Tommy John is single and is employed as a full-time of employee of University of Massachusetts, Dartmouth (UMD). He holds the position of Director of Information Technology (IT). His salary is $125,000 per year.

Tommy also works as a consultant. His specialty is the prevention of hacking and malware removal. His expertise is highly sought after and he picks and chooses his assignments based on his personal/work schedule and his personal interests.

He bills his clients an hourly rate of $200/ hour. However, he does receive any fringe benefits from his consulting work. Further, no payroll taxes or income taxes are withheld from the payments received from his clients. For the current year, he earned $100,000 from this consulting work.

• As a consultant, Tommy is required to purchase various computer equipment and supplies. This year he had deductible expenses of $15,000. He was not reimbursed by his clients.
• He can pick and choose his assignments based on his personal/work schedule.

This research problem is based on the facts in Tracy Lee Milian v. Commissioner, TC Memo 1999-366.

Required:

1. Is Tommy an employee or contractor regarding his consulting work? Based on the presented facts, research the IRS website at IRS.gov. Be specific as to his situation. (20 points)

2. Explain your understanding of SE taxes based on your experience, readings, and research. Also, address the differences between the taxes authorized by the Federal Insurance Contribution Act (FICA) and Self-employment (SE tax). Be sure to include the general calculation, wage base, and rates of taxation. Do not discuss federal or state income tax in this analysis. (20 points)

3. Using Checkpoint, research the facts in the above-mentioned Tax Court case to determine if the courts would rule that Tommy is self-employed, in regard to his part-time work, and is he required to pay SE tax. Explain, based on your analysis of Tracy Lee Milian v. Commissioner, TC Memo 1999-366. Be specific as to the TC case ruling and your application to his situation. (25 points)

4. Calculate Tommy’s FICA, and if required, any self-employment tax. Please be sure to address any additional Medicare tax that he may be responsible for paying. Please present in a table format. Again, only address the calculation of his FICA/SE tax on both his salary and if any, on his consulting work. (30 points)

5. Write a short reflection on this assignment. Was it important, why? What did you learn? What changes would improve this assignment? (5 points)