Cooper v. Commissioner

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a1079n.06
No. 11-2232
UNITED STATES COURT OF APPEALS
FILED
FOR THE SIXTH CIRCUIT
Oct 16, 2012
DEBORAH S. HUNT, Clerk
MARTIN COOPER, )
)
Petitioner-Appellant, ) ON APPEAL FROM THE UNITED
) STATES TAX COURT
v. )
)
COMMISSIONER OF INTERNAL REVENUE, )
)
Respondent-Appellee. )
Before: CLAY and WHITE Circuit Judges; and HOOD, District Judge.*
HOOD, District Judge. Petitioner-Appellant Martin C. Cooper (“Petitioner”) asks us to
consider whether the Tax Court properly concluded that he meant what he said in his briefing before
that court. In particular, we consider whether the Tax Court erred when it concluded that Petitioner
had conceded the issue of his status as an employee rather than an independent contractor for tax
purposes in the tax years 2003 and 2004 during the course of proceedings before that court. We hold
that, on the facts before us, it did not. Further, we conclude that, contrary to Petitioner’s argument,
the Tax Court properly declined his invitation to give an advisory opinion on the determination of
his status once he had conceded the issue and the Tax Court had provided an opinion on his liability
for the given tax years based on that concession. The decision of the Tax Court will be affirmed.
The appeal has been referred to a panel of this court. Upon review, we unanimously agree
that oral argument is not needed in this case. Fed. R. App. P. 34(a)(2)(C).
* The Honorable Joseph M. Hood, United States District Judge for the Eastern District of Kentucky,
sitting by designation.
I.
Petitioner was a registered representative of Securities Service Network, Inc. (“SSN”),
soliciting customers for the purchase or sale of securities. During tax years 2003 and 2004, SSN
paid Petitioner commissions, and he reported this income as though he was an independent
contractor on his individual income tax returns for those years, accounting for the sums paid to him
by SSN on Schedule C “Profit or Loss from Business.”
When those tax returns were audited by the Internal Revenue Service (“IRS”), Petitioner filed
a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and
Income Tax Withholding, on September 14, 2006, in order to determine whether he was an employee
of SSN or an independent contractor. The IRS determined, as stated in a letter dated April 4, 2007,
that Petitioner was an employee of SSN. In a notice of deficiency dated June 19, 2007, the IRS
advised Petitioner that there were deficiencies in his federal income tax payment for the tax years
2003 and 2004, a portion of which was attributable to the determination that Petitioner worked for
SSN as an employee rather than an independent contractor. The IRS also assessed accuracy-related
penalties under § 6662(a) for those tax years.
On September 12, 2007, Petitioner timely petitioned the Tax Court for review of those
determinations, asserting that the IRS’ determination of the amount of deficiency was incorrect
because he was an independent contractor, not an employee of SSN. Ultimately, on October 23,
2009, the parties filed a joint motion for leave to submit the case under U.S. Tax Ct. R. 122 on the
basis of the pleadings and the facts recited in their stipulation of facts and stipulation of settled
issues.1 In the stipulation of facts, the parties agreed that the “only issue remaining for trial is
1
U.S. Tax Ct. R. 122 provides that
Any case not requiring a trial for the submission of evidence (as, for example, where
sufficient facts have been admitted, stipulated, established by deposition, or included
2
whether [P]etitioner was a common-law employee of [SSN] or an independent contractor, and,
therefore, whether his income and expenses . . . should be reported” by means of Line 7 of Form
1040 and Line 20 of Schedule A or on Schedule C for the relevant period. [App’x 44.]
Notwithstanding the parties’ statement that there remained an issue as to Petitioner’s status
as an employee or independent contractor, Petitioner asserted in his pretrial memorandum, also filed
on October 23, 2009, that he had been an employee of SSN, not an independent contractor, during
the relevant time period. Specifically, he wrote as follows:
In light of the recent mediation/litigation involving SSN . . . and the Petitioner,
additional facts have come to light that likely support the conclusion that the
Petitioner should be treated as an employee rather than an independent contractor.
The petitioner is aware that this position is contrary to his initial complaint filed with
this Court but is now uncertain as to his actual status.
[App’x 67.] He then explained that:
. . . it would appear that the Petitioner is an employee because the firm executed
sufficient control over the worker to establish an employer-employee relationship for
federal income tax purposes. The firm exercised control over the worker in the
following manner:
(1) The Company required that the worker conform to its own rules and those of
stock exchanges and regulatory agencies.
(2) The Company required approval on all new accounts and sales . . . , any
advertisements prepared by the worker . . . , and all correspondence prepared by the
worker.
(3) The Company required the worker to participate in its Errors and Omissions
Insurance Legal Defense and Indemnity Fund.
in the record in some other way) may be submitted at any time after joinder of issue
. . . by motion of the parties filed with the Court.
Here, the parties’ motion for leave to submit the case was granted, and the case was submitted to the
Tax Court pursuant to Rule 122.
3
(4) The Company required all customer account files to be maintained in accordance
with its own internal procedures.
[App’x 67–68 (internal citations to record omitted).]
Petitioner concluded his pretrial memorandum as follows:
Although the Petitioner generated all of his own business, SSN . . . exercised clear
control over the manner in which the securities were sold and the interaction between
its representatives and the customer. These actions alone appear to be sufficient to
warrant a finding by this Court that the Petitioner was an employee of SSN . . . rather
than an independent contractor.
[App’x 68.]
He later wrote in his opening brief, filed on January 21, 2010, that,
It is the Petitioner’s position that although he generated all his own business, [SSN]
exercised clear control over the manner in which the securities were sold and
controlled the interaction between the Petitioner and the customer. The control
exercised by [SSN] over the Petitioner rose above the level of mere compliance with
government regulations and warrants a finding by this Court that the Petitioner was
an employee of [SSN] rather than an independent contractor.
[App’x 140.]
In the same brief, Petitioner discussed the common law factors that courts evaluate in order
to determine whether an individual is an employee or an independent contractor and concluded that
the factors indicated that Petitioner was an employee of SSN. He summarized the argument, as
follows:
[SSN’s] treatment of the Petitioner through its detailed compliance manual, together
with [SSN’s] right to impose sanctions against the Petitioner for noncompliance
exceeded the extent of supervision required by securities industry rules and
established an employer-employee relationship.
[App’x 146.] He concluded that “Section 921(a) of the Taxpayer’s Relief Act of 1997 does not
apply in this case” and that the Tax Court “must issue a finding that the Petitioner was an employee
of [SSN] for the tax years 2003 & 2004.” [App’x 150.]
4
In light of the language in Petitioner’s filings, the Government asserted in its opening brief
before the Tax Court that Petitioner had admitted that he was an employee of SSN. Petitioner then
filed an answering brief denying that he had made any admission. In that same brief, however, he
then stated that he “wishe[d] to determine whether or not he was misclassified as an independent
contractor of [SSN]” for the relevant time period, effectively reiterating his earlier concession that
he was an employee. [Tax Ct. Rec. No. 25, Answering Br. at 7.] Without recanting his statements
and argument or seeking to amend his filings, he asked the Tax Court to “draw a defining line
explaining what qualifies as permissive supervisory control under Section 921(a) of the Taxpayer’s
Relief Act of 1997 when determining employment status of a securities broker dealer.” [Id. at 12.]
He further “request[ed] [that the Tax] Court . . . clarify and explain the applicability of 921(a) of the
Taxpayer’s Relief Act . . . in determining employment status, provide guidance on the basic elements
of supervisory procedures that were in place at the time the Petitioner was performing his service
with [SSN] and render a finding as to the Petitioner’s work status.” [Id. at 12.]
The Tax Court filed a Memorandum Opinion on October 5, 2010, sustaining the deficiencies
attributable to the Commissioner’s determination that Petitioner worked for SSN as an employee.
In its Memorandum Opinion, the Tax Court concluded that, while the Petitioner had averred that he
was an independent contractor and not an employee of SSN when he filed his Petition, “since filing
his petition, petitioner has conceded that he was an employee of SSN.” [App’x 162.] The Tax Court
declined Petitioner’s invitation “to ‘draw a defining line explaining what qualifies as permissive
supervisory control under section 921(a) of the Taxpayer’s Relief Act of 1997 when determining
employment status of a securities broker dealer for purposes of the Internal Revenue Code’” because
it “[was] not at liberty to issue advisory opinions when no tax controversy exist[ed].” [App’x 162.]
A decision based on that Memorandum Opinion was entered on December 10, 2010, sustaining the
relevant deficiencies but concluding that no penalties were due from Petitioner.
5
Petitioner then filed a Motion to Vacate the decision either on the grounds that the Tax Court
erred when it concluded that he had conceded that he was an employee of SSN or because he was
entitled to relief due to attorney mistake because his counsel articulated an argument that included
such a concession under Fed. R. Civ. P. 60(b)(1). The Tax Court, on May 31, 2011, denied the
motion to vacate, rejecting Petitioner’s contention that he had not conceded that he was an employee
of SSN and pointing out the multiple times that Petitioner affirmatively stated that he was an
employee and urged the Tax Court to conclude the same, while never subsequently asserting that he
was an independent contractor during the course of briefing before the Tax Court. The Tax Court
also rejected his argument that he was entitled to relief under Fed. R. Civ. P. 60(b)(1) due to attorney
mistake because the opening brief reflected a thorough analysis of the factors to be considered and
deliberately argued that he was an employee, even while acknowledging that the argument ran
counter to the position taken in his petition.
This appeal followed the Tax Court’s final decision, and this Court has jurisdiction to
consider it by virtue of 26 U.S.C. § 7482(a)(1).
II.
We review the Tax Court’s factual findings for clear error. Limited, Inc. v. Comm'r of
Internal Revenue, 286 F.3d 324, 331 (6th Cir.2002) (citing Kearns v. Comm'r of Internal Revenue,
979 F.2d 1176, 1178 (6th Cir.1992); Gross v. Comm'r of Internal Revenue, 272 F.3d 333, 342 (6th
Cir.2001)). “Under this standard, the Tax Court’s findings of fact will be overruled only if we are
‘left with a definite and firm conviction that a mistake has been made.’ Thus, we ‘must uphold the
[T]ax [C]ourt’s account of the evidence if it is plausible in light of the record viewed in its entirety.’”
Limited, Inc., 286 F.3d at 331 (quoting Kearns, 979 F.2d at 1178; Gross, 272 F.3d at 343). The Tax
Court’s legal conclusions are subject to de novo review. Id. (citing Kearns, 979 F.2d at 1178).
“When reviewing mixed questions of fact and law, we review the underlying factual determinations
6
under a clearly erroneous standard and the application of the facts to the law under a de novo
standard.” Id. (citing Friedman v. Comm'r of Internal Revenue, 216 F.3d 537, 541 (6th Cir.2000)).
III.
The Tax Court did not err when it concluded that Petitioner had conceded the issue of his
status as an employee of SSN rather than an independent contractor. The Tax Court may accept such
concessions, and, having considered the record as a whole, we are not left with a definite or firm
conviction that any mistake was made with respect to any finding of fact necessary to that
conclusion. See NicSand, Inc. v. 3M Company, 507 F.3d 442, 458 (6th Cir. 2007) (explaining that
“the plaintiff remains the master of its complaint” and that, if the plaintiff states in post-complaint
pleadings filed with the court that he is not bringing or pursuing a particular claim, then the court
“should take it at its word.”).
The statements made in Petitioner’s briefs are what they are, and we need not tarry long with
respect to this issue. Not only did Petitioner recognize in his briefs that he was departing from the
position taken in his Petition, he offered a reasoned analysis for his change of position based on the
facts to which he had stipulated.2 While he argued that the facts would “likely” support a conclusion
that he was an employee, “it would appear that [he was] an employee,” and that certain facts
“appear[ed] to be sufficient to warrant a finding by [the Tax] Court that [he] was an employee . . .
rather than an independent contractor,” he ultimately concluded that the Tax Court “must” find that
2
Neither Petitioner nor his counsel are permitted to “evade the consequences of their legal positions
and litigation strategies, even though these might prove unsuccessful, ill-advised, or even flatly
erroneous.” McCurry ex rel Turner v. Adventist Health Sys., 298 F.3d 586, 595 (6th Cir. 2002). Nor
can Petitioner complain on appeal of an error, if an error actually exists, that he invited through his
insistence that the Tax Court accept his concession. See Harvis v. Roadway Express, Inc., 923 F.2d
59, 61 (6th Cir. 1991) (“Having induced the court to rely on a particular erroneous proposition of law
or fact, a party in the normal case may not at a later stage of the case use the error to set aside the
immediate consequences of the error”). Petitioner may now regret that he made the concession that
he was an employee and not an independent contractor, but he cannot escape it.
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he was an employee of SSN. [App’x 67–68.] It was not error for the Tax Court to conclude that
Petitioner was conceding the issue of his status as an employee rather than an independent
contractor.3
IV.
Further, the Tax Court did not err when, having recognized Petitioner’s concession of the
issue of his status, it issued an opinion solely on the amount of the deficiency owed for the tax years
before it. To the extent that Petitioner simply wishes that the Tax Court had said more about the
facts, it was not necessary to do so because, where an issue concerning liability or deficiency is
admitted in the pleadings, “no findings of fact are needed to support it in the court’s opinion.”
Handeland v. Comm'r of Internal Revenue, 519 F.2d 327, 329 (9th Cir. 1975).
Further, federal courts, including the Tax Court, are “without power to decide questions that
cannot affect the rights of litigants in the case before them” and have no power to issue advisory
opinions. North Carolina v. Rice, 404 U.S. 244, 246 (1971) (citing Hayburn’s Case, 2 Dall. 409,
1 L. Ed. 436 (1792); Muskrat v. United States, 219 U.S. 346, 351–53 (1911); Local No. 8-6, Oil
Chem. and Atomic Workers Intern. Union v. Missouri, 361 U.S. 363, 367 (1960)). Nor is declaratory
relief available in the federal courts “with respect to Federal taxes.” 28 U.S.C. § 2201(a); see W. W.
Windle Co. v. Comm’r of Internal Revenue, 550 F.2d 43, 45–46 (1st Cir. 1977). Thus, a Tax Court’s
decision is a formal determination of the existence or nonexistence of a tax deficiency for the
particular year or years in issue—no more and no less. See W. W. Windle Co., 550 F.2d at 45; Malat
v. Comm’r of Internal Revenue, 302 F.2d 700, 705 (9th Cir. 1962) (“The objective of a proceeding
before the Tax Court is not to expound legal theories or to make advisory findings or to render
3
We make no finding as to whether that conclusion was correct, of course. We conclude only that,
based on the language found in Petitioner’s pleadings, the Tax Court did not err when it concluded
that Petitioner had conceded the issue of his status as an employee of SSN.
8
advisory opinions, but to arrive at a determination of how much tax, if any, the petitioner owes.”).
Since declaratory relief is not available in the Tax Court, once an issue is resolved for the tax year
or years in question, any further analysis would yield an advisory opinion.
In light of the stipulation of facts and concession of the issue of Petitioner’s status as an
employee, the Tax Court properly limited its inquiry to Petitioner’s tax deficiency as an employee
of SSN for the tax years 2003 and 2004. Thus, the Tax Court properly declined to issue an advisory
opinion setting forth, as a general matter, “a defining line explaining what qualifies as permissive
supervisory control under Section 921(a) of the Taxpayer’s Relief Act of 1997 when determining
employment status of a securities broker dealer.” The opinion, while obviously less than satisfying
to Petitioner, said all that it needed to say.
V.
Accordingly, for all of the reasons stated above, we AFFIRM the decision of the Tax Court.
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