Josh is the sole owner of Midstream Engineering Associates, Inc. $("$Midstream$")$ and works out of his home office in Palatine, IL$.$

Josh provides engineering consulting services to manufacturing firms throughout Chicagoland.

On February $1,2023$ Takeda Enterprises $("$TE$")$ contacts Josh and requests engineering support services during $2023$ for one of TE's facilities based in Mobile, Alabama. TE agrees to reimburse Midstream for all on$-$site time at a rate of $$\frac{200}{h}r.$ plus travel expenses.

On February $15,$ Josh hires Wendy Blakely on a part$-$time basis to travel to Alabama twice each month to perform the engineering services. Josh agrees to reimburse Wendy for all travel expenses and compensates her for on$-$site time at $$\frac{100}{h}r.$

Other information:

a$.$ Wendy and Josh contemplate a continuing business relationship extending beyond the $2023$ needs of TE$.$

b$.$ Wendy does not work for any other companies and needs only her laptop computer to perform services.

c$.$ Wendy is not an officer of Midstream.

d$.$ Josh supplies Wendy with a job file template which she uses to organize and store her work product. After returning from each of her bi$-$monthly trips to Alabama, Wendy transfers the completed job file to Josh via a secure digital' drop box.

e$.$ Wendy receives no other benefits from Midstream.

To minimize registration and reporting requirements, Josh informs Wendy that she will be treated as a statutory employee. As such, Josh's payroll service will deduct FICA $($Social Security and Medicare$)$ taxes from Wendy's paychecks but no other withholding taxes.

Instructions

Prepare a $4-5$ page memo for Jessica summarizing:

Whether Josh's decision to treat Wendy as a statutory employee will likely withstand IRS scrutiny and any additional steps you would recommend to provide Josh additional assurance.

Wendy's ability to deduct various non$-$reimbursed expenses $($e$.$g$.,$ conference expenses, health insurance premiums, professional memberships$)$ as a statutory employee. Note: Please be specific as to the placement of any deductible expenses on Wendy's tax return.

Wendy's self$-$employment tax liability, if any, related to her status as a statutory employee.