Wife Was Independent Contractor, and Carryforward Losses Not Allowed.

The petitioner, a lawyer, hired his wife to work with an eccentric client that she related well with.  On their MFJ returns for the years in issue, the payments to the wife were reported as contract labor expense and also as gross receipts on Schedule C (subject to s.e. tax).  IRS claimed that the wife was an employee and that payroll taxes should have been paid and disallowed the deduction for the s.e. taxes paid, and reclassified as wage income the amount reported as gross receipts on Schedule C.  Based on all of the common-law factors, the court determined that she was an independent contractor and not an employee.  The IRS also disallowed carryforward losses due to the petitioner's failure to establish the activity that generated the losses and the income in the carryforward years.  Jones v. Comr., T.C. Memo. 2014-125.