On September 1, 2020, following graduation from Dominican Universitys online MSA program, you begin your accounting career as a tax associate at E-WHY, a mid-sized public accounting firm in the Chicago suburbs. After two weeks on the job, you receive a phone call from your firms managing tax partner, Jessica Schultz. She asks to meet you the following morning in her office to review some tax circumstances of a firm client named Josh Townsend. At the meeting, Jessica conveys the following details about Josh:

1. Josh is the sole owner of Midstream Engineering Associates, Inc. (Midstream) and works out of his home office in Palatine, IL.
2. Josh provides engineering consulting services to manufacturing firms throughout Chicagoland.
3. On February 1, 2020 Takeda Enterprises (TE) contacts Josh and requests engineering support services during 2020 for one of TEs facilities based in Mobile, Alabama. TE agrees to reimburse Midstream for all on-site time at a rate of $200/hr. plus travel expenses.
4. 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 $100/hr.
5. Other information:
   1. Wendy and Josh contemplate a continuing business relationship extending beyond the 2020 needs of TE.
   2. Wendy does not work for any other companies and needs only her laptop computer to perform services.
   3. Wendy is not an officer of Midstream.
   4. 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.
   5. 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, Joshs payroll service will deduct FICA (Social Security and Medicare) taxes from Wendys paychecks but no other withholding taxes.

Instructions

Prepare a 4-5 page memo for Jessica summarizing:

1. Whether Joshs 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.
2. Wendys 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 Wendys tax return.
3. Wendys self-employment tax liability, if any, related to her status as a statutory employee.