When Should an Employee be a Contractor?

oil well at dusk

From Accountingweb, Ken Berry reports on a recent tax court case in which a diesel technology specialist who worked for multiple years for a company was found to be an employee. Ken writes:

In a new case, McGuigan, T.C. Summary Opinion 2019-27, 9/30/19, the Tax Court examined the facts involving a worker who had a long-term relationship with an employer.

In the new case, the taxpayer, who was a diesel technology specialist, had a long-standing business relationship with an entrepreneur. After the entrepreneur started a new company, he invited the taxpayer to work for him. Based on an oral agreement, the taxpayer performed gas recovery services for this employer at multiple oil well sites across Montana and North Dakota.

Each day the taxpayer filed work reports showing that he was providing quality service. Additionally, the taxpayer submitted equipment logs.

The taxpayer was responsible for work-related expenses including food, lodging, travel and insurance. He was also responsible for any expenses arising from damage to the equipment during transport. The employer didn’t reimburse him for these expenses. Also, the taxpayer drove his own truck to the various worksites and took his tools with him.

The Tax Court listed the following factors to be examined in deciding whether an employer-employee relationship exists:

  • The degree of control exercised by the principal over the details of the work
  • Which party invests in the facilities used in the work
  • The opportunity of the taxpayer for profit or loss
  • Whether the principal has the right to discharge the taxpayer
  • Whether the work is part of the principal’s regular business
  • The permanency of the relationship
  • The relationship the parties believe they are creating

In its analysis, the Tax Court determined that the majority of the factors indicated that the taxpayer was an employee, even though he worked without any supervision. Thus, he could only deduct unreimbursed employee business expenses as miscellaneous expenses.

Read the full story at When Should an Employee be a Contractor?

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