McCormick v. United States, 173-73.

Decision Date17 March 1976
Docket NumberNo. 173-73.,173-73.
Citation531 F.2d 554
PartiesJames P. McCORMICK v. The UNITED STATES.
CourtU.S. Claims Court

Herbert L. Awe, Washington, D. C., attorney of record, for plaintiff. Michael Mulroney, Washington, D. C., and William L. Goldman, of counsel.

Donald H. Olson, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, Washington, D. C., for defendant. Theodore D. Peyser, Jr., Washington, D. C., of counsel.

Before SKELTON, KUNZIG and BENNETT, Judges.

OPINION

PER CURIAM:

This case comes before the court on plaintiff's exceptions to the recommended decision, filed March 24, 1975, by Trial Judge Roald A. Hogenson, pursuant to Rule 134(h), having been submitted to the court on the briefs and oral argument of counsel. Upon consideration thereof, since the court agrees with the trial judge's recommended decision, as hereinafter set forth, it hereby affirms and adopts the same as the basis for its judgment in this case. Therefore, it is concluded that plaintiff is not entitled to recover and the petition is dismissed.

OPINION OF TRIAL JUDGE

HOGENSON, Trial Judge:

This is an action to recover an alleged overpayment of Federal employment taxes for the quarter ending September 30, 1972. Commonly known as social security taxes, such taxes are imposed on wages by the Federal Insurance Contributions Act, under section 3101 of the Internal Revenue Code of 1954 as to the employee's share of the tax, and under section 3111 as to the employer's share, with the employer charged by law with collecting and paying the employee's share of the tax by withholding from wages.

The issue is whether certain persons known as free-lance exercise boys (riders) and hotwalkers, who perform services for plaintiff in his business of training racehorses, are independent contractors, in which status their compensation for such services would not be wages subject to the tax, or whether such persons are employees of plaintiff, with their compensation as wages subject to the tax.

For the purposes of such taxes, section 3121(d) defines the term "employee" as "any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee * * *."

For the reasons stated herein, it is concluded that plaintiff's free-lance exercise riders and hotwalkers are employees of plaintiff, that the employment taxes were properly collected from plaintiff, and that plaintiff's petition should be dismissed.

The facts in this case are set forth in detail in the findings of fact which follow. They will be summarized here only to the extent necessary to explain the basis for the decision that plaintiff is not entitled to recover.

Taxpayer, James P. McCormick, is a public trainer of thoroughbred racehorses. As such, he trains horses of various owners to win horse races. Sometimes he is the owner or partial owner of horses he stables and trains. His obligations to a racehorse owner include providing shelter, feed, the basic equipment needed for training, daily maintenance and a training program directed toward making the horse a winner of races. The trainer is paid a flat daily fee of approximately $20 for his services and receives a portion of the purse when a horse wins a race. The trainer's relationship to the owner is that of an independent businessman. When necessary peripheral services, such as those of a veterinarian or a blacksmith, are needed the trainer engages the personnel and the cost is normally paid by the owner. In the regular conduct of the horse training business, the trainer retains the services of personnel necessary to assist him in properly training the horses.

Plaintiff uses the services of a foreman, grooms, hotwalkers and exercise riders on a regular basis. He acknowledges that those among such personnel who have a regular, permanent relationship with him are his employees for Federal employment tax purposes. As is commonly done in the racehorse training business, plaintiff obtains the services of other hotwalkers and exercise riders on an irregular basis to walk or exercise horses when the regular personnel are unavailable. It is the status of these people, hired on an irregular, nonpermanent basis, that is in issue here.

The training program involves conditioning the horse for racing through a regimen devised by the trainer according to the trainer's assessment of the horse. The program involves giving the horse some exercise every day. The basic exercises take the form of a "walk" (leading the horse at a walking pace to provide light exercise or to "cool" the horse gradually after strenuous exercise), a "gallop" (running the horse on the track at less than full speed), and a "work" (running the horse at full speed for short distances). The "walk" is performed by a person called a "hotwalker," or when available and weather conditions permit, by a hotwalking machine which mechanically leads the horse around in a circle. An exercise rider puts the horse through a "gallop" or a "work." The trainer tells such rider what type of exercise is to be accomplished and at which speed and for what distance the horse should be ridden on each occasion.

The trainer is normally in attendance at the track, whether a regular or irregular exercise rider is handling the horse, observing the exercise. The trainer is more cautious and more likely to be present when an irregular or so-called free-lancer1 is handling the horse because of the free-lancer's unfamiliarity with the horse, or his lack of understanding of the trainer's "modus operandi," or because of the trainer's unfamiliarity with the free-lancer's ability. As a trainer's confidence in a free-lancer increases, the amount of instruction and observation may, to a degree, lessen. The trainer has the authority to countermand an instruction or terminate a free-lancer's job when the work is in progress. In the case of the exercise rider, this is obviously difficult and sometimes impossible to do because of the problem of controlling a racehorse and its rider while in motion. Such orders are rare, given only on the most unusual occasions.

An exercise rider must be experienced and highly skillful to handle a thoroughbred racehorse. To ride an animal as temperamental and physically adept as a racehorse through the trainer-prescribed routine calls for a significant degree of equestrian proficiency. In a literal sense, the exercise rider physically controls the horse when he is astride it. However, the rider's range of discretion is narrow in nature—limited to knowing when to discontinue an exercise to avoid injury to the horse. The exercise rider rarely decides what exercise the horse will do or how it will be done. But in terms of physical control, the rider makes the horse successfully perform the exercise. To conform with the trainer's instructions, the exercise rider must possess good judgment concerning the stride (distance covered with each movement of the horse's legs) and pace (distance covered in a given time). The exercises normally take place during morning hours when the track is available for that purpose, both the regular and freelance services being performed during that time. The trainer generally supplies the saddle and blankets for the horse. To save time and prevent disease the horse is usually saddled and ready for the free-lancer to ride. The free-lancer's equipment consists of riding boots and a protective helmet, required by track rules. All exercise personnel are covered for risk of injury while riding a horse, either through the trainer's workmen's compensation insurance (state or privately operated) or through the Horsemen's Benevolent Protective Association Assistance Fund.

The major performance difference between the free-lancer and the regular exercise rider is: When the exercise ends, the free-lancer's work for that specific trainer is done, whereas the regular exercise rider has to be available to perform other duties for the trainer. Free-lance exercise riders are frequently looking for a trainer to hire them on a regular employment basis. Those having regular employment with a trainer endeavor to earn extra money by riding for others on a free-lance basis whenever they can. Harry Stauffer, one of the free-lancers whose employment status is here in dispute, was an exception. Stauffer had been a jockey for 10 years and returned to being an exercise rider. He relished being able to work when he pleased, viewed himself as an independent and did not want to work for anyone on a regular basis. Although free-lancers may work for more than one trainer, they develop familiarity and experience with certain horses, and they usually ride the same horses every day.

During the period in issue, both the taxpayer's free-lancers and his regular exercise rider (Donny Miller) were paid on a per-ride basis. Subsequent to the period in issue the taxpayer provided Miller a guaranteed minimum salary rate not entirely predicated on the number of horses he rode. Free-lancers were paid only for horses ridden, whereas regular employees also enjoyed a Christmas bonus, received vacation pay and shared in "stakes," which is a portion of the prize money received when a horse wins.

For the period in issue, the third quarter of 1972, taxpayer complied with Rev.Rul. 72-1552 which holds that free-lance exercise riders and hotwalkers were employees of the trainer, and timely paid the Federal employment taxes for the individuals3 whose employment status is in dispute. Subsequently taxpayer filed a claim for refund which stated that these people were not employees but independent contractors and protested that the legal conclusions in Rev.Rul. 72-155 were erroneous. The Government failed to issue a statutory notice of disallowance within the prescribed 6-month period, and the taxpayer subsequently filed suit in this court.

Plaintiff would have a narrow test applied as to what constitutes control for...

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