Gerol v. Department of Revenue
| Decision Date | 22 May 1991 |
| Docket Number | No. 90-2219,90-2219 |
| Citation | 163 Wis.2d 525,472 N.W.2d 248 |
| Parties | NOTICE: UNPUBLISHED OPINION. RULE 809.23(3), RULES OF CIVIL PROCEDURE, PROVIDE THAT UNPUBLISHED OPINIONS ARE OF NO PRECEDENTIAL VALUE AND MAY NOT BE CITED EXCEPT IN LIMITED INSTANCES. A. Yale GEROL, Petitioner-Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent. |
| Court | Wisconsin Court of Appeals |
Appeal from an order of the circuit court for Racine county: Emmanuel J. Vuvunas, Judge.
Circuit Court, Racine County.
AFFIRMED.
Before NETTESHEIM, P.J., and BROWN and ANDERSON, JJ.
The issue on this appeal is whether the Wisconsin Department of Revenue (department) properly reallocated certain income reported by the taxpayer's service corporation to the taxpayer personally. We uphold the department's actions. We therefore affirm the circuit court order which upheld the Wisconsin Tax Appeals Commission's ruling that the department's reallocation of income was proper.
Although the taxpayer, Dr. A. Yale Gerol, takes issue with certain of the Commission's ultimate fact determinations, the essential historical facts are not in dispute. Dr. Gerol is a neurosurgeon and neurologist. In 1975, Dr. Gerol organized a professional service corporation, 1 the Gerol Clinic for Neurological Services, S.C. (the clinic). Dr. Gerol was the clinic's sole shareholder and only physician employee.
On January 2, 1976, Dr. Gerol entered into an employment contract with the clinic. This agreement provided, inter alia, that Dr. Gerol accepted employment with the clinic as its president and principal executive officer and, in addition, agreed to practice medicine on behalf of the clinic "in the customary practice of medicine in which Employer [the clinic] is engaged." This employment agreement also obligated Dr. Gerol to practice medicine only for the clinic unless otherwise authorized by the clinic's board of directors. The agreement gave the clinic full supervisory authority over the conditions of Dr. Gerol's employment. Pursuant to the agreement, all fees engendered by Dr. Gerol's medical services belonged to the clinic.
In 1984, Dr. Gerol suffered an arm injury in a skiing accident. As a result, Dr. Gerol decided to discontinue his neurosurgery and neurology practice.
By its letter of August 27, 1984, St. Catherine's Hospital and Medical Center (St. Catherine's) offered to hire Dr. Gerol, as an independent contractor, to serve as the hospital's "half-time" medical director. Dr. Gerol signed his acceptance of this offer on August 31, 1984. On its face, Dr. Gerol's signature does not indicate that he signed this agreement in any representative capacity. A contemporaneous addendum to this agreement also carried Dr. Gerol's signature without any such qualification. On April 3, 1985, the parties signed a modification to this agreement, changing the medical director's position from part-time to full-time. Again, Dr. Gerol did not sign in any representative capacity.
Although the agreement did not so provide, St. Catherine's made all payments called for under the agreement to the clinic. The clinic, in turn, reported this income on its 1984-85 corporate income tax returns.
On October 12, 1987, the department issued to Dr. Gerol a "Notice of Amount Due" for additional taxes and interest in the amount of $14,866.29 for the period of 1982-85. Part of this assessment represented the department's reallocation of the St. Catherine's payments from the clinic to Dr. Gerol.
Dr. Gerol asked the department to reconsider its actions by filing a petition for redetermination with the department. On May 12, 1988, the department denied Dr. Gerol's petition. 2
Dr. Gerol appealed to the Wisconsin Tax Appeals Commission. The commission determined that the department correctly reallocated the disputed income to Dr. Gerol. 3 The commission principally relied upon the following facts: (1) St. Catherine's solicited and hired Dr. Gerol, not his service corporation clinic; (2) St. Catherine's contracted with Dr. Gerol, not his service corporation clinic; (3) Dr. Gerol contracted with St. Catherine's personally, not on behalf of his service corporation clinic; and (4) the clinic had no meaningful control or supervision over Dr. Gerol's duties as St. Catherine's medical director.
Upon Dr. Gerol's petition for judicial review, the circuit court upheld the commission's decision and order. Dr. Gerol further appeals to us.
When a department assessment is disputed, the burden of proof is on the taxpayer to show error in the additional assessment because the additional assessment is presumed to be correct. Woller v. Department of Taxation, 35 Wis.2d 227, 232, 151 N.W.2d 170, 172 (1967).
A basic principle of tax law holds that income is taxed to the person who earns it. Lucas v. Earl, 281 U.S. 111, 114-15 (1930); Wenger v. DOR, 109 Wis.2d 677, 681, 327 N.W.2d 209, 212 (Ct.App.1982).
Dr. Gerol cites Foglesong v. Commissioner, 691 F.2d 848 (7th Cir.1982), in support of his claim that the department improperly reallocated the St. Catherine's payments to him. In Foglesong, the Commissioner of Internal Revenue reallocated income received by the taxpayer's personal service corporation to the taxpayer. The United States Tax Court upheld this action. The United States Court of Appeals for the Seventh Circuit reversed, noting that the taxpayer and his corporation were engaged in the identical business and the taxpayer worked exclusively for the corporation. Id. at 851.
We are not persuaded that Foglesong controls this case. Although Dr. Gerol's duties as St. Catherine's medical director obviously were medical related, these duties were not "identical" with his previous employment as the clinic's neurosurgeon and neurologist. In fact, Dr. Gerol's duties markedly changed from an active "hands-on" practitioner to an administrator and consultant. This is not...
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