Tax Court Determines that Foreign Consulate Trade Officer is a Common Law Employee

June 03, 2011, 06:58 PM

On May 23, 2011, the Tax Court, in TC Memo 2011-110, made a determination that a British Consulate General (the “BCG”) “trade officer” was a common law employee and not an independent contractor. The BCG initially classified the worker as an independent contractor, which resulted in the worker reporting his earnings and expenses on Schedule C of Form 1040 as well as making contributions to a simplified employee pension (“SEP”) plan. In looking at the factors for employee classification as defined in IRC 3121, the Tax Court noted that the BCG exhibited the requisite control over the services provided by the worker in addition to permitting the worker to participate in the BCG’s health and pension plans. Furthermore, the Tax Court determined that the worker’s letter of appointment was clear in its creation of an employment relationship despite language in the letter stating that the worker was “self-employed for tax purposes”. Finding that the worker acted in good faith by consulting with his long-term tax return preparer who agreed with the initial position, the Tax Court declined to impose accuracy-related penalties under IRC 6662(a). Click here for a copy of the Tax Court Memo.