Martin S. Azarian, P.A. Appellant
Commissioner of Internal Revenue Appellee
Submitted: May 15, 2018
from The United States Tax Court
BENTON, KELLY, and STRAS, Circuit Judges.
BENTON, Circuit Judge.
S. Azarian, P.A., petitioned the Tax Court for relief from a
determination that it owed additional employment tax. The Tax
Court dismissed for lack of jurisdiction. The taxpayer
appeals. Having jurisdiction under section 7482(a)(1),
this court affirms.
Martin S. Azarian is the sole owner and officer of the
taxpayer, an S corporation. Each year from 2012 through 2014,
Azarian performed services for the taxpayer, which paid him
about $32, 500 to $40, 000 as wages subject to Federal
Insurance Contributions Act (FICA) tax. See
3111(a)-(b). The taxpayer also paid him some
larger amounts, which it reported as dividends.
Commissioner of Internal Revenue performed an employment tax
examination of the taxpayer for the years 2012 through 2014.
Examining the taxpayer's nature and condition,
Azarian's role in operations, and similar firms'
compensation, the Commissioner concluded that
"reasonable compensation" for Azarian's
services was $125, 000 yearly-meaning some of the dividends
were, in substance, wages. In the end, the taxpayer owed $38,
808 more in FICA tax and $7, 762 in penalties. The
Commissioner sent the taxpayer a "Summary of Employment
Tax Examination" and an "Employment Tax Examination
Changes Report" for each year.
taxpayer petitioned the Tax Court, arguing that Azarian's
reported wages were reasonable compensation (or, at least,
that reasonable compensation was less than $125, 000). The
Commissioner moved to dismiss for lack of jurisdiction. The
Tax Court agreed. This court reviews de novo the Tax
Court's "determination regarding its
jurisdiction." Bartman v. Commissioner, 446
F.3d 785, 787 (8th Cir. 2006).
taxpayer argues the Tax Court has jurisdiction under section
7436(a)(1). That section grants jurisdiction if "there
is an actual controversy involving a determination by the
Secretary as part of an examination that . . . one or more
individuals performing services . . . are employees . . . for
purposes of subtitle C . . . ." §
7436(a)(1). Subtitle C governs FICA employment
taxes. See §§ 3101-28.
The question here is whether there is an actual controversy
involving a determination that Azarian is an employee for
taxpayer believes there is an actual controversy whether some
payments were wages. But even assuming there is an actual
controversy, it does not involve a determination that Azarian
is an employee for FICA purposes. An "employee" for
FICA purposes is, as relevant here, an "officer of a
corporation" or an employee under "common law
3121(d)(1)-(2). By reporting wages
to him each year, the taxpayer claimed he is an employee, so
the Commissioner did not make a determination on the issue.
Instead, the Commissioner relied on the taxpayer's
classification of Azarian as an employee.
Azarian's dual role as employee and owner, the taxpayer
says that the Commissioner's determination that some of
the payments were wages, not dividends, was a determination
that-as to those payments-Azarian is an employee, not an
owner. But whether a payment is wages does not turn solely on
the recipient's status as employee. "Wages,"
ignoring irrelevant exceptions, "means all remuneration
for employment," which generally includes "any
service . . . performed . . . by an employee . . . ."
§ 3121(a)-(b). The
question is not only whether the recipient is an employee,
but also whether the payment is remuneration for services.
Here, the only issue the Commissioner examined is the amount
of remuneration for Azarian's services. Cf. David E.
Watson, P.C. v. United States, 668 F.3d 1008, 1017-18
(8th Cir. 2012) (in a "reasonable compensation"
dispute, the question is "whether the payments at issue
were made as remuneration for services performed").
Thus, the only determination was that some of the payments
reported as dividends are remuneration for his services. This
determination does not give the Tax Court jurisdiction.
taxpayer relies on Charlotte's Office Boutique, Inc.
v. Commissioner, 121 T.C. 89 (2003), aff'd
425 F.3d 1203 (9th Cir. 2005). There, the employer reported
both wages and royalties to an owner. Id. at 95. The
Tax Court held it had jurisdiction to determine whether some
of the royalties were, in substance, wages. Id. at
104. But the Tax Court relied on the fact that the
Commissioner's "Notice of Determination Concerning
Worker Classification Under Section 7436" listed
determinations that the owner and "Other Workers"
"are to be legally classified as employees for purposes
of federal employment taxes under subtitle C . . . ."
Id. at 98, 103. The Tax Court said these
"determination[s] of worker classification . . .
provide the predicate for our jurisdiction under section
7436(a)," and that jurisdiction was not lost when the
Commissioner later conceded some of its determinations after
the petition was filed. Id. at 103. The Ninth
Circuit agreed that jurisdiction was "properly
invoked" initially and that the Tax Court did not later
lose jurisdiction. Charlotte's Office, 425 F.3d
at 1208. The holdings of the Tax Court and the Ninth Circuit
do not apply here, where the Commissioner never made a
determination (in a formal notice or otherwise) about the
classification of any worker.
taxpayer also discusses a Tax Court case. In that case, an
employer classified individuals as both employees and
independent contractors, reporting wages and non-wage
payments. SECC Corp. v. Commissioner, 142 T.C. 225,
227 (2014). The Commissioner concluded that some non-wage
payments were wages and notified the employer in a letter.
Id. 228-29. The Tax Court held that the letter,
although not formally a "Notice of Determination of
Worker Classification," was a determination.
Id. at 233. The Tax Court found jurisdiction.
Id. at 241. But there, the determination "dealt
with worker classification disputes . . . including whether
workers can serve in a dual capacity[ and] whether . . .
workers are employees." Id. at 235. Here, no
determination concerned worker classification disputes.
the taxpayer argues that ruling for the Commissioner leads to
"absurd results." First, the taxpayer asserts that
if it had reported no wages-arguably less FICA
compliant-there would be jurisdiction, but because it
reported some wages, there is no jurisdiction. According to
the taxpayer, this punishes partial compliance. But section
7436(a)(1) grants jurisdiction based on the type of
controversy, not the relative level of compliance. If the
taxpayer had never claimed Azarian as an employee, the
Commissioner would have determined he was, and the right type
of controversy could exist-one involving a determination of
Azarian's status as an employee. Second, the taxpayer
asserts that even if it had reported just one dollar of