Winstead v. United States

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
L. DAN WINSTEAD, JR., Individually
and as partner of the partnership of
L. Dan Winstead, Jr.; L. DAN
WINSTEAD, III; THOMAS D.
WINSTEAD, d/b/a Winstead Family
No. 95-2875
Partnership,
Plaintiffs-Appellants,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the Middle District of North Carolina, at Durham.
James A. Beaty, Jr., District Judge.
(CA-91-393)
Argued: March 5, 1997
Decided: April 1, 1997
Before WILKINSON, Chief Judge, MICHAEL, Circuit Judge, and
BLACK, Senior United States District Judge for the District of
Maryland, sitting by designation.
_________________________________________________________________
Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Michael and Senior Judge Black joined.
_________________________________________________________________
COUNSEL
ARGUED: Kurt Eric Lindquist, II, THE SANFORD LAW FIRM,
Raleigh, North Carolina, for Appellants. Alice Lizbeth Ronk, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellee. ON BRIEF: Deanna L. Davis, THE SAN-
FORD LAW FIRM, Raleigh, North Carolina; Erik P. Doerring,
MCNAIR LAW FIRM, Columbia, South Carolina, for Appellants.
Loretta C. Argrett, Assistant Attorney General, Gary R. Allen,
Bruce
R. Ellisen, Walter Clinton Holton, Jr., United States Attorney, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellee.
_________________________________________________________________
OPINION
WILKINSON, Chief Judge:
Daniel Winstead, Jr. appeals the district court's grant of summary
judgment in favor of the government in this refund action for taxes
paid under the Federal Insurance Contribution Act (FICA) and the
Federal Unemployment Tax Act (FUTA). Winstead contends the dis-
trict court incorrectly found that he was the employer of day
laborers
who worked for sharecroppers on his land. Under section 3401(d)(1)
of the Internal Revenue Code, however, an individual who controls
the payment of wages is considered the employer for FICA and
FUTA purposes. Because Winstead paid the day laborers from his
personal checking account, he must be considered the employer in
this case. Accordingly, we affirm the judgment of the district
court.
I.
From 1980 to 1982, tenant farmers grew tobacco on Daniel Win-
stead's land under sharecropping agreements with Winstead. Win-
stead operated this enterprise individually in 1980 and 1981. In
1982,
he operated with his sons as the Winstead Family Partnership.
Under the sharecropping agreements, Winstead provided the share-
croppers with homes, land to farm, and equipment. He also agreed to
split the costs of ordinary expenses such as fertilizer and
chemicals.
In return, the sharecroppers were responsible for working the land
and
were accountable for hired help. After the tobacco was sold,
Winstead
and the sharecroppers split the proceeds.
2
The sharecroppers used migrant farm workers as day laborers to
assist with the farming. All but two of the sharecroppers, however,
were unable to pay for hired help until after the tobacco was sold
each
year. Winstead therefore paid the day laborers directly from his
checking account, and deducted this amount from the sharecroppers'
share of the profits.
The IRS assessed FICA and FUTA taxes against Winstead and the
Winstead Family Partnership for the wages paid to the day laborers
from 1980 to 1982. Winstead brought this action for a refund of the
partial payment of FICA and FUTA taxes, asserting that neither he
nor the partnership was the employer of the day laborers during the
relevant period. The United States filed a counterclaim, seeking
the
balance of the unpaid taxes.
The district court found that Winstead and the partnership had con-
trolled the payment of wages to the day laborers, that they were
there-
fore employers under 26 U.S.C. § 3401(d)(1), and that they were
liable for outstanding FICA taxes in the amount of $13,817.84 and
FUTA taxes in the amount of $4,204.02.
Winstead then filed the instant appeal.
II.
The Internal Revenue Code provides that an employer bears
responsibility for withholding FICA and FUTA taxes. 26 U.S.C.
§§ 3101-02, 3111 & 3301. Winstead has conceded that the day labor-
ers were employees covered under FICA and FUTA. Thus the only
question raised by this appeal is the identity of the employer of
the
day laborers -- Winstead and the partnership, or the sharecroppers?
The term "employer" is defined in section 3401(d) of the Internal
Revenue Code as follows:
(d)Employer. -- For purposes of this chapter, the term
"employer" means the person for whom an individual per-
forms or performed any service, of whatever nature, as the
employee of such person except that --
3
(1)if the person for whom the individual performs
or performed the services does not have control of
the payment of the wages for such services the
term "employer" . . . means the person having con-
trol of the payment of such wages.
26 U.S.C. § 3401(d)(1). While this definition is for income tax
pur-
poses, the Supreme Court has held that it is equally applicable to
FICA. Otte v. United States, 419 U.S. 43, 51 (1974). In addition,
since
Otte, courts have uniformly applied the definition of section
3401(d)(1) to FUTA. See, e.g., Lane Processing Trust v. United
States, 25 F.3d 662, 666 (8th Cir. 1994); In re Southwest
Restaurant
Systems, Inc., 607 F.2d 1237, 1238-39 (9th Cir. 1979); In re Arma-
dillo Corp., 561 F.2d 1382, 1386 (10th Cir. 1977).
A.
The government notes that Winstead paid the day laborers directly
from his checking account and must therefore be considered the
employer under section 3401(d)(1). The plain language of that
statute
suggests that the government's position is correct. The statute
pro-
vides that the employer is normally "the person for whom an
individ-
ual performs or performed any service" with one significant
exception. In those circumstances where the person receiving
services
does not control the payment of wages, the individual controlling
the
actual payment of wages is deemed to be the employer. Since Win-
stead paid the day laborers directly from his checking account and
the
sharecroppers had no authority over this account, he would appear
to
fit squarely within the 3401(d)(1) exception.
Winstead contests this conclusion, maintaining that section
3401(d)(1) requires more than just paying salaries, but rather
requires
control over the hiring, firing, supervision, and the amount to be
paid
employees. This argument, however, misses the point of the statute.
The factors to which Winstead points are indicia of a common law
employment relationship. Section 3401(d)(1), however, by design
does not look to those factors but rather focuses on who has
control
over the payment of wages. As the Supreme Court noted in Otte, the
3401(d)(1) provision was included to simplify the collection of
taxes
4
by placing "responsibility for withholding at the point of
control." 419
U.S. at 50. As the Ninth Circuit has explained:
No one other than the person who has control of the pay-
ment of the wages is in a position to make the proper
accounting and payment to the United States. It matters little
who hired the wage earner or what his duties were or how
responsible he may have been to his common law employer.
Neither is it important who fixed the rate of compensation.
When it finally comes to the point of deducting from the
wages earned that part which belongs to the United States
and matching it with the employer's share of FICA taxes,
the only person who can do that is the person who is in
"control of the payment of such wages."
Southwest Restaurant Systems, 607 F.2d at 1240; see also Education
Fund of Electrical Industry v. United States, 426 F.2d 1053, 1057
(2d
Cir. 1970). It is undisputed that Winstead paid the day laborers
directly from his checking account. Under section 3401(d)(1), Win-
stead and the Winstead Family Partnership must therefore be consid-
ered employers for FICA and FUTA purposes.
B.
Winstead's remaining arguments have little merit. First, Winstead
argues that the holding in Otte -- that section 3401(d) is
applicable
for FICA purposes -- is limited to those situations where the
putative
employer is also liable for income tax purposes. Because cash remu-
neration for agricultural labor was excluded from the definition of
"wages" for income tax withholding during the relevant time period,
26 U.S.C. § 3401(a)(2) (1982), amended by , Omnibus Budget
Reconciliation Act of 1989, Pub. L. No. 101-239,§ 7631(a), 103
Stat.
2106, 2378, Winstead argues he should also have been exempted
from withholding and paying FICA and FUTA taxes. Cash remunera-
tion for agricultural labor, however, is and was included within
the
definition of "wages" for FICA and FUTA purposes, see 26 U.S.C.
§§ 3121(a)(8) & 3306(b)(11), and Otte did nothing to change this
def-
inition. That decision simply held that section 3401(d)(1)'s
definition
of employer was applicable to FICA. Winstead's argument must
therefore fail.
5
Winstead also maintains that the definition of "employer" articu-
lated by the Court in Otte is limited to trustees in bankruptcy. He
con-
tends that the liability in Otte arose solely because the trustee
was
acting in a capacity similar to an agent or trustee and had assumed
a
"surrogate relationship" with the bankrupt former employer. The
Supreme Court, however, did not rely on any agency, trustee, or
"sur-
rogate" theory. Instead, it relied on the plain language of section
3401(d)(1). Otte, 419 U.S. at 50. Moreover, the courts have repeat-
edly applied the section 3401(d)(1) definition of employer for FICA
purposes in cases in which the "control of the payment of wages"
did
not arise by reason of bankruptcy. See Kittlaus v. United States,
41
F.3d 327, 329-31 (7th Cir. 1994); Lane Processing Trust, 25 F.3d at
666; Southwest Restaurant Systems , 607 F.2d 1237-38.
Lastly, Winstead claims that he was relieved from FICA taxes by
section 3121(b)(16) which exempts from the definition of employ-
ment
service performed by an individual under an arrangement
with the owner or tenant of land pursuant to which--
(A)such individual undertakes to produce agricul-
tural or horticultural commodities . . . on such
land,
(B)the agricultural or horticultural commodities
produced by such individual, or the proceeds
therefrom, are to be divided between such individ-
ual and such owner or tenant, and
(C)the amount of such individual's share depends
on the amount of the agricultural or horticultural
commodities produced.
26 U.S.C. § 3121(b)(16). Winstead concedes that the day laborers at
issue do not fall within this exemption, but argues that the
sharecrop-
pers do. If a sharecropper is not an employee, he claims, it stands
to
reason that the employees of the sharecropper should also be
exempt.
6
We disagree. The plain language of the section 3121(b)(16) exemp-
tion indicates that it applies only to those workers who share the
prof-
its and risks of cultivating a commodity and thus are considered
self-
employed. The day laborers at issue in this case were manifestly
not
self-employed, and should not be deprived of FICA coverage. Neither
the exemption nor its rationale has any application here.
III.
Winstead further argues that he should not be liable for FUTA
taxes because he did not pay sufficient wages to the day laborers
to
come within the terms of FUTA. Section 3306(a)(2) of the Internal
Revenue Code identifies employers of agricultural labor subject to
FUTA taxes as follows:
Agricultural labor. -- In the case of agricultural labor, the
term "employer" means, with respect to any calendar year,
any person who --
(A)During any calendar quarter in the calendar
year or the preceding calendar year paid wages of
$20,000 or more for agricultural labor.
26 U.S.C. § 3306(a)(2).
Winstead contends that he "did not pay $20,000 or more of wages
during any calendar quarter for 1980 and 1981," and that the
district
court made no factual findings regarding the amount of wages paid
in those years. In a tax refund action, however, the IRS's
assessment
of taxes is presumed correct, and the taxpayer bears the burden of
proving otherwise. United States v. Janis, 428 U.S. 433, 440
(1976).
In this case, the IRS's assessment of FUTA taxes indicated that
Win-
stead met the prerequisite of section 3306(a)(2) for the years in
ques-
tion. Winstead has pointed to no evidence that the IRS's assessment
was incorrect, and his conclusory allegations are not sufficient to
create a factual dispute.
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IV.
For the foregoing reasons we affirm the judgment of the district
court.
AFFIRMED
8