CCA 200946041: Employment relationship and personal service corporations

Plain-English summary

This Chief Counsel advice states that arguing a corporation is a sham is highly dependent on the facts. It explains that the common-law factors determine whether an employment relationship exists with the service recipient instead of with a personal service corporation. The email cites a Tax Court case involving a professional hockey player and notes contrary authority. It provides general litigation guidance rather than a taxpayer-specific conclusion.

Ruling snapshot

• Question: What facts determine whether a worker is an employee of the service recipient rather than a personal service corporation?
• Outcome: Advice given
• Key authorities: IRC § 3121; Leavell v. Commissioner, 104 T.C. 140 (1995); Sargent v. Commissioner, 929 F.2d 1252

Full text (IRS public release)

ID: CCA_2009092914043232 Number: 200946041
Release Date: 11/13/2009
Office: -----------------------------
UILC: 3121.00-00

From: --------------------
Sent: Tuesday, September 29, 2009 2:04:41 PM
To: --------------------
Cc:
Subject: RE: ET school board case

I think that making the argument that the corporation is a sham is extremely factual. It all depends on whether the common law factors support finding an employment relationship with the service recipient instead of the personal service corporation. Have you come across Leavell v. Commissioner, 104 T.C. 140 (1995)? In that case, the IRS prevailed in arguing that a professional hockey player was an employee of his hockey team - not his personal service corporation that contracted with the team to provide the hockey player's services. One contrary authority that I am aware of is Sargent, 929 F.2d 1252.

I hope this is helpful.

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