An S corporation failed to treat workers, who lived on the farm where they performed their duties, as employees, the Tax Court has held (Twin Rivers Farm, Inc. v. Commissioner, Dec. 59,107(M), TC Memo. 2012-184). The court upheld the IRS’s determination that the company owed employment taxes.
For any calendar year that an employer either pays an employee cash wages of $150 or more for farm work or pays total (cash and noncash) wages to all farm workers of $2,500 or more, the wages are subject to social security and Medicare taxes and to federal income tax withholding. Employers must file Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, to report income tax withheld and social security and Medicare taxes on wages paid to farm workers who are employees.
Here, the S corporation operated a horse farm and engaged the services of two workers. The workers lived on the farm where they groomed horses and performed other duties supportive of the business.
The court first noted that the term “employee,” for purposes of the employment tax provisions, includes any individual who, under common law rules, has the status of an employee. The determination of whether an individual is an employee turns on the facts and circumstances of each case. Relevant factors, the court observed, include: degree of control exercised by the principal (employer); which party invests in the work facilities used by the worker; the opportunity of the individual for profit or loss; whether the principal can discharge the individual; whether the work is part of the principal’s regular business; the permanency of the relationship; and the type of relationship the parties believed they were creating.
The court found that the S corporation exercised control over the activities of the workers. The S corporation’s owner personally supervised the workers. The workers also used equipment provided by the S corporation. Moreover, the court observed that the workers resided on the farm in housing provided by the S corporation. Because the individuals were long-term workers who actually resided on the farm, the relationship between the workers and the S corporation could not be characterized as transitory or temporary. The court there concluded that the factors indicated that the relationship between the S corporation and the workers was that of employer and employee.