Xavier, a resident of California, has been a driver for Red Delivery Service for the past six years. For this purpose, he leases a truck from Red, and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Red 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 Reds operating agreement with its drivers, Red can terminate the arrangement after 30 days notice. In practice, however, Red allows its truckers to quit immediately without giving advance notice. The agreement also identifies the drivers as independent contractors. Red maintains no health or retirement plans for its drivers, and each year it reports their income by issuing Forms 1099MISC (and not Forms W2). Red requires its drivers to maintain a commercial drivers license and be in good standing with the state highway law enforcement division.

An IRS agent contends that Xavier is an independent contractor and, therefore, is subject to the self-employment tax. Xavier disagrees and contends that he is an employee (i.e., not self-employed). Who is correct? Why?