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HALFHILL v. UNITED STATES IRS

March 7, 1996

ERNEST HALFHILL, d/b/a HALFHILL TRUCKING, Plaintiff,
v.
UNITED STATES OF AMERICA INTERNAL REVENUE SERVICE, Defendant.



The opinion of the court was delivered by: BLOCH

 BLOCH, District J.

 Presently before the Court is defendant's motion for partial summary judgment. For the reasons set forth in this opinion, the Court will grant the defendant's motion.

 I. Background

 The facts of record are as follows.

 In 1978, plaintiff purchased a tractor trailer and started a trucking company called Halfhill Trucking (HT), a sole proprietorship. Plaintiff operated HT as a leasing venture; that is, plaintiff leased HT's truck to various interstate commerce carriers and also provided a truck driver who hauled loads for the carriers.

 During 1978 and the first half of 1979, plaintiff's son, Ken Halfhill (Halfhill), was HT's sole truck driver. Although Halfhill's primary duty was to drive the truck, Halfhill also had the authority to negotiate with the carriers regarding future leasing of HT's truck. HT, via plaintiff, paid Halfhill based on a percentage of what the carriers paid to lease the truck.

 During the 1978-1979 period, plaintiff treated Halfhill as his employee and issued him federal Form W-2's. Plaintiff also paid the required federal employment taxes, including social security and unemployment taxes, on Halfhill's earnings.

 In the middle of 1979, however, Halfhill left HT and became an employee of Sentle Trucking (Sentle). Plaintiff thus decided to modify HT's business, leasing HT's truck to only one carrier--Sentle.

 Subsequently, in late 1981, Sentle's business was deteriorating and Sentle's exclusive lease with plaintiff expired. Plaintiff did not renew this lease; rather, plaintiff purchased another truck and in 1982 began operating HT in a manner more similar to when plaintiff had started the company. Specifically, HT's trucks were leased to different carriers and Halfhill, who had left Sentle, as well as other individuals, drove HT's trucks for the carriers. All of the drivers of HT's trucks had the authority to negotiate leases with the carriers, and plaintiff paid the drivers based on a percentage of what the carriers paid to lease the trucks, as Halfhill was paid in the past.

 From 1982 until mid-1990, however, plaintiff did not treat the individuals who drove HT's trucks as employees. Rather, plaintiff considered the drivers, including Halfhill, to be independent contractors for federal tax purposes and, therefore, plaintiff did not pay employment taxes on the drivers' compensation.

 Eventually, in light of tax assessments levied by the Internal Revenue Service, plaintiff paid employment taxes for his drivers for the second half of 1990 in the amount of $ 49.24. After paying this amount, plaintiff filed an administrative claim seeking a refund of the same. The IRS denied the plaintiff's administrative claim, and plaintiff instituted the instant action seeking a refund of the employment taxes that he had paid. Plaintiff claims that he is entitled to this refund on the ground that HT's drivers are independent contractors, not his employees. Moreover, plaintiff contends that even if the drivers are his employees, plaintiff is entitled to protection under § 530 of the Revenue Act of 1978--which exempts certain employers from tax liability when they have in good faith misclassified their employees as independent contractors.

 Defendant contests plaintiff's entitlement to a refund, asserting that HT's drivers are, in fact, employees of plaintiff and that plaintiff is not entitled to protection under § 530 of the Revenue Act of 1978. Moreover, defendant filed a counterclaim against plaintiff seeking to recover $ 222,720.45 of unpaid employment taxes assessed against plaintiff for the 1988 through 1990 tax years. Plaintiff denies liability with regard to the defendant's counterclaim for the same reason that he asserts that he is entitled to a refund.

 At this time, defendant has moved for summary judgment with regard to the single issue of whether plaintiff is entitled to relief under § 530 of the Revenue Act of 1978. ...


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