TAX COURT RULES LAND SURVEYING COMPANY IS SUBJECT TO PERSONAL SERVICES FLAT TAX RATE.

Caroline R. Krivacka, for respondent.

Petitioner was incorporated under the laws of the State of Tennessee. Its principal place of business is Seymour, Tennessee. Petitioner timely filed Form 1120, U.S. Corporation Income Tax Return, for 2005, reporting taxable income of $48,808 and tax of $7,321.

Petitioner is in the business of surveying land, and land surveying is the only service petitioner provides. Petitioner does not have any employees who are licensed engineers, is not associated with any firm that employs licensed engineers, and does not provide any services that State law requires to be performed only by a licensed engineer.

A qualified personal service corporation is any corporation that satisfies a function test and an ownership test. Sec. 448(d)(2). Petitioner argues that it is not a qualified personal service corporation because it does not meet the function test.³

The function test requires that substantially all of the corporation's activities involve the performance of services in the fields of "health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting" (qualifying field). Sec. 448(d)(2)(A). Section 1.448-1T(e)(4)(i), Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June 16, 1987) (sometimes the temporary regulation), provides:

Petitioner asserts that the temporary regulation as interpreted and applied by respondent is invalid in that it expands the meaning of engineering beyond the ordinary meaning and brings into the definition of engineering the entirely separate profession of land surveying. Citing Grutman-Mazler Engg. Inc. v. Commissioner, T.C. Memo. 2008-140, and Alron Engg. & Testing Corp. v. Commissioner, T.C. Memo. 2000-335, petitioner asserts that the Court should look to State law to determine whether an activity is the performance of a service "in the field of engineering". Petitioner asserts that its land surveying is not performed in the field of engineering because the activities of engineering and land surveying are separately licensed and administered under Tennessee law. For completeness, we briefly summarize the relevant State law provisions.

The practice of land surveying is governed by Tenn. Code Ann. secs. 62-18-101 to 62-18-127 (2009) and regulated by the State Board of Examiners for Land Surveyors. The practice of engineering is governed by the applicable provisions of Tenn. Code Ann. secs. 62-2-101 to 62-2-406, 62-2-601, and 62-2-602 (2009) and regulated by the State Board of Examiners for Architects and Engineers.

A person who has not practiced surveying for at least 10 years and who wishes to practice land surveying in Tennessee must pass the fundamentals of land surveying examination prepared by the National Council of Examiners for Engineering and Surveying (NCEES). Tenn. Code Ann. sec. 62-18-109. A person wishing to practice engineering in Tennessee must pass two examinations prepared by NCEES-the fundamentals of engineering examination (not required with undergraduate engineering degree and 12 or more years of progressive engineering experience) and the principles and practice of engineering examination.⁴ Tenn. Code Ann. secs. 62-2-401, 62-2-402, and 62-2-405.

Tennessee statutes and regulations do not define the practice of engineering. However, Tenn. Code Ann. sec. 62-18-102(3) defines the "Practice of land surveying" as follows:

In Alron Engg. & Testing Corp. v. Commissioner, supra, the taxpayer, a Wisconsin corporation, performed both engineering services and geotechnical testing services. At issue was whether the geotechnical testing was within the field of engineering under section 448(d)(2). We observed that under Wisconsin law an engineer licensed with the State must meet certain minimum education, experience, and examining board requirements but that there are no standard minimum requirements for technicians who perform geotechnical testing services under the laws of Wisconsin. We concluded that geotechnical testing did not require the same education, training, and mastery as engineering and held that it did not constitute engineering.

In Rainbow Tax Serv., Inc. v. Commissioner, supra, we held that tax return preparation and bookkeeping services provided by a Nevada corporation were within the qualifying field of accounting under section 448(d)(2). In that case, although we examined State law, we noted that section 448(d)(2) requires only that the services be in the "field of accounting" and is not limited to public accounting. Id. at 46. We declined to limit services performed in the field of accounting to those requiring State licensure. Rather, we applied the regulations promulgated under section 448 and the ordinary meaning of the words "accounting" and "bookkeeping" (defined as a branch of accounting), noted that under Nevada law "public accounting" includes "the preparation of tax returns", and considered that the "field of accounting" historically included tax return preparation and bookkeeping services. Id. at 46-47. Thus, although neither tax return preparation nor bookkeeping requires the same education, training, and mastery as accounting, we held that those activities were services in the field of accounting. Cf. Alron Engg. & Testing Corp. v. Commissioner, supra.

In Alron Engg. & Testing Corp. we looked primarily to State law in holding that geotechnical testing was not in the field of engineering. We did not consider other indicia that might indicate that geotechnical engineering is a branch of civil engineering that historically includes geotechnical testing.⁵ See supra note 4. However, Rainbow Tax Serv., Inc. instructs us to consider other indicia in deciding whether a service is performed in a qualifying field under section 448(d)(2). We shall do so here in deciding whether section 1.448-1T(e)(4)(i), Temporary Income Tax Regs., supra, properly includes surveying in the field of engineering for purposes of section 448(d)(2).

The words of a statute should be given their normal meaning and effect in the absence of a showing that some other meaning was intended. Leocal v. Ashcroft, 543 U.S. 1, 9 (2004). If the intent of Congress is clearly and unambiguously expressed by the statutory language at issue, the Court must apply the statute according to its terms. Zuni Pub. Sch. Dist. No. 89 v. Dept. of Educ., 550 U.S. 81, 93-94 (2007) ("normally neither the legislative history nor the reasonableness of the Secretary's method would be determinative if the plain language of the statute unambiguously indicated that Congress sought to foreclose the Secretary's interpretation").

Section 448 lists eight qualifying fields but does not define any of them. When interpreting the text of a statute, courts frequently begin by looking to the common and ordinary meaning of a word set forth in a dictionary. See, e.g., Carcieri v. Salazar, 555 U.S. ___, , 129 S. Ct. 1058, 1063-1064 (2009); Rousey v. Jacoway 544 U.S. 320, 326 (2005); Carlson v. Commissioner, 116 T.C. 87, 94 (2001). However, analyses of the legislative history and purpose of a statute are also traditional tools of statutory construction. "If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect." Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 n.9 (1984). We begin our analysis with the legislative history because it provides evidence of congressional intent with respect to the precise point at issue. See Zuni Pub. Sch. Dist. No. 89 v. Dept. of Educ., supra at 105-106 (Stevens, J., concurring).

A. Legislative History and Purpose

Congress enacted section 448, which generally prohibits C corporations, partnerships that have a C corporation as a partner, and tax shelters from using the cash method of accounting, as part of the Tax Reform Act of 1986, Pub. L. 99514, sec. 801, 100 Stat. 2345. Before the enactment of section 448, taxpayers whose businesses did not involve inventories generally could elect to use any method of accounting that clearly reflected income and that was regularly used in keeping the taxpayer's books and records under section 446. Congress enacted section 448(a) because it believed "that the cash method of accounting frequently fails to reflect accurately the economic results of a taxpayers's trade or business over a taxable year." H. Rept. 99-426, at 605 (1985), 1986-3 C.B. (Vol. 2) 1, 605. However, Congress recognized that the simplicity of the cash method justified its continued use by certain types of taxpayers and for certain types of activities. Id. Congress recognized that individuals, especially those engaged in professional activities, personal service corporations, and entities where the income is taxed at the individual level (such as partnerships and S corporations) traditionally had used the cash method of accounting in the operation of their trades or businesses and should be able to continue to use that method. Id. Thus, in section 448(b) Congress provided exceptions to section 448(a), including the exception for qualified personal service corporations defined in section 448(d)(2).

The conference report on the Tax Reform Act of 1986, Pub. L. 99-514, sec. 801, 100 Stat. 2345, states:

B. Definitions of Engineering and Civil Engineering

Webster's Third New International Dictionary 752 (1993) defines "engineering" as:

Webster's Third New International Dictionary 413 (2002) defines "civil engineering" as "a branch of engineering concerned primarily with public works (as land surveying, the building of highways, bridges, waterways, or harbors * * *) but also embracing private enterprises (as railroad and airport building, private building construction, and farm drainage)". (Emphasis added.) Thus, land surveying is within the ordinary meaning of engineering.

C. Other Indicia

"The traditional concept of civil engineering is the integrated practice of engineering embracing a number of related specialty areas including, but not limited to, construction, transportation, structures, water resources and environmental, and geotechnical engineering." American Society of Civil Engineers (ASCE) Policy Statement 432 (first approved 1994, adopted May 2, 2008).⁷

ASCE recently adopted Policy Statement 333 (adopted April 24, 2007), in response to "some confusion with respect to the role of civil engineers in the practice of surveying" and the "lack of understanding on the part of certain engineering disciplines, other than civil, of the importance of surveying to the practice of civil, aeronautical, mechanical, and mining engineering, among others." Id. Policy Statement 333 defines "Engineering surveying" as follows:

ASCE publishes various journals that provide technical information for the civil engineering profession, including the Journal of Surveying Engineering. An article on the history of engineering surveying by William E. Kreisle published in the Journal of Surveying Engineering traces the development of the engineering surveyor, his equipment, and his methods. Kreisle, "History of Engineering Surveying", 114 J. Surveying Engineering, 102-124 (1988). In the abstract of the article, Kreisle observes that "The engineering surveyor, who evolved from the land surveyor, was the forerunner of all civil engineers, including the founders of the American Society of Civil Engineers." Id. at 102.

D. State Licensing Laws Not Controlling

The inclusion of surveying in the field of engineering is supported by the legislative history. Civil engineering is a branch of engineering, and land surveying falls within the ordinary meaning of engineering and historically is regarded as within the field of engineering. The fact that land surveying may be performed by an individual who is not a licensed engineer does not remove those services from the "field of engineering". See Rainbow Tax Serv., Inc. v. Commissioner, 128 T.C. at 46 (tax preparation and bookkeeping services are within the field of accounting even when performed by a corporation that employs no licensed C.P.A.s).

"The meaning of the words or the legal status of circumstances for federal tax purposes need not be identical to their meaning or their legal effect under state law." Estate of Steffke v. Commissioner, 538 F.2d 730, 732 (7th Cir. 1976) (citing Commissioner v. Tower, 327 U.S. 280 (1946), and Lyeth v. Hoey, 305 U.S. 188 (1938). In interpreting a Federal taxing statute the Supreme Court said:

We can find no basis in the text of section 448(d)(2) or its legislative history to conclude that Congress intended to condition the meaning of "services in the field of engineering" (or any other qualifying field) on State law. In NLRB v. Hearst Publns., Inc., 322 U.S. 111, 123 (1944), the Supreme Court rejected an argument that the term "employee" as used in a Federal statute should be defined by State law, explaining:

Whether a service is performed in one of the qualifying fields under section 448(d)(2) is to be decided by all relevant indicia, including the text of the statute, its legislative history and regulations, application of the normal meaning of the term "health", "law", "engineering", "architecture", "accounting", "actuarial science", "performing arts", or "consulting", and examination of services historically regarded as within the qualifying field. See Rainbow Tax Serv., Inc. v. Commissioner, 128 T.C. 42 (2007).

To reflect the foregoing,

An appropriate order and decision for respondent will be entered.

² Respondent previously filed a motion for summary judgment pursuant to Rule 121. The parties' submission of the case fully stipulated renders that motion moot.

³ Petitioner has not asserted that it does not satisfy the ownership test and is deemed, therefore, to have conceded that the ownership test is satisfied if its land surveying is in the field of engineering.

⁴ The NCEES prepares separate fundamentals of engineering exams for the seven major engineering disciplines (chemical, civil, electrical, environmental, industrial, mechanical, and other disciplines); two-thirds of the questions cover all disciplines (breadth part) and one-third cover the specific discipline (depth part). Eleven percent of the questions in the depth part of the fundamentals of engineering examination for civil engineering are questions on surveying.

NCEES prepares separate principles and practice of engineering examinations in 25 engineering disciplines or subdisciplines. The civil engineering exam covers five subdisciplines-construction, geotechnical, structural, transportation, and water resources and environmental -- and consists of a breadth part and a depth part. The breadth part contains questions from all five subdisciplines of civil engineering. The depth exams focus more closely on a single subdiscipline of civil engineering.

⁵ The NCEES principles and practice of engineering breadth examination for civil engineering includes questions on material testing (e.g., concrete, soil, asphalt) and subsurface exploration and sampling (soil classification and boring log interpretation). The depth exam for geotechnical civil engineering includes questions on subsurface exploration and sampling, covering drilling and sampling procedures, soil classification, general rock characterization, boring log interpretation, and in situ testing.

⁶ The year after the enactment of sec. 448, in the Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203, sec. 10224, 101 Stat. 1330-412, Congress amended sec. 11(b), making qualified personal service corporations defined in sec. 448(d)(2) ineligible for the graduated income tax rates contained in sec. 11(b)(1) and imposing tax on them at the highest rate (34 percent at that time). The House Ways and Means Committee explained:

⁸ Webster's Third New International Dictionary 311 (2002) defines "cadastral" as "1: of or relating to the records of a cadastre: concerned with assembling or keeping the records necessary to the cadastre 2 of a map or survey: showing or recording property boundaries, subdivision lines, buildings, and other details"; Black's Law Dictionary 195 (8th ed. 1999) defines "cadastre" (also spelled "cadaster") as "A survey and valuation of real estate in a county or region compiled for tax purposes."

⁹ Under Natl. Muffler Dealers Association v. United States, 440 U.S. 472 (1979), an interpretative regulation is valid if it implements a congressional mandate in a reasonable manner. By contrast, under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984), a legislative regulation is upheld "unless arbitrary, capricious, or manifestly contrary to the statute".