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Keywords

attorneymotionsummary judgmentcorporationcase lawcommon lawmotion for summary judgment
plaintiffdefendantattorneymotionsummary judgmentcorporationmotion for summary judgment

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Fred R. Esser, P.C. v. U.S., 750 F.Supp. 421, Unempl.Ins.Rep. (CCH) P 15840A

Facts

Fred R. Esser, P.C. was formed in 1979 by Fred R. Esser to provide legal services. Esser was the sole incorporator and the only attorney for the corporation, while his wife handled clerical work. Neither Esser nor his wife received a salary; instead, Esser declared dividends equal to the corporation's net taxable income, which he left in the corporation to repay loans he had taken. The IRS assessed deficiencies against the corporation for unpaid employment taxes, leading to this legal action.

Esser was the sole incorporator, president, secretary, sole member of the board of directors, and the only attorney providing legal services for the corporation.

Issue

Whether Fred R. Esser was an 'employee' under the Internal Revenue Code and whether the dividends he received should be classified as wages subject to FICA and FUTA taxes.

The initial question, then, is whether Fred Esser is an “employee” under the IRC.

Rule

Under the Internal Revenue Code, an 'employee' includes any officer of a corporation and any individual who has the status of an employee under common law. Dividends can be classified as wages if they are remuneration for employment.

Sections 3121(a) and 3306(b) of the Internal Revenue Code (“IRC”) define wages as “all remuneration from employment.”

Analysis

The court determined that Esser performed substantial services for the corporation, thus qualifying him as an employee under the IRC. The court referenced IRS Revenue Rulings and case law indicating that dividends paid to officer-shareholders who provide substantial services should be treated as wages for tax purposes. The court found that the IRS assessment was valid and that Esser's characterization of his income did not exempt him from tax obligations.

None of the plaintiff's arguments are meritorious. The relevant revenue rulings and federal cases indicate that Esser would be an employee due to his substantial legal services to the corporation, and that the dividends distributed to him should be treated as wages for the purpose of employment taxes.

Conclusion

The court granted the United States' motion for summary judgment, ruling that Esser must pay the assessed employment taxes as the dividends he received were deemed wages.

Accordingly, IT IS ORDERED that defendant's motion for summary judgment is granted.

Who won?

The United States prevailed in the case because the court found that Esser was an employee and that the dividends he received were subject to employment taxes.

The court held that officer and sole incorporator of corporation was “employee,” and dividends distributed to him should be treated as wages for purpose of employment taxes.

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