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Keywords

contractcorporation

corporation

Related Cases

Spicer Accounting, Inc. v. U.S., 918 F.2d 90, 66 A.F.T.R.2d 90-5806, 91-1 USTC P 50,103, Unempl.Ins.Rep. (CCH) P 15770A

Facts

Mr. Spicer, the president and sole accountant of Spicer Accounting, Inc., was assessed for FICA and FUTA taxes by the IRS for the years 1981 and 1982. The IRS contended that Mr. Spicer was an employee, while the taxpayer argued that payments made to him were dividends. Mr. Spicer had never been paid wages or salary and had reported his income as dividends, despite performing substantial services for the corporation.

Mr. Spicer has been a licensed public accountant since 1957 and the president of Taxpayer since 1973. He and his wife are the only stockholders in Taxpayer, each owning fifty percent of the corporation.

Issue

Whether Mr. Spicer was an employee of the taxpayer and whether the payments made to him were wages subject to FICA and FUTA taxes.

Taxpayer first contends that Mr. Spicer was not an employee because the amounts it paid to Mr. Spicer were dividends, rather than wages.

Rule

For FICA and FUTA tax purposes, an officer who performs substantial services for a corporation is considered an employee, and payments made to them are deemed wages regardless of how they are characterized.

Sections 3111 and 3301 of the Internal Revenue Code impose FICA (social security) and FUTA (unemployment) taxes on employers for wages paid to their employees.

Analysis

The court found that Mr. Spicer performed substantial services for the taxpayer, working approximately 36 hours a week and being integral to the firm's operations. The court rejected the taxpayer's claim that Mr. Spicer was an independent contractor, noting that he was the only accountant and performed essential functions for the corporation. The court emphasized that the true nature of the payments was remuneration for services rendered, not dividends.

In the present case, Mr. Spicer clearly performed substantial services for the taxpayer corporation. He was the only accountant working for Taxpayer, an accounting concern. During the years in question, he performed accounting services for the taxpayer approximately 36 hours a week.

Conclusion

The court affirmed the district court's decision, holding that Mr. Spicer was an employee and that the payments made to him were wages subject to FICA and FUTA taxes.

We hold that because Mr. Spicer performed substantial services that were essential to Taxpayer, Mr. Spicer should be deemed an employee, and payments to him should be deemed 'wages' subject to FICA and FUTA.

Who won?

The United States prevailed in the case because the court found that the taxpayer's treatment of Mr. Spicer as a stockholder rather than an employee was unreasonable.

The district court held that Mr. Spicer was an employee and that the payments were 'wages' subject to FICA and FUTA.

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