Tax Court in Brief | The REDI Foundation, Inc. v. Commissioner | Statutory Employee, FICA, and Form 941

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The Tax Court in Brief – April 11th- April 15th, 2022

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Tax Litigation:  The Week of April 11th, 2022, through April 15th, 2022

The REDI Foundation, Inc. v. Comm’r, T.C. Memo. 2022-34 |April 11, 2022 |Nega, J. | Dkt. No. 23715-18

Short Summary: Richard Abraham formed The REDI Foundation, Inc. (“REDI”) to serve as a vehicle to offer Abraham’s seminars on real estate development. Abraham served as a member of REDI’s board and as a corporate officer during the tax periods in issue. REDI’s sole source of income was from the tuition charged for enrollment in online courses presented by Abraham, and those courses represented REDI’s only activities. REDI reported that it paid Abraham—as an independent contractor—$91,918 in 2014 and did not file a Form 941, Employer’s Quarterly federal Tax Return, for any of the periods in issue. The IRS selected REDI’s Form 990 return for employment tax examination and determined that Abraham was to be legally classified as an employee for purposes of federal employment taxes. The IRS also made additions to tax under section 6651(a)(1) and (2) and penalties under section 6656. REDI challenged those determinations.

Primary Holdings: 

Key Points of Law:

Insights: The statutory employee is a commonly overlooked issue for corporate employers. For federal employment tax purposes, the term “employee” includes any officer of a corporation. Thus, any remuneration paid to such officer may be subject to taxation under FICA and reporting through use of Form 941, unless the taxpayer can show there is no interrelation or intermingling of the dual roles performed by the individual as both an officer and an independent contractor. But, as seen in the case of The REDI Foundation, Inc., where a corporation’s business activities are solely or substantially performed by an officer who is paid for performing more than “minor services” to the corporation, the officer will likely be treated as an employee for federal employment tax purposes.