Instructions:

• You are a research assistant in a tax office and have been asked to prepare a memo to a partner based on the problem provided below.
• You will be graded on a properly formatted memo, grammar, complete and correct answers.
• Submission should be a minimum of 2 pages.
• Chapter 2 Section 2-3f Communicating Tax Research has examples of properly formatted Memos and Client Letters

Chapter 9 Research Problem 1 page 9-71

Research Problem 1. Aaron, a resident of Minnesota, has been a driver for Green Delivery Service for the past six years. For this purpose, he leases a truck from Green, and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Green allows its drivers to choose their 10-hour shifts and does not exercise any control on how these services are carried out (e.g., the route to be taken or the order in which parcels are delivered or picked up). Under Greens operating agreement with its drivers, Green can terminate the arrangement after 30 days notice. In practice, however, Green allows its truckers to quit immediately without giving advance notice. The agreement also identifies the drivers as independent contractors. Green maintains no health or retirement plans for its drivers, and each year it reports their income by issuing Forms 1099MISC (and not Forms W2). Green requires its drivers to maintain a commercial drivers license and be in good standing with the state highway law enforcement division.

Citing the employment tax Regulations in 31.3121(d)1(c)(2) and 31.3306(i)1(b), an IRS agent contends that Aaron is an independent contractor and, therefore, is subject to the self-employment tax. Based on Peno Trucking, Inc. (93 TCM 1027, T.C.Memo. 200766), Aaron disagrees and contends that he is an employee (i.e., not self-employed). Who is correct? Why?