Aaron, a resident of Minnesota, has been a driver for Green delivery service for the past six years. For this purpose, he leases a truck from Green, and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Green allows its drivers to choose their 10 hour shifts and does not exercise any control on how these services are carried out. Under Green’s operating agreement with it’s drivers, Green can terminate the arrangement after 30 days’ notice. Green allows its truckers to quit immediately without giving advance notice. The agreement also labels the drivers as independent contractors. Green maintains no health or retirement plans for its drivers, and each year it reports their income by issuing forms 1099-MISC (and not W-2). Green requires its drivers to maintain a commercial drivers license and be in good standing with the State Highway law enforcement. Citing the employment tax regulations in 31.3121(d)-1(c)(2) and 31.3306(I)-1(b), an IRS agent contends Aaron is an independent contractor and, therefore, is subject to the self-employment tax. Based on Peno Trucking, Inc (93 TCM 1027, T.C.Memo. 2007-66), Aaron disagrees and contends that he is an employee (not self-employed). Who is correct? Explain why in detail.
