University Challenges Faculty Employment Status Determination
Florida State University v. Commissioner
- Case NameFlorida State University v. Commissioner
- CourtUnited States Tax Court
- DocketNo. 3291-20
- Institutional AuthorsAlston & Bird LLP
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2020-9498
- Tax Analysts Electronic Citation2020 TNTF 50-28
Florida State University v. Commissioner
FLORIDA STATE UNIVERSITY,
Petitioner,
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
UNITED STATES TAX COURT
PETITION FOR REDETERMINATlON OF EMPLOYMENT STATUS
UNDER CODE SECTION 7436
Pursuant to Internal Revenue Code (“IRC”) § 7436, PETITIONER, Florida State University (“Petitioner” or “FSU”), HEREBY PETITIONS this Court for a redetermination of the assertions set forth by the Commissioner of Internal Revenue (“Respondent”) in his Notice of Determination (“Notice”) dated November 19, 2019, regarding the employment status of certain employees for the. four quarterly tax periods of the tax year ending December 31, 2016, and alleges as follows:
1. Petitioner. Petitioner is Florida State University. Petitioner's principal place of business is in Tallahassee, Florida. Petitioner's address is 282 Champions Way, A 2201 UCA, Tallahassee, Florida, 32306-0001. Petitioner's Taxpayer Identification Number is set forth in the Statement of Taxpayer Identification Number, filed herewith.
2. Respondent's Notice of Determination: Respondent issued its Notice of Determination on September 19, 2019 from its office in Plantation, Florida. A copy of Respondent's Notice of Determination is included with this Petition as Exhibit A.
3. Calendar Quarters. Respondent made its determination of employment status for the first, second, third, and fourth quarterly tax periods of the tax year ending December 31, 2016.
4. Assignments of Error. In issuing its Notice of Determination, Respondent made the following errors, among others:
a. by asserting the clerkship faculty of the FSU College of Medicine (“College of Medicine”) are employees of FSU;
b. by asserting FSU exerts financial control over the College of Medicine's clerkship faculty sufficient to classify them as employees of FSU;
c. by asserting FSU exerts behavioral control over the College of Medicine's clerkship faculty sufficient to classify them as employees of FSU;
d. by asserting the relationship between FSU and the College of Medicine's clerkship faculty is sufficient to establish an employer-employee relationship;
e. by asserting FSU is not entitled to “safe harbor” relief available under Section 530 of the Revenue Act of 1978;
f. by asserting FSU has not consistently filed required independent contractor forms with the IRS for the College of Medicine's clerkship faculty;
g. by asserting FSU has not consistently treated the College of Medicine's clerkship faculty as independent contractors;
h. by asserting that two separate opinions FSU received from KPMG LLP, advising that the College of Medicine's clerkship faculty were properly classified as independent contractors, does not constitute a reasonable basis for FSU treating the clerkship faculty as independent contractors; and,
i. by asserting that an individual who performs services for an employer as an employee cannot also simultaneously perform different services for that same employer as an independent contractor.
5. Supporting Facts. The facts and mixed points of fact and law upon which FSU relies include, but are not limited to, the following:
INTRODUCTION & RELEVANT FACTS
a. FSU is a public university located in Tallahassee, Florida.
b. The FSU College of Medicine was established in June of 2000 through an act of the Florida Legislature. See Ch. 2000-303, Laws of Fla., codified at Fla. Stat. 240-2997 (2000).
c. The College of Medicine was established to serve the medical needs of Florida's underserved citizens.
d. The law establishing the FSU College of Medicine states, in part:
There is hereby established a 4-year allopathic medical school within the Florida State University, to be known as the Florida State University College of Medicine, with a principal focus on recruiting and training medical professionals to meet the primary health care needs of the state, especially the needs of the state's elderly, rural, minority, and other underserved citizens.
Fla. Stat. 240-2997(1)(2000).
e. The mission of the College of Medicine is, “to educate and develop exemplary physicians who practice patient-centered health care, discover and advance knowledge, and are responsive to community needs, especially through service to elder, rural, minority, and underserved populations.” See 2018 Annual Report, FSU College of Medicine (available at https://med.fsu.edu/newsPubs/annualreport).
f. The law establishing the FSU College of Medicine requires it to affiliate with existing health care providers to provide hands-on training to its students.
g. Specifically, the law requires the FSU College of Medicine “to seek affiliation agreements with health care systems and organizations, local hospitals, medical schools, and military health care facilities in the following targeted communities: Pensacola, Tallahassee, Orlando, Sarasota, Jacksonville, and the rural areas of the state.” See Fla. Stat. 240-2997(5) (2000).
h. Consistent with these requirements, since 2000 the FSU College of Medicine has affiliated with over 3,000 health care providers and doctors throughout Florida.
i. Also consistent with these requirements, since 2000 the College of Medicine has placed approximately 1,300 of its students with these healthcare providers and doctors to provide them with hands-on training and education.
j. The College of Medicine refers to these doctors as “clerkship faculty.”
k. During the third and fourth years of medical school, College of Medicine students typically undertake an average of seven “clerkships” per year with clerkship faculty members.
l. The average duration of each clerkship is approximately four to six weeks.
m. During their clerkships, College of Medicine students typically “shadow” the clerkship faculty member until there are ready to interact with and care for patients directly.
n. After the College of Medicine students begin interacting with patients directly, clerkship faculty members continue to teach, train, and supervise students.
o. The College of Medicine provides guidelines to clerkship faculty members regarding how to teach, train, and supervise students.
p. Clerkship faculty members employ a variety of methods for teaching, training, and supervising students.
q. The methods for teaching, training, and supervising students employed by clerkship faculty members differ depending on the type of medical practice in which they are engaged.
r. For example, a clerkship faculty member practicing psychiatry may employ different teaching methods than a clerkship faculty member practicing pediatrics.
s. The teaching and training methods employed also differ depending on the personal preferences of individual clerkship faculty members.
t. For example, some clerkship faculty members meet with College of Medicine students at the end of each day to discuss and review information regarding the specific patients encountered that day, whereas other clerkship faculty members do not require end-of-day meetings but instead discuss and review information regarding patients throughout the day.
u. The College of Medicine does not dictate to its clerkship faculty how to teach, train, and supervise students.
v. The College of Medicine does not dictate the hours its clerkship faculty must work.
w. Clerkship faculty members are free to accept or reject College of Medicine students for clerkships.
x. Clerkship faculty members can decide to accept College of Medicine students for clerkships in some years, and decide not to accept students for clerkships in other years.
y. The College of Medicine pays clerkship faculty members a fixed stipend for each clerkship regardless of how many hours they spend teaching, training, and supervising College of Medicine students.
z. The average stipend paid to clerkship faculty members is approximately $1,600 per student clerkship.
aa. Clerkship faculty members do not perform services on the College of Medicine's main campus or satellite campuses.
bb. Other than access to library materials, and electronic access to medical journals and publications, Clerkship faculty members receive no supplies, equipment, or materials from the College of Medicine.
cc. Clerkship faculty members are free to provide similar services to other medical schools.
dd. Since its founding, the College of Medicine has classified its clerkship faculty members as independent contractors.
ee. On January 23, 2002, Florida State University received a letter from KPMG LLP, advising that the College of Medicine's clerkship faculty were appropriately categorized as independent contractors.
ff. Specifically, the 2002 KPMG letter concluded: “[T]he College [of Medicine] should treat its physicians/instructors [clerkship faculty] as independent contractors.”
gg. On September 27, 2012, the College of Medicine received another letter from KPMG LLP, reaffirming its 2002 conclusion.
hh. Specifically, the 2012 KPMG letter stated:
As was concluded in our 2002 letter, it is more likely than not that these individuals [clerkship faculty] should be treated as independent contractors due to the fact that the majority of control rests with physician. Therefore, Form 1099 Miscellaneous should be issued to these individuals. If the agreement is between FSU COM and a corporate entity for clerkship duties, Form 1099 Miscellaneous should be issued to the corporate entity.
ii. Following the advice it received from KPMG LLP, FSU has consistently treated all of the College of Medicine's clerkship faculty members as independent contractors and reported payments made to them for their services as clerkship faculty members on IRS Forms 1099.
jj. FSU has consistently reported all amounts paid to the College of Medicine's clerkship faculty members for the services they provide as clerkship faculty members, on IRS Forms 1099.
kk. Occasionally, a clerkship faculty member will provide additional services to the College of Medicine, such as teaching a classroom course or an on-line course to College of Medicine students.
ll. In those instances where a College of Medicine clerkship faculty member provides additional services, FSU reports payments made for such services correctly on either IRS Form 1099 or IRS Form W-2, depending on the facts and circumstances of the additional services and how they are provided.
THE COLLEGE OF MEDICINE'S CLERKSHIP FACULTY ARE INDEPENDENT CONTRACTORS
mm. The College of Medicine's does not exercise behavioral or financial control over its clerkship faculty sufficient to classify them as employees of FSU.
nn. The College of Medicine directs its clerkship faculty members to teach, train, and supervise students.
oo. The College of Medicine, however, does not control the details and means by which the clerkship faculty members teach, train, and supervise students.
pp. Rather, the clerkship faculty members control the details and means by which they accomplish their responsibilities.
qq. The College of Medicine does not exert financial control over its clerkship faculty.
rr. The small stipends the College of Medicine pays to its clerkship faculty do not establish financial control as such stipends are insignificant compared to the income the clerkship faculty members earn from their medical practices.
ss. Other than access to library materials and electronic access to medical journals and publications, the College of Medicine provides no supplies, equipment, or materials to its clerkship faculty.
tt. Rather, the clerkship faculty members are able to successfully teach, train, and supervise medical students because they have personally invested in and established their own medical practices.
uu. Neither the College of Medicine nor its clerkship faculty perceive their relationship as an employer-employee relationship.
vv. The written contracts between the College of Medicine and clerkship faculty members state that the clerkship faculty member is an independent contractor.
ww. The College of Medicine does not provide benefits to its clerkship faculty members.
xx. The relationship between the College of Medicine and its clerkship faculty members is not permanent as clerkship faculty members are free to reject clerkships at their discretion and are not required to accept clerkships on a regular basis.
yy. Accordingly, the clerkship faculty members are correctly classified as independent contractors.
FSU IS ENTITLED TO SECTION 530 RELIEF
zz. Section 530 of the Revenue Act of 1978 provides employers with relief from federal employment tax obligations if they meet certain requirements. See Pub. L. 95-600, sec. 530, 92 Stat. 2885, as amended.
aaa. If an employer mischaracterizes an individual as an independent contractor, the employer is relieved from paying employment taxes if the following three requirements are met:
(1) Consistent Filing: the employer filed all federal tax returns with respect to such individual consistent with treating him or her as an independent contractor;
(2) Consistent Treatment: the employer consistently treated all similarly situated individuals as independent contractors; and,
(3) Reasonable Basis: the employer had a reasonable basis for concluding that the individual was an independent contractor.
bbb. FSU meets all three requirements for Section 530 relief.
ccc. Since the College of Medicine began operating, FSU has consistently filed all tax and information returns required for independent contractors with respect to the College of Medicine's clerkship faculty members.
ddd. Since the College of Medicine began operating, FSU has consistently characterized all clerkship faculty members as independent contractors for the services they provide as clerkship faculty members.
eee. The opinion letters FSU received from KPMG LLP in 2002 and 2012 confirm that since the College of Medicine began operating, FSU has had a reasonable basis for characterizing its clerkship faculty as independent contractors.
fff. This Court and the IRS have consistently recognized that an individual who performs services for an employer as an independent contractor can simultaneously provide services for the same employer as an employee. See, e.g., Reece v. Commissioner, 63 TCM 3129 (1992) (holding that the University of Michigan correctly paid one of its professors both employee wages for his services as a professor and independent contractor payments for additional services he provided in conducting noncredit seminars); see also, IRS Chief Counsel Letter, No. 2012-0069 (Sept. 24, 2012) (“In instances where an individual provides services in two separate roles to the same business, the IRS examines separately the relationship between the worker and the business for each performance of services.”).
ggg. Accordingly, FSU is entitled to Section 530 relief.
6. Burden of Proof on Respondent. The issuance and contents of Respondent's Notice of Determination are erroneous, arbitrary, and capricious. Furthermore, the Notice of Determination fails to adequately describe the basis for its conclusions or to respond in any meaningful way to the information submitted by FSU during the course of the audit. Accordingly, under IRC § 7491, Respondent bears the burden of proof as to all matters.
WHEREFORE, Petitioner prays that this Court will hear the case and:
(1) grant de novo review of the issues involved in this Petition;
(2) determine that Respondent bears the burden of proof as to all issues;
(3) determine that Respondent erred as alleged in the assignments of error set forth in paragraph 4 above;
(4) determine that the College of Medicine's clerkship faculty members are independent contractors, not employees;
(5) determine that FSU is eligible for Section 530 relief; and,
(6) grant such other and further relief as it deems appropriate.
Dated: 02/18/,2020.
Respectfully submitted,
George B. Abney
Tax Court Bar No. AG0168
COUNSEL FOR PETITIONER
ALSTON & BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000 (telephone)
(404) 881-4777 (facsimile)
- Case NameFlorida State University v. Commissioner
- CourtUnited States Tax Court
- DocketNo. 3291-20
- Institutional AuthorsAlston & Bird LLP
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- Tax Analysts Document Number2020-9498
- Tax Analysts Electronic Citation2020 TNTF 50-28