Alford v. U.S.

• Decision Date: 20 June 1997
• Docket Number: No. 96-3287,96-3287
• Citation: 116 F.3d 334
• Parties: -3105, 97-2 USTC P 50,502, Unempl.Ins.Rep. (CCH) P 16001B.04 James T. ALFORD; Freda Alford, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 334

116 F.3d 334

79 A.F.T.R.2d 97-3105, 97-2 USTC P 50,502,

Unempl.Ins.Rep. (CCH) P 16001B.04

James T. ALFORD; Freda Alford, Appellants, v. UNITED STATES of America, Appellee.

No. 96-3287.

United States Court of Appeals Eighth Circuit.

Submitted April 18, 1997.

Decided June 20, 1997.

Frank Sommerville, Houston, TX, argued (Robert Alan York, on the brief), for appellants.

Teresa T. Milton, Department of Justice, Washington, DC, argued (Kenneth L. Greene, on the brief), for appellees.

Before BOWMAN, WOLLMAN and HANSEN, Circuit Judges.

BOWMAN, Circuit Judge.

James P. and Freda Alford appeal from the decision of the District Court granting summary judgment in favor of the United States on the Alfords' claim to recover income tax and interest paid to the Internal Revenue Service (IRS). We reverse and remand.

The Alfords, husband and wife, timely filed joint federal income tax returns for the tax years 1986, 1987, and 1988. The IRS assessed deficiencies against the taxpayers for those three years, which they paid with interest. The Alfords then filed with the IRS claims for refunds of the amounts paid, but their claims were disallowed.

In June 1994, the Alfords filed a complaint in the District Court pursuant to I.R.C. § 7422 (1994) seeking, among other things, a refund of the alleged deficiencies and the interest paid. The parties filed a joint stipulation of issues and facts and cross-motions for summary judgment. In June 1996, the court granted the government's summary judgment motion as to all but one issue, on which the Alfords received summary judgment. The Alfords appeal.

Although there were several issues decided by the District Court, only one issue has been appealed: whether during tax years 1986, 1987, and 1988 James Alford was an employee within the meaning of the relevant provisions of the tax code. ¹ On their federal income tax returns for those years, the taxpayers claimed that Alford was not an employee but an independent contractor. But the IRS determined that he was an employee and recalculated the Alfords' tax liability. If he was an independent contractor, then he was entitled to deduct the full amount of his business expenses from his earned income for those years. See I.R.C. § 62(a)(1) (1994). If on the other hand he was an employee, then his miscellaneous itemized deductions, including his business expenses, would "be allowed only to the extent that the aggregate of [miscellaneous itemized] deductions exceeds 2 percent of adjusted gross income." Id. § 67(a) (1994). The assessed deficiencies at issue on appeal are the result of the difference in the amount of business expenses allowed as deductions under these two calculations.

We review a decision to grant summary judgment de novo to determine whether there are any genuine issues of material fact and whether the prevailing party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). Because the parties here have stipulated to the relevant facts, the only question is whether, as a matter of law, James Alford was an employee or an independent contractor within the meaning of the applicable provisions of the tax code during the years in question. ²

The parties agree that, in order to determine whether Alford was an employee, we look to the common law of agency, as the tax code does not define "employee" for these purposes. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24, 112 S.Ct. 1344, 1348-49, 117 L.Ed.2d 581 (1992) (applying common law agency rules to question of whether individual was employee under Employee Retirement Income Security Act (ERISA)). The ultimate question of whether Alford is an employee or an independent contractor is one of law, and is answered by looking at the facts and applying the common law agency test. See Birchem v. Knights of Columbus, No. 96-2294, slip op. at 5, 116 F.3d 310, ---- (8th Cir.1997) ("We review the ultimate question of employment status de novo.") (Americans with Disabilities Act case); Short v. Central States, S.E. & S.W. Areas Pension Fund, 729 F.2d 567, 571 (8th Cir.1984) ("Whether a given individual is an employee or independent contractor is a question of law, which must be decided by reviewing the particular facts in each case.") (ERISA case). ³

At all times relevant to this appeal, James Alford was an ordained minister holding credentials in the Assemblies of God Church, a national religious organization with its headquarters in Springfield, Missouri. The Assemblies of God organization awards credentials to those who have been approved to be ministers of the church. Ordination is the third and highest level a minister in the church may attain. During 1986, 1987, and 1988, Alford was the pastor at the First Assemblies of God Church in Hampton, Arkansas.

The national church is headed by the General Superintendent and governed by the General Council. The General Council is composed of all ordained Assemblies of God ministers with current fellowship certificates (currently holding credentials) and all Assemblies of God churches holding affiliation certificates. The work of the General Council is carried out through geographically determined regional districts, one of which is the state of Arkansas. The Arkansas District Council has oversight responsibility for some 430 Assemblies of God churches and over 1000 Assemblies of God ministers in the state, which included Alford during 1986, 1987, and 1988 when he was pastor at the Hampton Church.

Based on the stipulated facts, the District Court concluded that Alford could not be considered an employee of the Hampton Church. The United States does not appeal that determination. ⁴ The District Court went on, however, and found that "[a]n extremely close relationship exists" among the national, regional, and local church entities and "thus, the control exercised by each of them should be considered together." Alford v. United States, Civil No. 94-1074, mem. op. at 9 (W.D. Ark. filed June 28, 1996). The court concluded that Alford was an employee because of the "significant control by the Hampton Church, through its supervision by the District Council and the National Church, over the manner in which James Alford performed his work." Id. We think the court erred.

As an initial matter, we are not convinced that the District Court properly combined the control exercised over Alford by three separate entities in order to arrive at its decision that Alford was an employee. We are concerned that this rationale leaves us unable to identify Alford's actual employer. It seems axiomatic that one cannot be deemed an employee for the purpose of determining the extent to which business expenses are deductible under the tax code unless an employer in whose service those expenditures were made can be identified. But the question of whether aggregation is proper is not one we need reach today. Instead, we hold that the District Court erred in concluding that, even combined, the three entities' right to control Alford was sufficient to deem him an employee for purposes of the business expense deduction.

The United States urges us to rely on the opinion from the United States Tax Court in Weber v. Commissioner, 103 T.C. 378, 1994 WL 461872 (1994), aff'd, 60 F.3d 1104 (4th Cir.1995) (2-1 decision). ⁵ In Weber, the court determined that a United Methodist minister was an employee, but did "not decide which part of the United Methodist Church is the employer" because that was not an issue in the case. Weber, 60 F.3d at 1114. The court noted, however, "that there may be differences with respect to ministers in other churches or denominations, and the particular facts and circumstances must be considered in each case." Id. at 1114 n. 1. That note was probably a reference to another tax court opinion filed the same day, Shelley v. Commissioner, 68 T.C.M. (CCH) 584 (1994). ⁶ In Shelley, a minister of the International Pentecostal Holiness Church (IPHC) was held to be an independent contractor for the purpose of deducting business expenses. Differences in church structure between the Methodist Church and the IPHC accounted for the contrary results, but the dissenting judge in the Fourth Circuit's decision in Weber believed that the factual differences between the two cases were not sufficient to warrant different results.

As Weber, Shelley, and other opinions dealing with this question demonstrate, the employee-independent contractor inquiry is extraordinarily fact intensive, notwithstanding that the ultimate question is one of law. We conclude, after applying the law to the stipulated facts, that for purposes of this appeal Alford was an independent contractor and was not an employee during the tax years in question.

The Supreme Court in Darden noted a number of factors to be considered in applying the common law agency test, stressing that "all of the incidents of the relationship must be assessed and weighed with no one factor being decisive." Darden, 503 U.S. at 324, 112 S.Ct. at 1349 (quoting NLRB v. United Ins. Co. of Am., 390 U.S. 254, 258, 88 S.Ct. 988, 990-91, 19 L.Ed.2d 1083 (1968)). Besides evaluating "the hiring party's right to control the manner and means by which the product is accomplished," the factor upon which the District Court in this case concentrated, we also look at

the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; [and ] the provision of employee benefits.

Id. at 323-24, 112 S.Ct. at 1348 (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730,...