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Tort Firm Owes $158K Employment Tax Bill; Associate Attorneys Were Not Independent Contractors

Posted Mar 16, 2011 6:22 PM CDT
By Martha Neil

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A Louisiana personal injury lawyer who operated an "attorney incubator" for fledgling practitioners has had his business model shot down by the Internal Revenue Service.

The attorneys to whom he provided office space and referred cases that were handled under his law firm name were associates of Donald Cave's law firm rather than independent contractors, ruled the United States Tax Court last month in a 38-page written opinion (PDF).

Hence, according to the Journal Record (sub. req.), the firm owed a $158,000 tax bill concerning the associates and other employees.

The tax court indicated, however, that it could have reached a different conclusion, depending on the facts of the case:

"The Court of Appeals for the Fifth Circuit considers the following factors in deciding whether a worker is a common law employee: (1) The degree of control the principal has over the worker, (2) the worker’s opportunity for profit or loss, (3) the worker’s investment in facilities, (4) the permanence of the relationship, and (5) the skill required in the operation," the opinion explains, citing Breaux & Daigle, Inc. v. United States, 900 F.2d 49, 51 (5th Cir. 1990).

"No single factor is determinative," the opinion continues, "all facts and circumstances must be taken into account, and doubtful questions should be resolved in favor of employee status."

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