Individual Working for Foreign Employer Was Employee and Not Entitled to Make SEP Contributions (Rosenfeld, TCM)

An individual who provided consulting services to a foreign employer was a common-law employee of the foreign employer, rather than an independent contractor, despite the appointment categorizing him as self-employed for tax purposes. The individual was a common-law employee because a consideration of the relevant factors for determining the substance of an employment relationship weighed in favor of the individual being an employee. Since his employer had the right to exercise control over his work, he was paid a fixed salary, and a letter of appointment from his employer reflected his employee status, he was a common-law employee of his employer.

The contributions that he made to a simplified employee pension (SEP) plan from earnings he received for providing consulting services to a foreign employer were excess contributions because he did not qualify as an employer, for purposes of being able to make a SEP contribution. He did not qualify as an employer because he did not own the entire interest in the foreign employer.

The individual was liable for the excise tax on his excess contributions, even though the contributions were made after the end of the calendar year, because the contributions still applied to that tax year. The individual was not liable for the accuracy-related penalty under Code Sec. 6662(a) because he acted in good faith when he reasonably relied on the advice of his tax return preparer in determining that he was entitled to make SEP contributions.

M. Rosenfeld, TC Memo. 2011-110, Dec. 58,632(M)

Other References:

Code Sec. 404

CCH Reference – 2011FED ¶18,350.65

Code Sec. 408

CCH Reference – 2011FED ¶18,922.1065

Code Sec. 3401

CCH Reference – 2011FED ¶33,538.3948

Code Sec. 4973

CCH Reference – 2011FED ¶34,362.101

Code Sec. 6662

CCH Reference – 2011FED ¶39,652.28

CCH Reference – 2011FED ¶39,652.61

Code Sec. 6664

CCH Reference – 2011FED ¶39,661.65

CCH Reference – 2011FED ¶39,661.657

Tax Research Consultant

CCH Reference – TRC RETIRE: 27,102.10

CCH Reference – TRC RETIRE: 33,050

CCH Reference – TRC RETIRE: 63,100

CCH Reference – TRC PENALTY: 3,104

CCH Reference – TRC PENALTY: 3,108

CCH Reference – TRC PENALTY: 3,116.10

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting