Independent contractor tax relief

Seventh Circuit classifies computer programmer as an independent contractor

Suskovich v. Anthem Health Plans of Virginia, Inc., (CA 7 1/22/2009) 103 AFTR 2d ¶2009-385

The Court of Appeals for the Seventh Circuit, affirming a district court, has concluded that a computer programmer was an independent contractor and not an employee.

Facts. Anthony Suskovich worked for WellPoint/Anthem (WellPoint) at various times over several years, beginning in ’96. While no record exists of any contractual agreement between Suskovich and WellPoint, Suskovich stated on a form he used to access WellPoint’s computer system that he was a “contractor.” Suskovich billed WellPoint for his time on an invoice form that he had created, stating that he was a “salesperson” who sold “computer consulting” to WellPoint. He was paid at an hourly rate of $60, resulting in an annualized salary of about $200,000, and received no benefits. For tax purposes, his salary was reported on Form 1099 rather than Form W-2. He had a similar relationship with Trasys, Inc., beginning in 2000.

Prior to his death in January of 2006, Suskovich was under investigation by IRS for failure to file tax returns. At the time of his death, he owed $100,000 to IRS and $33,000 to the state of Indiana. His wife requested “innocent spouse” relief, but was denied. The estate then filed a lawsuit, arguing that Suskovich should have been classified as an employee, rather than as an independent contractor, and that the money owed to IRS and the state of Indiana should have been withheld by WellPoint and Trasys. On the other hand, WellPoint and Trasys contended that Suskovich was an independent contractor and that he owed back taxes because of his own failure to file proper tax returns or pay his withholding taxes. A federal district court had granted summary judgment to WellPoint and Trasys. Suskovich’s estate appealed the decision.

Appellate court’s ruling. The Seventh Circuit upheld the district court’s decision based on an analysis of the following factors:

  • Degree of control. The Court pointed out that neither WellPoint nor Trasys had control over the details of Suskovich’s work. Suskovich was accountable to Trasys and WellPoint only for his final performance on projects. This factor supported a finding that Suskovich was an independent contractor.
  • Length of employment. The Court noted that although Suskovich worked for WellPoint and Trasys over an extended period of time, he only worked on short projects, usually lasting six to twelve months. The record demonstrated that he never enjoyed any guarantees that his work would extend beyond this limited duration, and, accordingly, this factor favored independent contractor status.
  • Method of payment. The Court had ruled previously that the use of Form 1099 was appropriate for a finding that a worker was an independent contractor. The Court also pointed out that Suskovich was never added to WellPoint’s or Trasys’ payroll. Instead, he had to invoice his hours in order to be paid. In addition, Suskovich listed his income on his own tax returns as income from a sole proprietorship, and he claimed business deductions related to that proprietorship.
  • Belief of the parties. The Court said that the tax returns, resumes, tax forms, and contractual agreements with the defendants overwhelmingly favored the conclusion that Suskovich considered himself to be an independent contractor.
  • Other factors. Three other factors, the “distinct occupation or business” factor, the “kind of occupation” factor, and the “skill required” factor, all supported a finding of independent contractor status, as Suskovich had the sort of advanced programming skills that allowed him to contract his work out to a number of companies.

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