Mosteirin v. Commissioner

• Decision Date: 28 August 1995
• Docket Number: Docket No. 3996-94.
• Citation: 70 T.C.M. 548
• Parties: Mario and Irene Mosteirin v. Commissioner.
• Court: U.S. Tax Court

70 T.C.M. 548

T.C. Memo. 1995-419

Mario and Irene Mosteirin v. Commissioner.

Docket No. 3996-94.

United States Tax Court.

Filed August 28, 1995.

James O. Druker, Garden City, N.Y., for the petitioners. Peggy Gartenbaum and Jody Tancer, for the respondent.

MEMORANDUM OPINION

BEGHE, Judge:

This case is before us on petitioners' motion for litigation costs, pursuant to section 7430 and Rule 231.¹ On January 13, 1995, following a trial on January 12, 1995, we decided the merits of the case in petitioners' favor by oral opinion. On August 7, 1995, we withdrew our oral opinion and issued a memorandum opinion, also in petitioners' favor. Mosteirin v. Commissioner [Dec. 50,809(M)], T.C. Memo. 1995-367.

Background

The substantive issue presented by this case is whether petitioner Mario Mosteirin (petitioner), a neighborhood office agent (NOA) of Allstate Insurance Co. (Allstate) during the taxable year 1991, was an independent contractor or an Allstate employee. We have held that petitioner was an independent contractor. For reasons discussed below, we will deny petitioners' motion for litigation costs.

On December 14, 1993, respondent issued a statutory notice to petitioners for the taxable year 1991 that determined an income tax deficiency of $8,464 and a section 6662(a) accuracy-related penalty of $1,693. The ground for respondent's determination was that, because petitioner was an employee rather than an independent contractor, the NOA business expenses he claimed on Schedule C were itemized employee business expenses subject to the 2-percent of adjusted gross income floor provided by section 67.

Petitioners' petition, which was prepared and signed by their counsel, was filed on March 11, 1994. The petition assigned error to respondent's determination and pleaded facts in support of petitioners' return reporting position that petitioner was an independent contractor entitled to deduct his business expenses on Schedule C. Petitioners' petition did not advert to the inconsistency in petitioners' return reporting positions; i.e., that petitioner claimed his reimbursable expenses in excess of the OEA as independent contractor expenses on Schedule C, but reported the Allstate payments for which he received a Form W-2 as wages and other job-related expenses as itemized deductions subject to the 2-percent floor.

On August 4, 1994, we set the case for trial at the Court's Westbury, New York (at New York, New York) trial session commencing January 9, 1995.

On September 15, 1994, we granted respondent's motion for leave and filed respondent's Amendment to Answer, which concluded with the prayer:

(3) That if the Court determines that petitioner Mario Mosteirin was an independent contractor during the 1991 tax year, that the Court redetermine the deficiency in income tax due for the 1991 tax year for failure to report taxable employee benefits and pay self-employment tax.

On December 22 and December 27, 1994, the Court received respondent's and petitioners' trial memoranda. In the "Legal Authorities" portion of their trial memorandum, petitioners stated:

Petitioners respectfully submit that the facts of this case are indistinguishable from those in two recent Tax Court cases: Butts v. Commissioner [Dec. 49,340(M)], T.C. Memo. 1993-478, appeal docketed No. 94-2340 (11th Circuit, 3/16/94); and Smithwick v. Commissioner [Dec. 49,457(M)], T.C. Memo. 1993-582 (5th Circuit, 12/9/93).² Both decisions dealt with the identical issues in dispute here — namely, the relationship between NOA and the Allstate Insurance Company. In both cases, the Court determined the relationship to be that of independent contractor. * * *

Respondent's trial memorandum stated, in part:

Generally, an individual is considered to be an employee if the person for whom he works has the right to control and direct the individual as to the details by which the work is to be performed. Treas. Reg. § § 31.3121(d)-1(c)(2), 31.3401(c)-1(b). No one fact is dispositive; rather, the entire situation and the special facts and circumstances must be reviewed. Simpson v. Commissioner [Dec. 33,402], 64 T.C. 974, 985 (1975). It is respondent's position that Allstate's control over petitioner was so pervasive as to make him an employee. Contra, Butts v. Commissioner [Dec. 49,340(M)], T.C. Memo. 1993-478, appeal docketed, No. 94-2340 (11th Cir. March 16, 1994).

On January 3, 1995, we received an amendment to respondent's trial memorandum adding two witnesses to the list of witnesses respondent expected to call at trial and increasing respondent's estimate of trial time. With respect to one of these witnesses, respondent's cover letter stated that the testimony was necessary

to establish respondent's alternative argument that in the event the Court finds that Mr. Mosteirin is an independent contractor, the petitioners would be liable for the tax on the unreported taxable employment benefits.

In a January 3, 1995, telephone conference, we informed counsel for the parties that we were not interested in hearing testimony on questions of law but were instead interested in how the facts in this case were similar to, or distinguishable from, those in Butts v. Commissioner [Dec. 49,340(M)], T.C. Memo. 1993-478 (then on appeal), and the value of the benefits that would be included in petitioners' gross income, under respondent's alternative argument, if we were to find that petitioner was an independent contractor. During that conference, respondent's counsel agreed that the NOA contract between petitioner and Allstate in the case at hand was identical to the NOA contracts in the Butts and Smithwick cases. Respondent's counsel went on to say that respondent would elicit testimony from petitioner's local Allstate supervisors that would establish the reality of Allstate's exercised authority and control over petitioner's activities.

On January 4, 1995, we set the case for oral report at the calendar call of the Court's January 9, 1995, Westbury session, at which time the parties were to submit their stipulation of facts and supplemental trial memoranda.

Before trial, the parties settled the issues raised by respondent's amended answer. They agreed that, if the Court should determine that petitioner had an independent contractor relationship with Allstate during 1991, the cost of benefits paid by Allstate for petitioner, consisting of medical, dental, long-term disability, basic life and accidental death coverage, and the increase in the value of his retirement benefits under the Allstate pension plan, would be taxable to petitioner, that the amount paid by Allstate in respect of petitioners' Social Security would not be taxable to petitioners, that petitioner would be liable for self-employment tax for the year, and that petitioners would not be liable for the accuracy-related penalty under section 6662(a). The sole issue left for trial was whether, in 1991, petitioner was an employee of Allstate, as respondent had determined, or an independent contractor, as petitioners claimed.

At trial, respondent called four witnesses, including Ms. Carrie Cotter, the Allstate market sales manager responsible for monitoring petitioner's operations as an NOA during the year at issue. In our oral findings of fact and opinion, delivered the next day from the bench,³ we noted that Ms. Cotter prepared a business analysis review after each of her annual meetings with petitioner, and we adverted to facts occurring during the taxable year that contributed to petitioner's going into a "job-in-jeopardy" status early in the following year. We rejected respondent's argument that the facts brought out through Ms. Cotter's testimony established petitioner's status as an employee. On the basis of our reasoning in Butts v. Commissioner, supra, as adopted and applied in Smithwick v. Commissioner [Dec. 49,457(M)], T.C. Memo. 1993-582, we held that petitioner was "professionally associated with Allstate as an independent contractor and is entitled to report his business income on Schedule C".

On February 17, 1995, the Court filed petitioners' Motion for Award of Litigation Costs, with accompanying affidavit of counsel; on April 10, 1995, the Court filed petitioners' supplement to the motion. On April 24, 1995, the Court filed respondent's objection, with supporting memorandum, to petitioners' motion. On May 17, 1995, the Court filed respondent's supplement to her objection, and on May 19, 1995, the Court filed petitioners' response to respondent's objection.

On April 10, 1995, the Court of Appeals for the Eleventh Circuit decided respondent's consolidated appeals of the Butts and Smithwick cases and affirmed the decisions of the Tax Court in those cases, based on the findings and reasoning of the decision in Butts. In so doing, the Court of Appeals characterized Special Trial Judge Peterson's opinion in Butts as "a thoroughly reasoned opinion", which had been followed by Judge Clapp in the Smithwick case on the grounds that the Allstate agreements were identical and that the case "had no relevant facts that are distinguishable from the Butts case." The Court of Appeals went on to say:

Prior to oral arguments, this Court was advised of yet another case involving the identical Allstate agreements in which the Tax Court, relying on the decision in Butts, reached the same conclusion. Mosteirin v. Commissioner of Internal Revenue, No. 3996-94 (U.S. Tax Ct., Jan. 13, 1995). We were informed at oral argument that there are currently pending eleven other cases concerning the same issue.

We affirm based upon the findings and reasoning of the Tax Court's decision in Butts. Prompt resolution of the issue by this Court is critical. Since the Tax Court's detailed opinion is readily available to the tax bench and bar and no additional arguments were made to this Court that were not properly treated in Judge Peterson's opinion, there is no need to prepare a detailed opinion of this Court nor to attach the Tax ...