Let us start with the facts of the Byers case. Mr. Byers worked for four years driving for a local carrier. When he first started work, he signed an independent contractor agreement with the carrier and leased a truck from a sister company of the carrier. The carrier deducted lease payments from his settlements and forwarded them to its sister company. He received monthly settlements based upon 70% of what the carrier received for delivering the packages he carried. The carrier issued him an IRS Form 1099 each year showing the total amount of the settlements he received.

Mr. Byers did not pay any taxes for any of the four years in question. Therefore, the IRS looked at his Form 1099s and his bank account deposits and determined he did owe taxes. Mr. Byers countered the IRS claim with the argument that the carrier should have withheld taxes from him. The Tax Court disagreed and used the following factors to determine whether Mr. Byers was in fact an independent contractor.

In the Internal Revenue Code § 1402(a), Net earnings from self-employment is described as “gross income derived by an individual from any trade or business carried on by such individual”. § 1402(b) defines self-employment income as net earning from self-employment. I know this is IRS doublespeak, but generally, services performed as an independent contractor give rise to self-employment income and any taxpayer who works for someone else but controls the means and methods for doing the work is an independent contractor.

The Tax Court used the following factors to determine whether Mr. Byers met the “means and methods” test for an independent contractor:
1. Control over manner of accomplishing work; the Court found Mr. Byers controlled the manner in which he scheduled and made pickups and deliveries without control from the carrier, which indicates an independent contractor relationship.
2. Investment in work facilities and tools; the Court found he was required by the carrier to either own or lease his own truck, tools, and other equipment; that he had made a significant investment in his truck driving activity which indicates an independent contractor relationship.
3. Opportunity for profit or loss; the Court found he was paid a percentage of gross amounts billed to customers and not a fixed wage and that the number of deliveries made depended significantly on his personal efficiency, plus he provided and paid for the truck and insurance he risked a net loss if his profits did not exceed his expenses, which indicates an independent contractor relationship.
4. Termination of the work relationship; the Court found that the carrier had a practice of allowing truck drivers to quit without notice if they wanted to, yielding a neutral factor to consider.
5. Participation in service integral to regular business; the carriers business required truck drivers to deliver packages; therefore, he was an integral part of the business, indicating an employment relationship.
6. Length of the relationship; the Court found that because he had performed delivery services for almost six years, he had a long-term relationship with the carrier, which indicates an employment relationship.
7. Intent of the parties as to the type of relationship formed; the Court held that because of the following facts: his operating agreement clearly states he was to be treated as an independent contractor, he had worked for years under the operating agreement and never objected to the Form 1099s, he had not received any paid leave, health or pension benefits, and received no tax withholding which indicates an independent contractor relationship.
The Eighth Circuit Appeals Court, where an appeal of the case would go if Mr. Byers decided to appeal it, require an addition two factors, listed below, for determination of an independent contractor. The Tax Court also included those two additional factors in its original finding:
8. Substantial cost incurred; he incurred substantial costs (55% of reported gross earning) to lease a truck which allowed him to make deliveries and pickup, which indicates an independent contractor relationship.
9. Special skills required; the Court held that outside the skills to drive trucks, the carrier did not require the he have any special skills, this factor indicates an employment relationship.

The Court ultimately found five factors that indicate and independent contractor, three factors that indicate an employee and one factor was determined to be neutral, which led to their holding that Mr. Byers was an independent contractor.

The whole thing that started this mess is that Mr. Byers failed to file and pay his tax returns for the money he made working. I do not understand how he can claim that he did not owe taxes when he had never paid any. I do know the IRS will hunt you down like a dog if you fail to pay what you owe, which is fine with me if you and I have to pay taxes, then Mr. Byers should pay his fair share