Transport Labor Contract/Leasing, Inc. v. Commissioner of Internal Revenue, 071405 ustax, 1188-01

Docket Nº1188-01
Opinion JudgeThe opinion of the court was delivered by: Chiechi, Judge
Party NameTRANSPORT LABOR CONTRACT/LEASING, INC. & SUBSIDIARIES, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT*FN1
AttorneyMichael I. Saltzman, Kathleen Pakenham, and Todd C. Simmens, for petitioner.
Case DateJuly 14, 2005

T.C. Memo. 2005-173

TRANSPORT LABOR CONTRACT/LEASING, INC. & SUBSIDIARIES, PETITIONER

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT*FN1

No. 1188-01

UNITED STATES TAX COURT

July 14, 2005

Michael I. Saltzman, Kathleen Pakenham, and Todd C. Simmens, for petitioner.

The opinion of the court was delivered by: Chiechi, Judge

The opinion of the court was delivered by: Chiechi, Judge [9] T.C. Memo. 2005-173 [10] SUPPLEMENTAL MEMORANDUM OPINION [11] This case is before us on petitioner's motion for reconsideration of the Court's Opinion in this case (petitioner's motion for reconsideration) set forth in 123 T.C. 154 (2004) (Transport Labor I) and petitioner's motion to vacate or revise the Court's decision in this case (petitioner's motion to vacate). The Court held in Transport Labor I that the limitation imposed by section 274(n)(1)*fn2 (section 274(n)(1) limitation) applied to the amounts (per diem amounts) that petitioner's wholly owned subsidiary Transport Leasing/Contract, Inc. (TLC), paid during each of the taxable years at issue to certain truck drivers in order to cover the amounts that they spent for food and beverages.*fn3 [12] Background [13] We incorporate herein by reference the findings of fact set forth in Transport Labor I. We repeat here the facts helpful in understanding the discussion that follows. [14] TLC was a driver-leasing company that leased one or more truck drivers to small and mid-sized independent trucking companies which used such truck drivers to transport goods and merchandise.*fn4 Prior to the times such trucking companies entered into driver-leasing arrangements with TLC (described below), they had generally made payments only to their respective over-the-road*fn5 truck drivers who worked for them that were intended to cover the amounts that such truck drivers spent for food and beverage expenses while traveling away from home. [15] During the years at issue, the number of trucking company clients to which TLC leased driver-employees ranged from 100 to 300, with most such companies located in Minnesota, Montana, and Pennsylvania.*fn6 As of the time of trial in this case, TLC leased a total of 5,563 driver-employees to a total of 453 trucking company clients. [16] In soliciting business, TLC's sales representatives ex-plained to prospective trucking company clients the advantages that they would realize from leasing driver-employees from TLC. A principal advantage of leasing driver-employees from TLC related to TLC's ability to obtain cost-effective workers' compensation insurance, especially in States where trucking company clients were paying substantial amounts to obtain such insurance. Generally, the premium rates for workers' compensation insurance on truck drivers were significantly higher than premium rates for most other occupations. As a result, workers' compensation insurance was a major expense for trucking companies. In soliciting a trucking company's business, TLC's sales representatives explained that TLC was able to obtain workers' compensation insurance in the private market at comparatively low premium rates because of the large number of driver-employees on whom it obtained such insurance. [17] When TLC was successful in attracting a trucking company as a client, TLC and that trucking company entered into a contract entitled "TLC Exclusive Lease Agreement" (exclusive lease agreement), which set forth the agreement between them with respect to the leasing by such trucking company of driver-employees from TLC.*fn7 When each trucking company entered into an exclusive lease agreement with TLC, such trucking company terminated the employment arrangement that it previously had with all of its truck drivers. [18] TLC retained the sole and absolute authority to hire each driver-employee and to terminate each driver-employee's employment with TLC. Each truck driver whom TLC hired as a driver-employee played an integral role in TLC's business of leasing driver-employees to its trucking company clients. [19] Before TLC hired a truck driver as a driver-employee, such truck driver had to pass TLC's screening and approval process that it used to determine whether to hire such truck driver. (We shall refer to the screening and approval process that TLC used to determine whether to hire a truck driver as TLC's screening and approval process.) TLC's screening and approval process was designed to determine a truck driver's fitness to serve as a driver-employee of TLC. [20] As required by each exclusive lease agreement, TLC used its best efforts (e.g., by advertising) to, and did, recruit driver-employees. TLC hired approximately 25 percent of its driver-employees through its own recruitment efforts. [21] Each trucking company client also located and referred prospective driver-employees to TLC. If a trucking company client located a truck driver whom it wanted TLC to hire, the trucking company client interviewed such truck driver, had him or her complete an application provided by TLC, and forwarded that completed application to TLC. TLC subjected any such truck driver to TLC's screening and approval process. TLC rejected 10 to 15 percent of the truck drivers whom its trucking company clients referred to it. TLC hired approximately 75 percent of its driver-employees through referrals of trucking company clients. [22] TLC had the right to, and did, direct and control the work and conduct of each driver-employee. TLC exercised that right through, inter alia, the driver-employee contract and the driver-employee handbook (discussed below). TLC required each driver-employee whom it hired to sign a document entitled "DRIVER EMPLOYEE CONTRACT" (driver contract). Each driver contract provided instructions for each driver-employee that required each driver-employee, inter alia, to attend at least two safety meetings per year, not to be under the influence of alcohol while performing services for TLC, not to consume illegal drugs, to complete any paperwork required by TLC or its affiliates, and not to allow any personal, legal, or financial problems, including attitude, to interfere with the performance of services for TLC. If a driver-employee failed to comply with those instructions, TLC could terminate such driver-employee's employment. [23] When TLC hired each driver-employee, TLC gave such driver-employee a truck driver handbook (TLC driver handbook). The TLC driver handbook, which was incorporated into and made part of the driver contract, contained TLC's detailed instructions that it required each driver-employee to follow with respect to, inter alia, fueling the trucks, starting the trucks' engines, hooking up the trucks to trailers, parking the trucks, driving the trucks to achieve maximum fuel savings, braking the trucks, operating trucks in cold weather, departure times of the trucks, and loading the cargo on and unloading it off the trucks.*fn8 Thus, TLC had the right to, and did, direct and control each driver-employee as to the operation and the loading and unloading of the truck of the trucking company client that leased such driver-employee from TLC and as to the details and means by which that operation and that loading and unloading were to be accomplished. [24] Both before and after entering into an exclusive lease agreement with TLC, each trucking company client: (1) Owned or leased the trucks, semitrailers, terminals, and other equipment and facilities used in its trucking business; (2) obtained the customers whose goods and merchandise it transported by truck; (3) performed dispatching functions with respect to each driver-employee by giving such driver-employee his or her route assignments, directing each driver-employee as to the loads assigned to him or her and as to the times by which such driver-employee had to deliver those loads, and relaying any instructions of its customers relating to such loads; (4) was responsible for the payment of tolls, fuel, repairs, and scale fees incurred during the transport of such goods and merchandise; and (5) had the authority to determine whether to permit a driver-employee whom TLC leased to it to take any vacation days. TLC did not own any interest in, had no rights in the profits of, and had no responsibility for the losses of the business of any trucking company client. [25] TLC sponsored certain employee benefits for its driver- employees, including: (1) A section 401(k) plan; (2) a section 125 flexible benefit plan; (3) group or individual health insurance; (4) a $5,000 group term life insurance policy; and (5) the option of purchasing additional group term life insurance. TLC paid the premiums and any administrative costs associated with the $5,000 group term life insurance policy. TLC bore the administrative costs but no other costs associated with the various other employee benefits that it sponsored for its driver-employees. Each driver-employee paid such other costs through payroll deductions.*fn9 [26] Pursuant to each exclusive lease agreement, each trucking company client had the right to decline using a particular driver-employee whom TLC wanted to lease to it. While TLC was leasing a driver-employee to a trucking company client, TLC had the right to lease that driver-employee to another trucking company client and thereby assign additional projects to such driver-employee. [27] If a trucking company client no longer wanted or needed the services of a particular driver-employee, TLC did not continue leasing such driver-employee to that trucking company client. In that event, TLC attempted to lease such driver-employee to another trucking company client. TLC frequently was successful in reassigning a driver-employee from one trucking company client that no longer wished to use such...

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