Reference no: EM131675633

Question: Nu-Look Design, Inc., operated as a residential home improvement company. During calendar years 1996, 1997, and 1998, Ronald A. Stark not only was Nu-Look's sole shareholder and president but also managed the company. He solicited business, performed necessary bookkeeping, otherwise handled fi nances, and hired and supervised workers. Rather than pay Stark a salary or wages, Nu-Look distributed its net income during 1996, 1997, and 1998 to him "as Mr. Stark's needs arose." Nu-Look reported on its tax returns in 1996, 1997, and 1998 net incomes of $10,866.14, $14,216.37, and $7,103.60, respectively. Stark, in turn, reported the very same amounts as nonpassive income on his 1996, 1997, and 1998 tax returns. On June 8, 2001, the IRS issued to Nu-Look a "Notice of Determination Concerning Worker Classification." The notice advised that the IRS had classified an individual at Nu-Look as an employee for purposes of federal employment taxes and that such taxes could be assessed for calendar years 1996, 1997, and 1998. Nu-Look challenged this determination by fi ling a petition for redetermination in the United States Tax Court, disputing the propriety of the determination that Stark was an employee, and sought relief from that determination. The tax court found that Stark performed more than minor services for Nu-Look and had received remuneration for those services. As a result, the court held that Stark was an employee of Nu-Look and that Nu-Look was not entitled to relief. Nu-Look appealed. Does Stark meet the requirements for an employee? Should Nu-Look be liable for a tax assessed under the assumption that Stark is an employee?