, Atig Rahman began working for Ever Care Adult Care Services, a business that provides a home and other care services to adults with disabilities. Ever Care paid Atig $9,075 for his services in 2010. Ever Care hires both floor staff and group home managers. Ever Care originally hired Atig to be a member of the floor staff, but he was promoted to group home manager after working approximately two weeks. The group home he managed was staffed with approximately six other full-time workers, and the home always had at least one staff member present. Atig worked approximately 40 hours a week and was paid an hourly rate every two weeks. When Atig was not working, he was on call as the first point of contact should a problem arise at the home. Atig did not have any ownership interest in Ever Care or in any of the properties associated with Ever Care.

When Ever Care hired Atig, the employment agreement specified his duties and responsibilities, many of which were required by the State of Florida to maintain an adult care facility. A copy of those duties and responsibilities was posted in each of Ever Care's group homes. Ever Care specified not only Atig's particular job duties, but also specified when and where to perform them. Atig's duties included preparing a monthly forecast of finances; purchasing groceries for the home; meeting with officials from the Florida licensing agency; maintaining the home and making repairs; and scheduling, hiring, and firing staff. His duties also included assisting residents with personal grooming and facilitating transportation for them. Atig provided Ever Care's owner with financial projections each month and met with the owner weekly for an accounting of grocery purchases. He also reported to the owner daily regarding how the home was running. In addition, he would contact the owner in the event of any emergency. Ever Care paid for the weekly groceries for the residents as well as for upkeep and repairs to the home. Atig did not incur any out-of-pocket expenses related to his work at Ever Care.

Ever Care considered Atig to be an independent contractor and provided him with a Form 1099-MISC, Miscellaneous Income, for 2010. Atig hired a CPA to prepare his 2010 federal income tax return. Atig did not pay any self-employment tax on the return. The IRS mailed him a deficiency notice for 2010. In the notice, the IRS determined, among other things, that Atig was an independent contractor of Ever Care and therefore liable for self-employment tax. Atig filed a petition for redetermination, alleging that he was an employee of Ever Care and therefore not liable for self-employment tax.

Code Sec. 1401 imposes a tax on income earned from self- employment. Income from self-employment consists of gross income derived by an individual from any trade or business carried on by the individual. The self-employment tax, however, does not generally apply to compensation paid to an employee. "Employee" means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.

Whether an individual is an employee or independent contractor is a factual question to which common law principles apply. Factors that are particularly relevant in determining the substance of an employment relationship include: (1) the degree of control exercised by the principal over the details of the work; (2) the taxpayer's investment in the facilities used in his or her work; (3) the taxpayer's opportunity for profit or loss; (4) the permanency of the relationship between the parties; (5) the principal's right of discharge; (6) whether the work performed is an integral part of the principal's regular business; and (7) the relationship that the parties think they are creating. All of the facts and circumstances of each case are considered, and no single factor is determinative. The factors are not necessarily weighted equally; rather, they are considered according to their significance in the particular case.

After considering these factors, the Tax Court concluded that Atig was an employee of Ever Care and not an independent contractor. Thus, he was not liable for self-employment tax on income he earned from Ever Care in 2010.

For a discussion of a worker's status as an employee or independent contractor, see Parker Tax ¶210,110. (Staff Editor Parker Tax Publishing)

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