Kadimah Chapter Kiryat Ungvar v. Comm'r
This text of 2013 T.C. Memo. 161 (Kadimah Chapter Kiryat Ungvar v. Comm'r) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
An appropriate decision will be entered.
KERRIGAN,
| 6/30/04 | FICA | $39,100 |
| 6/30/04 | ITW | 63,888 |
| 9/30/04 | FICA | 3,380 |
| 9/30/04 | ITW | 10,500 |
| 12/31/04 | FICA | 4,688 |
| 12/31/04 | ITW | 16,126 |
| 3/31/05 | FICA | 4,284 |
| 3/31/05 | ITW | 7,000 |
| 6/30/05 | FICA | 5,355 |
| 6/30/05 | ITW | 8,750 |
| 9/30/05 | FICA | 2,295 |
| 9/30/05 | ITW | 3,750 |
| 12/31/05 | FICA | 2,068 |
| 12/31/05 | ITW | 5,000 |
| *163 3/31/06 | FICA | 2,295 |
| 3/31/06 | ITW | 3,750 |
| 6/30/06 | FICA | 2,907 |
| 6/30/06 | ITW | 4,750 |
| 9/30/06 | FICA | 3,060 |
| 9/30/06 | ITW | 5,000 |
| 12/31/06 | FICA | 5,814 |
| 12/31/06 | ITW | 9,500 |
| 3/31/07 | FICA | 3,978 |
| 3/31/07 | ITW | 4,977 |
| 6/30/07 | FICA | 3,443 |
| 6/30/07 | ITW | 4,2612 |
| 9/30/07 | FICA | 8,798 |
| 9/30/07 | ITW | 10,543 |
| 12/31/07 | FICA | 3,443 |
| 12/31/07 | ITW | 3,990 |
Respondent also determined that petitioner was liable for additions to tax under
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Free access — add to your briefcase to read the full text and ask questions with AI KADIMAH CHAPTER KIRYAT UNGVAR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Kadimah Chapter Kiryat Ungvar v. Comm'r Docket No. 27494-11 T.C. Memo 2013-161; 2013 Tax Ct. Memo LEXIS 163; 106 T.C.M. (CCH) 4; July 1, 2013, Filed*163 An appropriate decision will be entered. KERRIGAN, Judge. KERRIGAN KERRIGAN,
Respondent also determined that petitioner was liable for additions to tax under
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the taxable periods at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar. The parties have reached a settlement to legally classify Messrs. Gross, Zachariash, and Knopfler as petitioner's employees for the taxable periods at issue. The parties have deemed that some of the amounts paid to Messrs. Gross, Zachariash, and Knopfler are wages, and the parties have agreed that petitioner is liable for tax under FICA and for ITW with respect to those wages. The parties have also agreed that petitioner is liable for additions to tax under Respondent has conceded that petitioner is not liable for additions to tax pursuant to The issues remaining for consideration are the following: (1) whether Mr. Schwartz should be legally classified as petitioner's employee for the taxable periods at issue; (2) whether petitioner is entitled to relief under the Revenue Act *165 of 1978, Some of the facts are stipulated and are so found. Petitioner, a corporation exempt from Federal taxation pursuant to Petitioner was incorporated in New York on November 2, 1992, under article 10 of the Religious *166 Corporations Law of New York. According to petitioner's certificate of incorporation, petitioner was organized to maintain a house of worship with a principal place of worship in Brooklyn, New York. The certificate of incorporation states that petitioner was "organized exclusively for one or more of the * * * purposes * * * specified in Petitioner's original board of directors and trustees (board) included Mr. Schwartz and Mr. Knopfler. Mr. Knopfler, who served as trustee director, was trained as *167 a certified public accountant. Mr. Schwartz resigned from his position on the board in January 1998. Upon Mr. Schwartz's resignation, Messrs. Gross and Zachariash joined Mr. Knopfler as members of the board. Mr. Gross earned a bachelor's degree in accounting and ran his own accounting firm, which had other exempt organizations as clients. Messrs. Gross, Zachariash, and Knopfler remained on the board during the taxable periods at issue. Mr. Knopfler died in 2010. Since incorporation petitioner has never filed any Federal income tax returns, including Forms 1120, U.S. Corporation Income Tax Return, and Forms 990, Return of Organization Exempt From Income Tax. Likewise, petitioner has *167 never filed any Federal employment tax returns, including Forms 941, Employer's Quarterly Federal Tax Return; Forms 940, Employer's Annual Federal Unemployment (FUTA) Tax Return; and Forms 945, Annual Return of Withheld Federal Income Tax. Rabbi Schwartz was born in 1914. His son, Mr. Schwartz, was born in 1951. From 1965 through 1990 Rabbi Schwartz was the rabbi at Temple Kadimah, an independent Jewish congregation unaffiliated with any other synagogue. Temple Kadimah was located *168 in a three-story building in Brooklyn, New York. Rabbi Schwartz owned the building until 1993. While Rabbi Schwartz was at Temple Kadimah, the first floor of the building operated as a synagogue, the second floor operated as a Hebrew school, and the third floor operated as a residence for Rabbi Schwartz, his wife, and Mr. Schwartz. In 1990 Rabbi Schwartz retired from Temple Kadimah. He was not employed as a rabbi by any organization after his retirement. Before he retired, Rabbi Schwartz arranged for the funds in Temple Kadimah's bank account to be transferred to a bank account in petitioner's name. Rabbi Schwartz was never affiliated with petitioner. He never provided services to petitioner, he was never a member of petitioner's board, and he never possessed signatory authority over any *168 of petitioner's bank accounts. Rabbi Schwartz died in October 2005. Mr. Schwartz died in January 2010. Rabbi Klein was well known in petitioner's community and abroad. He was a member of the Jewish Decisers and received questions throughout the world about Jewish law and custom. Rabbi Klein presided over Khal Ungvar, an incorporated congregation and synagogue legally distinct from *169 petitioner. At all relevant times Khal Ungvar was exempt from Federal income tax pursuant to Khal Ungvar's constitution and bylaws state that "[t]he objectives of Khal Ungvar shall be exclusively religious, charitable and educationable within the meaning of Messrs. Gross, Zachariash, and Knopfler all had close relationships with Rabbi Klein. Mr. Gross was one of Rabbi Klein's former students. They had a close business and familial relationship; they spoke at least once a week. Mr. Zachariash was Rabbi Klein's secretary. He has worked at Khal Ungvar for over 20 years. 2 Mr. Zachariash compared his experience with Rabbi Klein to that of the Papal secretary. Mr. Knopfler was one of Rabbi Klein's former students as well as his close disciple and adviser. Rabbi Klein was never affiliated with petitioner. He never provided services to petitioner, he was never a member of petitioner's board, and he never possessed signatory authority over any of petitioner's bank accounts. Rabbi Klein died in 2011. On November 19, 1992, petitioner purchased a residence in Kings Point, New York (Kings Point residence). Mr. Schwartz found the Kings Point residence for petitioner. Before *171 the purchase Mr. Schwartz retained a real estate appraiser who prepared a comparative sales analysis for him. Petitioner did not obtain a mortgage or any type of loan to purchase the Kings Point residence, which had a tennis court and a swimming pool. Soon after the purchase petitioner agreed to lease the Kings Point residence to "the family of Rabbi Bernard J. Schwartz", which included Rabbi Schwartz's wife and Mr. Schwartz, for a nominal fee on a month-to-month basis. Mr. Schwartz was responsible for maintaining the premises and property of the Kings Point residence. He managed the property, landscaped, maintained the pool, removed snow, made repairs, maintained the property's heating and air conditioning, and performed other general maintenance services. The bills related to the Kings Point residence were in petitioner's name. Mr. Schwartz paid those bills on petitioner's behalf with money from petitioner's bank accounts. Mr. Schwartz maintained homeowners insurance for the Kings Point residence in his name from 1994 through 2004. During that time petitioner did not maintain insurance coverage for the Kings Point residence in its own name. In *171 October 1999 Mr. Schwartz applied for *172 homeowners insurance with Royal & Sunalliance. On the application for insurance Mr. Schwartz listed himself as the owner and "T Kadimah Chapter" as a mortgage interest holder. "T Kadimah Chapter" did not hold a mortgage interest in the Kings Point residence at that time. In 2000 Mr. Schwartz (as "Rev. M. Jay Schwartz") filed a Form RP-462, Application for Exemption From Real Property Taxes for Property Used as Residence of Officiating Clergy ("Parsonage" or "Manse"), with the New York State Department of Taxation and Finance for the Kings Point residence. On the application, under "name of religious corporation", Mr. Schwartz wrote petitioner's name. In 2002 Rabbi Joel Weiss, in his capacity as a member of petitioner's board, filed a Form RP-420-a/b-Rnw-II, Renewal Application for Real Property Tax Exemption for Nonprofit Organizations II—Property Use, with the New York State Department of Taxation and Finance for the Kings Point residence. In 2003 Rabbi Schwartz moved to a nursing home, and Mr. Schwartz moved to a new address. By that time, Rabbi Schwartz's wife had passed away. Mr. Schwartz continued to visit the Kings Point residence approximately three days per week, using the pool *173 during the summer and sleeping there at least one night per week, through June 2004. At a time not specified in the record, Mr. Schwartz discussed the sale of the Kings Point residence with Messrs. Gross and Knopfler. Mr. Schwartz then found a buyer for the Kings Point residence. He also retained an appraiser and an attorney to aid petitioner with the sale. On January 6, 2003, petitioner entered into a contract to sell the Kings Point residence. That same day members of petitioner's board authorized the sale, memorializing their unanimous consent in a document (unanimous written consent). The board's unanimous written consent stated that (1) petitioner no longer maintained a viable congregation; (2) petitioner was affiliated with Khal Ungvar, an active Jewish congregation incorporated under the Religious Corporations Law of New York and exempt from Federal taxation pursuant to Because petitioner is a religious corporation, the sale had to be approved by the attorney general of New York. Mr. Schwartz retained an attorney on petitioner's *174 behalf to aid petitioner with a petition for approval of sale. In its petition for approval of sale petitioner requested leave to sell the Kings Point residence, petitioner's sole asset. Petitioner stated that it was contemplating *173 dissolution after the sale and requested that it be allowed to distribute the sale proceeds to Khal Ungvar. Petitioner further claimed that it operated as a chapter of Khal Ungvar. On April 1, 2004, petitioner was granted leave to sell the Kings Point residence. The order granting leave to sell required that petitioner distribute the sale proceeds to Khal Ungvar upon petitioner's dissolution. On June 3, 2004, the sale of the Kings Point residence closed. Petitioner did not dissolve after the sale. At a time not specified in the record, Messrs. Gross, Zachariash, and Knopfler agreed orally that petitioner would place the proceeds from the sale of the Kings Point residence into its own bank account. They also agreed that petitioner would pay Mr. Schwartz a monthly stipend of approximately $5,000 per month. Messrs. Gross, Zachariash, and Knopfler did not reduce this agreement to writing. On June 14, 2004, petitioner deposited the sale proceeds into its bank account. *175 On September 27, 2004, petitioner began to write checks to Mr. Schwartz. On December 10, 2004, Messrs. Knopfler and Zachariash authorized Smith Barney to establish automatic fund transfers from petitioner's bank account to Mr. Schwartz's personal bank account. On April 21, 2006, Messrs. Gross, Zachariash, and Knopfler notified Smith Barney that they wished to temporarily suspend the automatic fund transfers and to send Mr. Schwartz a monthly *174 distribution of $5,000. Petitioner continued to write checks and transfer funds to Mr. Schwartz through December 27, 2007. For tax year 2004 petitioner made the following payments to Mr. Schwartz:
For tax year 2005 petitioner made the following payments to Mr. Schwartz:
For tax year 2006 petitioner made the following payments to Mr. Schwartz:
Finally, *176 for tax year 2007 petitioner made the following payments to Mr. Schwartz:
Petitioner paid Mr. Schwartz a total of $311,500 during the taxable periods at issue. Petitioner did not file Forms W-2, Wage and Tax Statement, or Forms 1099-MISC, Miscellaneous Income, with respect to any of these payments. On January 17, 2004—after petitioner entered into a contract to sell the Kings Point residence, but before petitioner was granted leave to sell it—a fire occurred at the Kings Point residence. Mr. Schwartz retained an appraiser to ascertain the extent of the damage caused by the fire. Mr. Schwartz filed a claim with Royal & Sunalliance seeking payment for the damage to the Kings Point residence from the fire. Royal & Sunalliance denied Mr. Schwartz's claim on the grounds that he made fraudulent statements and material misrepresentations on his application for insurance. On February 9, 2005, Mr. Schwartz filed suit in his individual capacity and on behalf of petitioner against Royal & Sunalliance and Royal Indemnity *177 Co. in the Supreme Court of New York. Mr. Schwartz also filed suit in his individual capacity and on behalf of petitioner against Fairmont Insurance Brokers, Ltd., in *178 the Supreme Court of New York. The outcomes of those cases are not relevant to this opinion. Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and a taxpayer bears the burden of proving those determinations are erroneous. Petitioner contends that the payments made to Mr. Schwartz were pursuant to a trust that Rabbi Schwartz created for Mr. Schwartz's benefit, rather than wage payments to an employee or an independent contractor. We have determined that this case can be decided on whether Mr. Schwartz can be classified as an employee of petitioner. Therefore, we will not address the issue of whether a trust was created. 3 Employers and employees are subject to "employment taxes", including FICA. FICA provides a Social Security tax payable by both employers and employees. Petitioner contends that Mr. Schwartz was not its employee and that Mr. Schwartz's actions were consistent with those of a homeowner rather than *180 petitioner's worker. Respondent contends that Mr. Schwartz was petitioner's property manager and that many of Mr. Schwartz actions with respect to the Kings Point residence were performed on petitioner's behalf using petitioner's funds. Respondent further contends that petitioner benefited from Mr. Schwartz's actions, which respondent claims were done in connection with petitioner's business of owning and maintaining a parsonage for Rabbi Schwartz during his retirement. The facts in this case and those of typical worker classification controversies are strikingly dissimilar. *182 Whether an individual performing services for a principal is an employee (rather than an independent contractor) is a factual question to which common law principles apply. The right of the principal to exercise control over the agent, whether or not the principal in fact does so, is the "crucial test" for the existence of an employer-employee relationship. There is no indication in the record that petitioner maintained *184 any control over Mr. Schwartz or could have directed or controlled Mr. Schwartz. Indeed, there is no indication that Mr. Schwartz reported to petitioner or that petitioner *184 maintained any oversight over Mr. Schwartz's efforts or evaluated his work. This factor weighs against classifying Mr. Schwartz as petitioner's employee. Unlike in a typical worker classification case, Mr. Schwartz was the tenant of the Kings Point residence, where respondent alleges most of Mr. Schwartz's services took place. However, the Kings Point residence was sold on June 3, 2004. Therefore, there were no facilities or equipment in which petitioner invested for most of the taxable periods at issue. This factor is neutral. The opportunity for profit or loss indicates nonemployee status. Employers typically have the right to terminate employees at will. Employees are *186 typically an essential part of a taxpayer's normal operation. Petitioner did not maintain a business for the purposes of this factor test. This factor is neutral. The permanency of a work relationship indicates employee status. Petitioner contends that the relationship created by the parties was not intended to be that of an employer-employee. Petitioner contends that they created a relationship in which petitioner supported Mr. Schwartz. At trial Mr. Gross testified that he believed that Rabbi Klein promised Rabbi Schwartz that he, Rabbi Klein, would take care of Mr. Schwartz with petitioner's funds. Specifically, Mr. Gross testified that "[Rabbi] Bernard Schwartz had an only child, Myron, and the funds were considerable and he didn't find a way that this son is going to be able to support himself. 6 And it was my understanding that Rabbi Klein promised [Rabbi] Bernard Schwartz that he would take care of his son from these funds." Mr. Gross was not present when Rabbi Schwartz and Rabbi Klein made this claimed agreement. When asked whether he discussed the claimed agreement with Rabbi Klein, Mr. *188 Gross stated: "I don't know that we discussed it. We had that common understanding. We worked together, you know. * * * We discussed the Schwartzes, we discussed the house that was sold. We discussed that Myron is, you know, knocking on our door wanting to know—how do we support the guy? So this is what we did." *188 Despite the contradictions in Mr. Gross' testimony, the consistent thread is that petitioner believed its duty was to support Mr. Schwartz. Although the existence of this duty was highly questionable given petitioner's exempt status, we find that petitioner did not believe it had an employer-employee relationship with Mr. Schwartz. This factor weighs against classifying Mr. Schwartz as petitioner's employee. After weighing the above factors, we conclude that Mr. Schwartz was not petitioner's employee during the taxable periods at issue. It appears that respondent was trying to fit a square peg into a round hole by arguing Mr. Schwartz was an employee. Petitioner was not required to file any Federal employment tax returns or make any required deposits for the taxable periods at issue with respect to Mr. Schwartz because Mr. Schwartz was not petitioner's employee during that time. Accordingly, we hold that petitioner is not liable for additions to tax pursuant to We hold that Mr. Schwartz was not petitioner's employee for the taxable periods at issue and that petitioner is not liable for Federal employment taxes with respect to Mr. Schwartz as determined by respondent. Because Mr. Schwartz was not petitioner's employee, To reflect the foregoing and respondent's concessions, Footnotes
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