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10.3 Tax Refund Suits Employee vs. Independent Contractor The sole issue for you to decide in this case is whether, during the time in question, the were employees or independent contractors. Most of you are familiar with the law concerning the withholding of federal income taxes from wages paid to an employee by an employer. The law requires that every employer making payments of wages to an employee shall deduct and withhold from the amount of the gross wages paid a certain amount of tax that is then paid by the employer to the Federal Government for the employee's account as payment, in whole or in part, of the employee’s income tax obligation. In the event an employer fails to withhold the necessary taxes from the employee's wages, the employer is personally required to pay the amount that should have been withheld. The Plaintiff contends that it is not liable for the amount it has paid in this case, and is entitled to a refund on the around that the were not its employees, but were, instead, independent contractors. In other words, if they were not the Plaintiff's employees, the Plaintiff is entitled to recover the money it paid. On the other hand, if they were employees of the Plaintiff, then it is not entitled to the money it seeks to recover in this case. The Plaintiff has the burden of proof on this issue and must establish by a preponderance of the evidence that the were employees of the Plaintiff, not independent contractors. The titles or labels used by the parties are not controlling. Some factors that would indicate that a worker is an employee include: (1) the worker receives on the job instructions from the employer; (2) the worker is trained by the employer; (3) the worker’s services are integrated into the employer’s business; (4) the worker’s services are rendered personally; (5) the worker’s relationship with the employer is a continuing relationship; (6) the worker has set hours of work (7) the worker’s full-time employment is mandatory; (8) the worker works on the employer’s premises; (9) the worker has a set order of tasks; (10) the worker provides oral or written reports to the employer; (11) the worker is paid by the hour, week or month; and (12) the worker may be discharged for reasons other than nonperformance. Factors that would indicate independent contractor status include: (1) the worker’s right to hire, supervise and pay assistants; (2) the worker pays his own business and/or travel expenses; (3) the worker furnishes his own tools; (4) the worker has significant investment in his business operations; (5) the worker realizes a profit or loss from his work; (6) the worker has the right to work for more than one firm at a time; (7) the worker has the right to make his services available to the general public; and (8) the worker has the right to terminate his relationship with Plaintiff without incurring liability. Although no one factor is decisive on its own, collectively all of these factors define the extent of the employer’s control or lack of control over the time and manner in which a worker performs. The question of an employer’s control or lack of control over a worker is fundamental in establishing that worker’s status as employee or independent contractor. [If you determine that the were employees and not independent contractors, you must then decide whether the Plaintiff had a reasonable basis for not treating the as employees. The law provides that under certain circumstances an employer may still treat workers as independent contractors even though those workers meet the definition of an employee. In this case, the Plaintiff contends that it falls within one of those exceptions. To prevail on this issue, the Plaintiff must prove by a preponderance of the evidence: (1) that all federal tax returns filed by the Plaintiff consistently treated as independent contractors; and (2) that the Plaintiff reasonably relied on [judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer.] [a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment, for employment tax purposes, of the individuals holding positions substantially similar to the position held by the ] [long-standing, recognized practice of a significant segment of the industry in which the were engaged] in deciding to treat the as independent contractors]. 10.3 Tax Refund Suits Employee vs. Independent Contractor SPECIAL INTERROGATORIES TO THE JURY Do you find from a preponderance of the evidence: 1. That the were independent contractors and not employees of the Plaintiff: Answer Yes or No [Note: If you answered Yes to Question No. 1 you need not answer the remaining question.] 2. That the Plaintiff had a reasonable basis for not treating the as employees because all of the Plaintiff’s tax returns consistently treated the as independent contractors and the Plaintiff reasonably relied upon [judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer] [a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment, for employment tax purposes, of the individuals holding positions substantially similar to the position held by the ] [long standing, recognized practice of a significant segment of the industry in which the ]? Answer Yes or No SO SAY WE ALL. Foreperson DATED:       ANNOTATIONS AND COMMENTS 26 U.S.C. § 7491(a)(1), as amended by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L.105-206 (see Annotations and Comments following Federal Claims Instruction 10.1, supra) only applies in Subtitle A (income tax) and Subtitle B (estate and gift tax) cases. Thus, the taxpayer retains the burden of proof in Subtitle C (employment tax) cases. See Hospital Resources Personnel, Inc. v. United States, 68 F.3d 421 (11th Cir. 1995) (discussing factors to consider in distinguishing employers from independent contractors). See also 26 USC § 3401 regarding the “safe haven” provisions referred to in the last paragraph of the instruction.