Walker v. Comm'r of Internal Revenue, 20919–91.

• Decision Date: 13 December 1993
• Docket Number: No. 20919–91.,20919–91.
• Citation: 101 T.C. 537,101 T.C. No. 36
• Parties: Charles W. and Cathe R. WALKER, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

101 T.C. 537
101 T.C. No. 36

Charles W. and Cathe R. WALKER, Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 20919–91.

United States Tax Court

Dec. 13, 1993.

[101 T.C. 537]

Charles W. Walker and Cathe R. Walker, pro sese.

Michael W. Lloyd, Washington, DC, for respondent.

RUWE, Judge:

This matter was heard by Special Trial Judge Joan Seitz Pate pursuant to section 7443A(b)(3) and Rules 180, 181, and 182.¹ An opinion in this case was filed

[101 T.C. 538]

on July 15, 1993, Walker v. Commissioner, T.C. Memo. 1993-311. It was subsequently withdrawn and reassigned to this Division for reconsideration. The Court agrees with and adopts the findings of fact of the Special Trial Judge. The Court also agrees with and adopts the Special Trial Judge's opinion holding that petitioner Charles Walker was self-employed during the years in issue and that payments to him, which were reported on petitioners' returns as “equipment rental”, actually constituted compensation for services. The portion of the previous opinion dealing with the deductibility of petitioner's truck expenses has been revised, but the result is unchanged.

FINDINGS OF FACT

Respondent determined deficiencies in petitioners' 1986, 1987, and 1988 Federal income taxes of $1,185, $1,236, and $706, respectively. After concessions by petitioners, the issues for our decision are: (1) Whether Charles Walker (hereinafter petitioner) was self-employed and, therefore, may report his gross income on Schedule C; (2) whether a portion of petitioner's gross income constitutes equipment rental; and (3) whether petitioner may deduct truck expenses which he paid for traveling to various locations in the Black Hills National Forest. Petitioners' earned income credit will be automatically adjusted based upon our resolution of the above issues.

Some of the facts have been stipulated and are so found. Charles W. Walker timely filed joint income tax returns with his wife, Cathe R. Walker, for 1986, 1987, and 1988. They resided in Hill City, South Dakota, at the time they filed their petition. Petitioner is a professional “faller” or “cutter”, cutting trees in the Black Hills National Forest (hereinafter Black Hills).

During the years in issue, petitioner worked exclusively for Woodward Logging, a company located in Custer, South Dakota. Woodward Logging was owned and operated by Jesse Woodward (hereinafter Woodward), who contracted with various lumber mills to cut and deliver logs from certain timber “sales”. A “sale” is a parcel of land, usually composed

[101 T.C. 539]

of hundreds of acres, in which the right to remove timber is put up for bid by the United States Department of Agriculture Forest Service. When a lumber mill wins a bid, it generally contracts with firms such as Woodward Logging to go onto the sale to cut the trees and deliver them to the mill.

During the years in issue, Woodward Logging contracted with several lumber mills, so it generally was working more than one sale at a time. At times, it simultaneously worked up to six sales. To do this, Woodward Logging maintained two crews, a mechanical logging crew and a conventional logging crew. The mechanical logging crew operated large machines that, if the terrain permitted, could snip the trees and process them mechanically. The conventional logging crew handled the rest of the sale. It was composed of cutters (who cut and trimmed the logs), skidders (who collected and dragged the logs to loading points), and truck drivers (who hauled the logs to the lumber mills). Petitioner was a cutter in Woodward Logging's conventional logging crew.

Petitioner operated as a cutter under the name of C & C Contracting. During the years in issue, he worked exclusively for Woodward Logging on the sale or sales to which he was assigned. Petitioner was not required to work any specific hours or days, but was limited by weather and the time frame in which the sale had to be cut. He was paid on an hourly basis. He was not provided with any sick leave, vacation time, or health insurance, nor was he eligible to participate in any retirement plan sponsored by Woodward Logging. Further, petitioner was liable for any damage he did to the sale, such as to fences or power lines, and was required to pay for the cost of repairing those damages.

To render his services, petitioner furnished his own truck, tools, fuel, and supplies. During the years in issue, petitioner drove a 1983 Chevy Blazer and a 1977 Toyota Landcruiser in which he carried his tools. His tools included, among other things, three chainsaws, an axe, a long-handled shovel, extra chainsaw bars and chains, repair parts, small tools, extra protective clothing, and a fire extinguisher. The extra tools and repair parts were necessary because the sales were so far away from the nearest town that it was not feasible to get the equipment repaired during the course of a working day. He also carried extra gasoline for his truck, and fuel and lubrication for his saws.

[101 T.C. 540]

Petitioner had contact with Woodward several times a week to ascertain the location to which he was assigned. He worked approximately 5 sales in 1986, 7 sales in 1987, and 8 sales in 1988. Within each sale, petitioner worked at two to five general job sites. Once he reached the site assigned, he would take the tools he needed and head up into the hills where he cut trees, trimmed them, and marked them to lengths. In addition, although not required to do so, petitioner reported to Woodward the hours worked by his fellow crew members and picked up and distributed their paychecks on a weekly basis.

Petitioner drove a four-wheel-drive vehicle to get to his initial site and to travel from one site to another. This type of vehicle was necessary because of the rough terrain, the inclement weather, and the relatively poor roads petitioner had to travel to reach the site assigned to him. The distance from Hill City to the various sites he worked during the years in issue varied between 18 to 60 miles each way.

After the workday was over, petitioner checked his equipment to see what needed to be replaced. Petitioner spent approximately 7 hours per week in the workshop adjacent to his residence maintaining and repairing his equipment. When his tools and equipment were not in use, petitioner generally stored them in his vehicle, except on the weekends when he kept them in his workshop.

Petitioner kept a daily record of his working hours and, at the end of the week, submitted them to Woodward. He was paid at the rate of $14 per hour. Woodward Logging reported on Form 1099 that 60 percent of the amount paid to petitioner was equipment rental and the remaining 40 percent was nonemployee compensation.

On his 1986 and 1987 Federal income tax returns, petitioner reported gross income and expenses as follows:

+----------+
                ¦¦1986¦1987¦
                +----------+
                

Schedule C
                Gross income $8,287.29 1 $7,618.00
                Expenses 7,899.52 7,711.83
                Net 387.77 (93.83)
                Schedule E
                Gross income $10,819.00 $15,835.00
                Equipment expenses 6,414.77 7,645.88
                Net 4,404.23 8,189.12
                

[101 T.C. 541]

Because of ongoing inquiries from respondent, as well as other governmental agencies,² petitioners were unsure of the proper method for reporting their income for 1988. They attached a letter to their income tax return for 1988 explaining their dilemma and reported thereon wages of $14,524.57 and $4,348.89 of reimbursed travel expenses and deducted $3,212.08 in business expenses and $4,348.89 in reimbursed expenses.

OPINION Schedule C

We must first decide whether petitioner correctly reported his income and expenses as a self-employed individual on Schedule C of his individual income tax returns. To be reportable on Schedule C, a taxpayer's income...