Worker For Adult Home-Care Business Determined To Be Employee

The line between an employee and an independent contractor is often defined by control.  The characterization has tax implications.  In this case, the petitioner was employed for part of the years at issue by an adult home-care business.  The business treated the petitioner as an independent contractor and issued a Form 1099-Misc and Form 1099-G (reflecting unemployment compensation from the state).  On his return for the year at issue, the petitioner did not report unemployment compensation or compensation from the business and did not report any self-employment tax liability.  The IRS determined that the petitioner was an independent contractor and was liable for self-employment tax.  The court disagreed with the IRS based on numerous factors - (1) the business controlled petitioner's work and specifically enumerated petitioner's duties and required daily reports; (2) the business covered all out-of-pocket costs of petitioner; (3) petitioner did not use his own "tools" in the activity; (4) the petitioner was paid an hourly rate and had no other opportunity for profit or risk of loss; (5) the business retained the right to discharge the petitioner; (6) the work petitioner performed was integral to the business's normal operations; and (7) the parties contemplated an employment relationship.  Accordingly, the petitioner was not liable for self-employment tax, but is liable for an accuracy-related penalty for failure to report income.  Rahman v. Comr., T.C. Sum. Op. 2014-38.