Hampton Software Development, LLC v. Commissioner of Internal Revenue, 061918 FEDTAX, 30231-13L

Docket Nº:30231-13L
Opinion Judge:CHIECHI, Judge
Party Name:HAMPTON SOFTWARE DEVELOPMENT, LLC, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Brianna Tipton and Zachary K. Gregory, for petitioner. G. Chad Barton, for respondent.
Case Date:June 19, 2018
Court:United States Tax Court
 
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T.C. Memo. 2018-87

HAMPTON SOFTWARE DEVELOPMENT, LLC, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 30231-13L

United States Tax Court

June 19, 2018

Brianna Tipton and Zachary K. Gregory, for petitioner.

G. Chad Barton, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge

This case arises from a petition filed in response to a notice of determination concerning collection action(s) under section 6320 and/or 63301 that respondent's Appeals Office (Appeals Office) issued to petitioner (notice of determination).

In the notice of determination, respondent's Appeals Office determined that petitioner was precluded under section 6330(c)(2)(B) from challenging the underlying liabilities that respondent had assessed against petitioner for (1) respective employment taxes for the quarters ended on June 30, September 30, and December 31, 2009, and March 31, June 30, September 30, and December 31, 2010, (2) unemployment tax for 2010, and (3) respective additions under section 6651(a)(1) and (2) to and penalties under section 6656(a) on those respective taxes for those quarters.[2] In Hampton Software Dev., LLC v. Commissioner, T.C. Memo. 2016-38, we held that petitioner was not precluded under section 6330(c)(2)(B) from challenging the underlying taxes at issue.

Petitioner disputes here the determination in the notice of determination sustaining a proposed levy to collect the underlying taxes at issue.3 In order to resolve whether to sustain that determination, we must decide the following issues: (1) Was Robert Herndon an employee or an independent contractor of petitioner for the quarters in question? We hold that Robert Herndon was an employee of petitioner.

(2) Although we have held that Robert Herndon was an employee of petitioner for the quarters in question, is petitioner nonetheless entitled to relief under section 530 of the Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. at 2885, as amended, for those quarters?4 We hold that petitioner is not entitled to such relief.

(3) Is petitioner liable for the additions under section 6651(a)(1) and (2) to and the penalties under section 6656(a) on the respective employment taxes and unemployment tax for the taxable periods in question? We hold that petitioner is so liable.

FINDINGS OF FACT5

Some of the facts have been stipulated and are so found.

Petitioner had a mailing address in Broken Arrow, Oklahoma, at the time it filed the petition.

Petitioner is a limited liability company organized on September 19, 2005, under the laws of the State of Oklahoma. William Hampton and Brent Hampton were the sole owners of petitioner. (We shall sometimes refer collectively to William Hampton and Brent Hampton as the two owners. Our references to petitioner frequently are references to one or both of the two owners who were authorized to conduct petitioner's business.)

Petitioner was in the business of owning and operating the Orchard Park Apartments (apartment complex business), a 60-unit apartment complex in Tulsa, Oklahoma (apartment complex), which it had acquired and placed in service in July 2006. At the time of that acquisition, Robert Herndon (Mr. Herndon) was providing various services for the apartment complex to the former owner. Around the time petitioner acquired the apartment complex in July 2006, it retained Mr. Herndon to continue providing various services for that complex to petitioner, the new owner. At the time of the trial in this case, Mr. Herndon was still providing various services for the apartment complex to petitioner.

Petitioner, as the owner and the operator of the apartment complex, established the amount of rent that it charged for each apartment at that complex. Petitioner also established the policies, rules, and/or regulations that were to apply at the apartment complex, such as policies on pets and rules or regulations governing the swimming pool at that complex. Only petitioner had the authority to change any policies, rules, and/or regulations that it had established for the apartment complex.

Petitioner maintained an office at the apartment complex (petitioner's office). Petitioner's office consisted of two apartments that had been modified to serve as petitioner's office. Petitioner had placed certain equipment and other items in that office for use in carrying on its apartment complex business, including a computer and a printer, a file cabinet for retaining tenant files, a book of blank rent receipts, a drop box for rent payments, a bank deposit bag for use by petitioner's two owners to take rent payments to its bank for deposit, blank rental application forms, and blank lease forms.

Mr. Herndon served as the property manager at the apartment complex for petitioner. He was the only person who performed work regularly at that complex for petitioner. Mr. Herndon did not supervise any person whom petitioner retained from time to time to perform work at the apartment complex that Mr. Herndon was not qualified to handle.

From the time Mr. Herndon began working for petitioner in 2006 as the property manager at the apartment complex, he resided in an apartment at that complex, which was immediately adjacent to petitioner's office.

Petitioner directed Mr. Herndon to undertake, inter alia, the following work at the apartment complex, which included not only certain management types of work but also certain other types of work: (1) general maintenance work, such as (a) doing whatever routine work (e.g., routine plumbing work) was needed to maintain the apartments, (b) doing whatever work was needed in vacant apartments to make them suitable for the occupancy of new tenants (e.g., sheetrock repair, removing and replacing old carpet, and painting), (c) performing concrete and fence post repair work as needed for the area around the swimming pool, (d) mowing the lawn with petitioner's lawn mower, and (e) doing other work relating to the general maintenance of the apartment complex; (2) placing newspaper advertisements showing the availability of apartments for rent; (3) accepting applications to rent from prospective tenants; (4) showing apartments for rent to prospective tenants; (5) reviewing applications to rent from prospective tenants; (6) deciding whether to accept or reject those applications by following the guidelines that petitioner had established for accepting or rejecting prospective tenants; (7) usually deciding whether to evict a tenant, although sometimes consulting with one of the two owners about whether to evict a tenant; (8) answering telephone calls made to petitioner's office when neither of the two owners nor Mr. Herndon was in that office, which, in that event, were automatically forwarded to Mr. Herndon's mobile telephone; and (9) processing rental payments received by (a) inputting into petitioner's computer in petitioner's office the status of rental payments, (b) using petitioner's bank stamp on rent payment checks for deposit to petitioner's bank account, (c) placing those stamped checks into a bank bag to be picked up by one of the two owners, (d) issuing receipts to tenants for rent paid, and (e) placing copies of those receipts in a so-called book of receipts that one of the two owners thereafter retrieved from petitioner's office.

In performing some of the general maintenance work at the apartment complex, Mr. Herndon used his own maintenance tools (e.g., hammer, saw, drill, and mud bucket for carpentry work or plumbing maintenance work).6

Pursuant to the work arrangement that Mr. Herndon had with petitioner, petitioner had the right to discharge him at any time, and he had the right to resign at any time. Pursuant to that arrangement, petitioner had the right to control or direct what work Mr. Herndon was to perform at the apartment complex and how he was to do that work.

Not only did petitioner have the right to control or direct what work Mr. Herndon was to perform at the apartment complex and how he was to do that work, it also exercised that right as follows. Petitioner directed or controlled what work Mr. Herndon was to perform at the apartment complex and how he was to do that work by, inter alia, giving him instructions as to what to do or what not to do; giving him instructions on how to do the work that he was directed to perform; giving him instructions specifying the dates on which it required Mr. Herndon to do certain work; prioritizing the work that it required Mr. Herndon to perform; giving him guidelines which the two owners discussed with him and which he was required to follow in performing most of the work for which he was responsible; and requiring Mr. Herndon to submit reports on the status of the nonroutine work that he was doing. To illustrate petitioner's control or direction of Mr. Herndon's work at the...

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