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Tuesday, May 27, 2003

Form Does Not Trump Function in Employee/ Independent Contractor Status Even for the IRS

Edward Charles Jones was an independent contractor whose work was not controlled by the company that paid him: What control was exerted over his work was exerted by the Navy, which the company that hired him have a contract with. Eventually, the company that paid him had him sign an employment agreement, started withholding half his FICA taxes, and switched from reporting the payments made to him from 1099s to W-2s. Nothing about how he performed his job changed. Jones continued to report his income on a Schedule C. IRS challenged this in an attempt to deny him a full home office deduction. IRS said he was employee, and the deduction should be itemized and subject to limitations under section 67. Tax Court noted that despite the reporting, the "employer" exercised not control over his work, and ruled for Jones.

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