The Tax Court in Brief 14 – June 18, 2021

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The Tax Court in Brief June 14 – June 18, 2021

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of June 14 – June 18, 2021

Bell Capital Management, Inc. v. Commissioner, T.C. Memo. 2021-74 

June 14, 2021 | Wells, J. | Dkt. No. 21714-07

Tax Litigation Short Summary

A single shareholder (“Shareholder”) owned 100% of the stock and served as the sole director for the petitioner.  For a period of 5 years, petitioner paid the Shareholder wages until a change in compensation structure.  Moving forward, petitioner leased the Shareholder’s services through offshore employee leasing transactions (OEL transactions).  During this period, petitioner furnished Shareholder with space to perform personnel services, loaned Shareholder an automobile for business use, and provided health insurance benefits, at petitioner’s cost.  Additionally, Shareholder signed petitioner’s Form 1120S, in his capacity as president.  Shareholder, further, listed himself on an annual corporate registration as CEO, CFO and President, as well as, admitted such status to the SEC as part of a settlement.  After the years of exclusive service to the petitioner (“Years at Issue”), Shareholder began leasing his services to other operations.

For the Years at Issue, the petitioner paid Shareholder for services performed and deducted the amounts paid.  Petitioner filed Forms 941, Employer’s Quarterly Federal Tax Return, and Forms 941, Employer’s Annual Federal Unemployment (“FUTA”) Tax Return.  Petitioner did not report amounts relating to the Shareholder, including payment of Social Security or Medicare taxes, or income tax withholding, for any of the Years at Issue.

In a decade-old case involving the petitioner and Shareholder, the Tax Court determined that the OEL transactions amounted to attempts to conceal money transferred from the Petitioner to the Shareholder.  Shareholder’s estate now holds ownership in the Petitioner.

Key Issues:

Primary Holdings

Key Points of Law:

(b) Corporate officers – Generally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is considered not to be an employee of the corporation. A director of a corporation in his capacity as such is not an employee of the corporation.

Insight: While corporate titles in a single shareholder-owned company may seem like “in name only,” the decision illuminates for the Corporate taxpayer and individual that holding oneself out as a corporate officer leans the IRS to claim the individual is an employee of the corporation.  The decision is also a stark reminder that, in the context of fraud under section 6663, the statute of limitations never sleeps.


Tax Court Litigation Attorneys

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, any many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.