In re Rasbury
| Decision Date | 05 September 1991 |
| Docket Number | Bankruptcy No. 90-70871,90-71457. |
| Citation | 130 BR 990 |
| Parties | In re Billie Vester RASBURY, Debtor. In re BILL'S FORESTRY SERVICE, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
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Richard O'Neal, Asst. U.S. Atty., Birmingham, Ala., Scott Crosby, Neal I. Fowler, U.S. Dept. of Justice, Washington, D.C., for I.R.S.
Bruce Ely, Tuscaloosa, Ala., Marvin Franklin, Birmingham, Ala., Helen H. Ellis, Estate Analyst, Tuscaloosa, Ala., for debtors.
This matter came before the court on debtors' (Billie Vester Rasbury and Bill's Forestry Service, Inc.) objection to the claim of the United States Internal Revenue Service for retroactive withholding taxes (income, FICA and FUTA), interest and penalty for tax years 1986, 1987 and 1988. The court has heard evidence at hearing and reviewed the record of the case in the context of the applicable law. The debtors' objection to claim is due to be SUSTAINED, and the Internal Revenue Service's claims for the withholding taxes, interest penalty are due to be DISALLOWED.
Billie Vester Rasbury of Winfield, president and shareholder of Bill's Forestry Service, Inc., testified that he went to work in the logging business with his father at age nine in 1940. Rasbury, a plaintiff in this objection-to-claim action against the Internal Revenue Service, told the court he had a tenth-grade education, and earned his high school equivalency certificate by taking the general educational development test in Tuscaloosa in 1962.
Rasbury testified that he had been in the logging contracting business for himself since 1976. His sole proprietorship was incorporated as Bill's Forestry Service, Inc., in Fayette County, Alabama, in 1986. Rasbury became president of the new corporation. He and his wife, Jo Ann Rasbury, were sole shareholders. The Rasburys still occupy those roles.
Rasbury and Bill's Forestry Service, Inc., continued to contract with forest products companies like Weyerhaeuser Corp. to supply logs, to remove timber from the land of others and to pay crews who cut, skidded, bunched and hauled the logs. Generally, both sides to this controversy agree that Rasbury provided heavy equipment such as skidders, hydroaxe, knuckleboom loader and some of the trucks and fuel used to haul the cut timber. The men brought some of the trucks used for hauling, saws, other hand tools, safety equipment and their skills.
Three long-time Bill's Forestry crew members testified for the debtor that they were paid as independent subcontractors, which they indicated was consistent with widespread custom in the logging industry in West Alabama in the 1980s.
Thomas F. Collins of Fayette, Alabama, a certified public accountant who handled the Rasbury and the Bill's Forestry Service, Inc., accounts for the years at issue — 1986, 1987 and 1988 — testified that he advised Rasbury of the potential for problems with the Internal Revenue Service because of the classification. However, Mr. Collins testified that he also advised Mr. Rasbury that crew members qualified as independent contractors under the "twenty (20) factors", (a reference to the IRS and court interpretations of the "usual common law rules" referred to in 26 U.S.C. § 3121(d)(2)).1
Rasbury's employee witnesses generally testified that they were paid by the ton of wood produced, that they had no "employment" benefits such as health insurance or pension rights other than Workman's Compensation Insurance, that crew members hired and fired their own coworkers and decided when to work. The IRS states in its "Statement of Facts" in a trial memorandum filed April 29, 1991 at 3, paragraph 8: "Their (Rasbury's workers engaged in cutting, skidding, loading and hauling) income was based solely on the amount of timber which they were able to haul to the lumber and pulpwood companies."
On the other hand, the government produced three former truck drivers for Bill's Forestry, Inc. One testified on cross-examination that he had been involved in a physical fight with Rasbury after he quit the job, that he had been convicted of breaking and entering, a felony; and that he had neither paid taxes nor filed a return with the Internal Revenue Service for 1988, 1989 or 1990. This witness testified on direct examination that he had worked with Rasbury about seven months. He said that the signature on the independent contractor contract under his name was not his.
Another former truck driver with a Rasbury crew testified he worked with the debtor firm in 1987-88. The third said that the IRS audited him in 1988 for the 1987 tax year and that he ended up paying more taxes. He said he had worked with Rasbury's operation for only six months.
All three government witnesses indicated that they were paid by the day rather than by tonnage. The debtor introduced evidence that all three had signed Forms 4669 attesting that they had paid their own taxes on funds paid to them as independent contractors.
Additionally, expert witnesses testified for Rasbury that paying such logging crew members as independent contractors was widespread industry practice in West Alabama in the 1980s. They included Collins, C.P.A. for Rasbury/Bill's Forestry, two other logging contractors and 15-20 cutters, skidders and logging truck drivers; C. Stephen Richardson, C.P.A. for three logging contractors presently, who had represented seven to eight in the past, Steve Richardson and Co. of Tuscaloosa, Alabama; G. Levert Lawrence, C.P.A. for five logging contractors presently who had represented 10 in the past, Morrison & Smith, C.P.A.s, Tuscaloosa, Alabama and Terry W. Jacobs, a registered forester, Mid-South Forestry Service, Inc., Gordo, Alabama. All testified they based their opinion on first-hand knowledge of the practices of their logging contractor and logging subcontractor clients in West Alabama.
The testimony taken as a whole presented a picture of dirty and dangerous work, requiring a high degree of skill. The aggregate of that testimony also showed that such skills are learned on the job, beginning at an early age and over a long period of time, by workers with little formal education or familiarity with detailed paperwork.
The government introduced as an expert witness, Ken Rolston of Panama City Beach, Florida, a former executive with the American Pulpwood Association, based in Washington, D.C., and former forester and wood procurement specialist with Kimberly-Clark Corp. at Childersburg, Alabama. The Kimberly-Clark mill is located approximately 100 miles from Tuscaloosa and would not be considered in the "West Alabama" area. Mr. Rolston described the pulpwood association as a trade/lobbying organization which represented more large paper mills and pulpwood purchasers than logging contractors. He testified that it was his opinion that those of Mr. Rasbury's crew members who brought "nothing but bare hands" to the job were employees rather than independent contractors.
However, even Rolston testified of one government witness who brought his own truck to the job "that sounds like an independent contractor" and of crew members who brought tools, supplied their own gasoline and hired their coworkers "it is gray" as to whether they were independent contractors or not.
Rasbury testified and government exhibits showed that Rasbury and Bill's Forestry Service, Inc., carried workmen's compensation insurance on crew members for the three years in question. Rasbury said the insurance was a requirement to do business with large firms like Weyerhaeuser. Rasbury's brief said: "Mr. Rasbury was advised by his insurance agent that this was common practice and did so only because he was required to do so by several of his major customers due, apparently, to their fear that the Alabama Department of Industrial Relations might find them to be the employers of Bill's Forestry Service's workers." See Debtor's Reply Memorandum Brief at 7. The logging contractor also said he deducted the cost of the men's coverage from the per-ton rate paid them as independent contractors, similar to a self-insurance program.
Rasbury and his witnesses testified that he filed IRS informational Forms 1099 on his men as independent contractors for most of the funds paid them by Bill's Forestry Service, Inc. Smaller sums were paid to the men and listed on Forms W2. Rasbury testified the totals paid on the W2s were for hours at minimum wage paid for equipment maintenance on "rain days". Rasbury contended the pay structure for maintenance was different because it was not production work of cutting, skidding, bunching, loading and hauling logs. He said he preferred to base work on tonnage because the incentive increased production.
In arguments and in its pretrial memorandum, the Internal Revenue Service disputed this description, alleging that use of W2 payments was merely a ruse to lower insurance premiums for workmen's compensation. Rasbury's brief noted at 7 that the amount reported on the W2s was also the amount reported to the insurance agent for workmen's compensation insurance. "Mr. Rasbury was advised that worker's compensation insurance was only required for employees and was advised by his insurance agent that the practice that the Service (IRS) seeks to impugn was common within the industry and accepted."
Both sides agree generally that workers signed written contracts indicating that they understood that they were independent contractors and that Rasbury would not withhold income, FICA or FUTA taxes from the amounts they earned under the contract. Evidence was inconclusive on whether Forms 1099 were filed for the tax years prior to 1986. The record does not show whether or not Rasbury filed Forms 1099 for the years prior to 1986, the first tax year for which the government seeks additional tax. Mr. Rasbury testified that he instructed his then-accountant, Joe White, a public accountant,...
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