In re Pearl B. SERINO, t/a Serino's Nurses Registry, Debtor., United States Bankruptcy Court, M.D. Pennsylvania, Wilkes-Barre Division., 190 B.R. 778, Bankruptcy No. 5-93--00215., October 16, 1995
In re Pearl B. SERINO, t/a Serino's Nurses Registry, Debtor.
United States Bankruptcy Court, M.D. Pennsylvania, Wilkes-Barre Division.
190 B.R. 778
Bankruptcy No. 5-93--00215.
October 16, 1995.
Kevin Walsh, Wilkes-Barre, PA, Carmen Latona, Wilkes-Barre, PA, for debtor.
Greg Stefan, Washington, DC, for I.R.S.
Charles DeHart, Trustee in Bankruptcy, Hummelstown, PA.
OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
Pearl B. Serino t/a Serino's Nurses Regis╜try is in Chapter 13 bankruptcy having filed for same on February 4, 1993.
Objections have been filed to the bankrupt╜cy plan alleging the Debtor has not arranged for the full payment of priority taxes pursu╜ant to 11 U.S.C. ╖ 1322(a)(2). The Debtor responds to the objection of the IRS by asserting that she was not responsible for the specific tax assessed against her. Contempo╜raneous with the objection to the plan, the court heard Debtor's objection to the proof of claim of the IRS. These litigations were consolidated for trial.
The Debtor denies liability to the Internal Revenue Service. The IRS has assessed various trust fund taxes against Ms. Serino arguing that between 1986 and 1988 she em╜ployed various nurses for which she was responsible for withholding FICA and FUTA taxes pursuant to 26 U.S.C. ╖ 3101 et seq. and 26 U.S.C. ╖ 3301 et seq. Serino re╜sponds that these nurses were not her em╜ployees but rather independent contractors, the withholding for which she was not re╜sponsible. The court is thus confronted with the classic battle between the Internal Reve╜nue Service and the proprietor as to the relationship that a business owner might have had with their assistants.
Unquestionably, the "right to control" test has been the most important index of the relationship between the entities. Equal Employment Opportunity Commission v. Zippo Manufacturing Co., 713 F.2d 32 (3rd Cir.1983). American Consulting Corporation v. United States, 454 F.2d 473 (3rd Cir.1971). Employer/employee relationships are generally deemed to exist when a person for whom services are performed has a right to control and direct not only the result but also the details and means by which the result is to be accomplished. Treasury Regulation ╖ 31. 3121(d)-1(c) (26 C.F.R. ╖ 31.3121(d)-1(c)).
Even though the "right to control" factor is an important factor, it is neither the only factor nor is it the controlling factor. American Consulting Corp. v. United States, 454 F.2d 473, 477 (3rd Cir.1971). The court has generally weighed a multitude of other considerations in adjudicating the final re╜sult. Twenty-four (24) of those factors are set forth in In re Compass Marine Corp., 146 B.R. 138 (Bankr.E.D.Pa.1992). Those twen╜ty-four (24) factors are briefly identified as follows:
1. ═ Instructions;
2. ═ Training;
3. ═ Integration;
4. ═ Services rendered personally;
5. ═ Hiring, supervising and paying assis╜tants;
6. ═ Continuing relationship;
7. ═ Set hours of work;
8. ═ Full time required;
9. ═ Doing work on employer's premises;
10. ═ Order or sequence of tasks set;
11. ═ Oral or written reports;
12. ═ Payment by hour, week or month;
13. ═ Payment of business and/or travel ex╜penses;
14. ═ Furnishing of tools and materials;
15. ═ Significant investment;
16. ═ Realization of profit or loss;
17. ═ Working for more than one firm at a time;
18. ═ Making service available to the gener╜al public;
19. ═ Right to discharge;
20. ═ Right to terminate;
21. ═ Industry practice or custom;
22. ═ Intent of the parties-how they view the relationship;
23. ═ Written, signed independent contract or agreements; and
24. ═ Employee-type benefits provided.
While we will discuss these factors at a later time in this opinion, they generally identify indicators suggesting that the right to control has shifted from the operator to the assistant (making the assistant more like╜ly to be considered an independent contrac╜tor rather than an employee).
This is not to imply that a balancing of these factors would end our inquiry. In 1978, Congress enacted Section 530 of the Revenue Act (26 U.S.C.A. ╖ 3401 note). 1 That section, known as the "safe haven" de╜fense, provides that a taxpayer who can dem╜onstrate a reasonable basis for the treatment of an individual in some other manner than as an employee is entitled to termination of employment tax liabilities. This would sug╜gest that even if the IRS could persuade the court that a consideration of the factors re╜quired a finding that the Debtor's relation╜ship with her private nurses is that of em╜ployer-employee, the Debtor would still have the opportunity to establish a "reasonable basis" for treating her nursing assistants as other than employees.
1 (a) Termination of certain employment tax lia╜bility.-
(1) In general.-If-
(A) for purposes of employment taxes, the taxpayer did not treat an individual as an em╜ployee for any period, and
(B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee, then for purposes of applying such taxes for such period with re╜spect to the taxpayer, the individual shall be deemed not to be an employee unless the tax╜payer had no reasonable basis for not treating such individual as an employee.
(2) Statutory standards providing one method of satisfying the requirements of paragraph (1).-For purposes of paragraph (1), a taxpayer shall in any case be treated as having a reason╜able basis for not treating an individual as an employee for a period if the taxpayer's treat╜ment of such individual for such period was in reasonable reliance on any of the following:
(A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;
(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding posi╜tions substantially similar to the position held by this individual; or
(C) long-standing recognized practice of a significant segment of the industry in which such individual was engaged.
As if this did not provide a suffi╜cient test of our analytical talents, the court is also required to reconcile the competing burdens placed upon the parties by decisional case law. The proof of claim is prima facie evidence of its validity. In re Allegheny International, Inc., 954 F.2d 167 (3rd Cir. 1992). Nevertheless, the burden of persua╜sion remains on the claimant (IRS). Id. The burden of defeating an Internal Revenue Service assessment is on the taxpayer. Hel╜vering v. Taylor , 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935). Anastasato v. Commis╜sioner , 794 F.2d 884 (3rd Cir.1986). The burden of establishing an exception to dis╜charge is on the creditor. In re Cohn , 54 F.3d 1108 (3rd Cir.1995). The burden of showing the reasonableness of the treatment of its workers under the "safe haven" de╜fense is on the taxpayer. In re Rasbury , 141 B.R. 752, 757 (N.D.Ala.1992). In re Com╜pass Marine Corp., supra .
While we relish the opportunity to evaluate the facts and apply the applicable law, the court is somewhat disappointed that the tax╜payer chose not to support her position with a brief even though represented by two law╜yers.
Since our inquiry is fact intensive, a review of the evidence is imperative.
Pearl Serino was the owner and operator of Serino's Nurses Registry. She was an L.P.N. engaged in business at least since 1986. The business was licensed in Harris╜burg. The operation was located at 130 Church Street, Kingston, Pennsylvania, in the basement of Ms. Serino's home. She worked there alone with a minimal amount of office equipment. The apparent business of Serino's Nurses Registry was to place nurses with patients requiring nursing assistance. Patients were located in hospitals, nursing homes and private homes. Patients were not solicited. Rather, by word of mouth, various hospitals, nursing homes and private individ╜uals as well as other nurses would contact Serino's Nurses Registry for a nursing assis╜tant.
In order to provide this service, the Debtor maintained a list of Registered Nurses (R.N.s), Licensed Practical Nurses (L.P.N.s), and nurses' aides for placement with various patients. These individuals who would regis╜ter, often heard about Serino's Nurses Regis╜try through other nurses or, sometimes, through advertising. In order to qualify to be added to the registry, a nurse had to have a state license, malpractice insurance and be knowledgeable in cardiopulmonary resuscita╜tion (CPR). The insurance was obtained by the individual nurses and not the Debtor.
None of the nurses were required to work exclusively for Serino's. When patients at a hospital or the family would call for nursing assistants, the Debtor would give them the name of a nurse on the registry.
Sometimes, the family hiring the nurse through Serino's would terminate the service through Serino's and hire the individual nurse on their own. This effectively termi╜nated the compensation that the Debtor would receive.
The Debtor denied supervising any of the nurses who she placed with patients. She would neither call nor check on their perfor╜mance nor was the nurse required to contact Serino's. The relationship of the nurse and the patient was entirely a matter between those two parties. The nurses were not pro╜vided with vacation time nor life insurance, health insurance or disability insurance and no taxes were withheld.
Upon entrance into the office, a large sign about six to seven feet long would advise prospective applicants that they had to pay their own taxes, get their own malpractice insurance, and know C.P.R. For a short time in 1988, the Debtor maintained work╜men's compensation insurance for the nurses. She obtained workmen's compensation be╜cause of the requirement of a certain nursing home.
Serino did not file 1099 forms until 1989 when she was advised to do so after an audit. Until then, she was unaware that such filings were required.
Financially, patients or, in some cases, the nursing home or insurance company compen╜sated Serino who would deposit the payment, take a certain percentage for her business and send the balance to the nursing assis╜tant. If Serino is not paid for a certain project, then the nurse who supplied the care in that project would not get paid. Serino did not furnish any uniforms nor did she pay for transportation, journals or furnish the modest equipment that a nurse might have such as a blood pressure gauge.
Once a month, the state inspector visited Serino's office. Serino, who has a state is╜sued employment agent's license, started the business in 1980.
While Serino denied having any rules or regulations other than the requirements for malpractice insurance, a state license and C.P.R. training, some of the documents that she utilized contained a requirement that a registry nurse "abide by [Serino's] rules and regulations".
During the trial, a document was identified setting forth certain "grounds for termi╜nation policy". Serino denied that this docu╜ment was ever actually utilized in the busi╜ness.
Serino denied ever paying any nurse asso╜ciation dues for the nurses that were regis╜tered with her but she did acknowledge that she paid for three people to attend a semi╜nar.
Serino acknowledged that she made no investigation as to how other nurses registry services operated in the area and whether they treated their nurses as employees or independent contractors.
On June 22, 1989, Ms. Serino answered a questionnaire with an Internal Revenue Ser╜vice agent. The answers to that question╜naire were basically consistent with the testi╜mony of Ms. Serino at the trial in 1994.
Government exhibits numbers 9, 10 and 11 were documents located on the site during an audit and labeled, respectively, Serino's Nurses Registry (Obligations); Job Descrip╜tion-Licensed Nursing Personnel; and Seri╜no's Nurses Registry Grounds for Termi╜nation Policy. The Debtor denied that any of the documents were actually utilized in the business. Rather, she explained that they were under consideration pending an expan╜sion of the business, which plan was termi╜nated because of illness in her family.
The question we address is whether the nurses registering with the Debtor are the "employees" of the Debtor within the provi╜sions of the Federal Insurance Contributions Act (FICA) 26 U.S.C. ╖ 3101 et seq. and the Federal Unemployment Tax Act (FUTA) 26 U.S.C. ╖ 3301 et seq.
In companion cases before the Unit╜ed States Supreme Court, a significant effort was made to explain the differences between an employee and an independent contractor. Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947); United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947). Not all who render ser╜vice to an industry are considered employees. U.S. v. Silk, supra, at 712-14, 67 S.Ct. at 1468. A review of Silk, Bartels, and the subsequent United States Supreme Court case of United States v. W. M. Webb, Inc., 397 U.S. 179, 90 S.Ct. 850, 25 L.Ed.2d 207 (1970), bolstered a conclusion that the tradi╜tional common law test (right to control) remains intact as the principal factor in de╜termining whether an employer-employee re╜lationship exists. 2
2 "... [O]ne was an employer if he had the 'right' to direct what should be done and how it should be done". Bartels v. Birmingham, 332 U.S. 126, 129, 67 S.Ct. 1547, 1549.
Silk and Bartels did not, however, stop at the common law test but specifically expand╜ed that definition in a less constricted way to encompass the "economic reality" of those who are dependent upon a business to which they render a service to also be considered employees. The need to view the employer-employee relationship in an expanded way was deemed necessary because of the fact that the legislation in question was presum╜ably drafted to counter the "recognized evils in our national economy". U.S. v. Silk, su╜pra , at 712, 67 S.Ct. at 1467. This is a view recognized and accepted by our circuit. American Consulting Corp. v. United States, 454 F.2d 473 (3rd Cir.1971).
With this overview of the law, we will proceed with a review of the twenty-four (24) factors heretofore mentioned against the facts present in this case.
Our conclusion is that thirteen (13) of the twenty-four (24) factors are specifically geared to determining the degree to which the Debtor retained control over her work╜ers. Specifically, the following thirteen (13) factors were weighed in this fashion:
1. Instructions: Ms. Serino assigned nurses to specific households and facilities which thereafter controlled the relationship of nurse and patient. We view this factor as weighing against the employer-employee re╜lationship.
2. Training: The Debtor did no training since the nurse or nurse's aide was presum╜ably qualified by prior experience and/or ed╜ucation. Again, this militates against the employer-employee relationship.
3. Hiring, supervising and paying assis╜tants: The evidence on the record suggested that Ms. Serino was no more than a match╜maker between nurse and patient with com╜pensation to Ms. Serino as an override of salary. Although she handled the billing and the receipts, hiring and supervising were left to the patients or the facility supervising the patients. Again, this weighs in favor of inde╜pendent contractor status.
4. Set hours of work: Hours of work were apparently set between patient and nurse without input from Ms. Serino. This, again, suggests independent contractor sta╜tus.
5. Full time required: There was no indi╜cation on the record that Ms. Serino required any specific number of hours worked. She did indicate that if a nurse was unavailable to provide services to patients repeatedly, that nurse would no longer be called. Again, the employer-employee relationship is not indi╜cated.
6. Doing work on employer's premises: None of the nurses' work occurred on or about Ms. Serino's office. This, again, weighs in favor of independent contractor status.
7. Order or sequence (of task) set: Since Ms. Serino did not supervise the specific jobs, neither could she set the order in which those jobs were performed. Again, the rec╜ord suggests only that Ms. Serino matched up nurses with patients who needed nurses. This factor weighs in favor of independent contractor status.
8. Oral or written reports: None were necessary and, therefore, independent con╜tractor status is indicated.
9. Furnishing of tools and materials: A nurse's tools are her blood pressure meter apparatus (sphygmomanometer) and her uni╜form, typically the traditional white outfit, both items of which were supplied by the nurses and not Ms. Serino. Again, this would suggest independent contractor status.
10. Working for more than one firm at a time: Ms. Serino indicated that she was not concerned about nurses working for more than one patient at a time or through more than one agency at a time. She had no exclusivity relationship with the nurses on her registry. Again, this would suggest in╜dependent contractor status.
11. Making service available to the gener╜al public: Consistent with our discussion on whether full time was required, the nurses were allowed to offer their services to the general public and to other registry services during the same period that they were avail╜able for placement by Serino's Nurses Regis╜try. Again, this suggests independent con╜tractor status.
12. Right to discharge: Ms. Serino de╜nied any responsibility or ability to fire the nurses that were placed in various institu╜tions and homes. She indicated this was the responsibility of the facility or the patient. Again, she did indicate that if nurses did not respond to her request for placement, they would eventually be dropped from her regis╜try list. That was not the equivalent of firing a nurse. The independent status of the nurse is again illustrated by this factor.
13. Right to terminate: The last factor we will look at in determining who had the right to control the worker is the question as to whether the worker could terminate her relationship with the registry at any time. With regard to this, the court has no evi╜dence that a nurse could not have her name removed from the registry at any time. Nor, is there any evidence that a nurse terminat╜ing her position in a certain facility or with a certain patient would automatically suffer any consequences with regard to the regis╜try.
Each and every one of these factors sug╜gests that the right to control the work was almost entirely absent. Other than asking the nurse to report to a certain facility and handle the accounting for the services per╜formed, Ms. Serino maintained absolutely no control over the individuals on her registry.
This, however, does not end our discussion since the right to control is not the control╜ling element nor the only element to consid╜er. American Consulting Corp. v. United States, supra. Other factors may play a part in the ultimate decision. We view the bulk of the other factors in the twenty-four (24) fac╜tor list as being of an economic nature. Tra╜ditionally, independent contractors are will╜ing to make the investment and risk the loss as well as benefit from the profit. An em╜ployee would be somewhat immune from these concerns. Among the factors that we consider are economic related are the follow╜ing:
1. Payment by hour, week or month: The nurses, in this case, were paid on an hourly basis just as an hourly employee would be treated with Ms. Serino retaining an over╜ride. This would suggest employer-employ╜ee status.
2. Payment of business and/or travel ex╜penses: Ms. Serino did not pay any travel or business expenses except in one isolated case where it was established that she may have paid the seminar fees in the amount of $30.00 for three workers. Even if this was a fact (denied by Ms. Serino) one isolated incident cannot allow the court to conclude that Ms. Serino paid the travel and expenses of the nurses on her registry. We weigh this factor in favor of independent contractor status.
3. Significant investment: The nurses who supplied services cannot be held to have made any significant investment in their trade apart from their education. Since we had no evidence of the extent of that ex╜pense, we view this factor as favoring em╜ployer-employee status.
4. Realization of profit or loss: This fac╜tor becomes a non-factor because the pay scale for the nurses was apparently regulated by the state association and the expenses involved in providing nursing services were apparently rather nominal. This factor is inconclusive.
5. Employee-type benefits provided: The only evidence of any employee-type benefit received by the nurses who registered with Serino's Nurses Registry was workmen's compensation insurance which was obtained for a period during 1988-1989 as a result of a requirement of some of the facilities to which Serino's Nurses Registry was offering ser╜vices. Although the government is correct in concluding that this suggests employer-em╜ployee status, the fact that it only existed for one of the three (3) years for the tax in question, allows us to conclude that, overall, this factor would favor independent contrac╜tor status. We view the insurance as no more than an isolated expense not in the ordinary course of Ms. Serino's affairs.
While this concludes our analysis of the economic factors, there are other factors in the list of twenty-four (24) that must be reviewed which do not neatly fit within the right to control aspect nor the economic as╜pect of this decision. They are as follows:
1. Continuing relationship: While some nurses may have worked with Ms. Serino for significant periods of time, the record does not demonstrate any general long-term rela╜tionship between numbers of nurses and Ms. Serino. This factor can benefit neither gov╜ernment nor Debtor.
2. Intent of the parties-how they view the relationship: The testimony suggested that the nurses viewed their status as inde╜pendent contractors and Ms. Serino appar╜ently took a similar position. There is no suggestion that workers demanded work╜men's compensation, unemployment compensation, or sick days. There was no evidence that regular checks were requested or any of the other attributes of an employer-employee relationship were sought or provided. We view this as favoring independent contractor status.
3. Written, signed independent contrac╜tor agreements: There were none suggesting that the relationship was an employer-em╜ployee one.
4. Integration: Nurses' jobs were fully integrated in Serino's Nurses Registry; that is to say, that without the nurses producing their services, Ms. Serino would suffer a complete loss of income. This would suggest employer-employee status.
5. Services rendered personally: The nurses utilized their own personal services and no one else. This also would suggest employer-employee status.
Our review of the various factors allows us to conclude that the right to control factors weigh heavily in favor of independent con╜tractor status and the remaining economic and other factors we have considered are inconclusive in categorizing the relationship of the nurses to the Debtor. We view this development as heavily suggesting that we rely on the right to control factors as persua╜sive under these facts. We therefore con╜clude that the nurses working for Serino were independent contractors; that the Debtor is not responsible for the withholding taxes in question; that the Debtor's objection to the proof of claim should be sustained; and that the Debtor's plan should be con╜firmed.
The result we reach is supported by Reve╜nue Ruling 61-196, 1961-2 CB 155. Also, reaching a similar decision on virtually iden╜tical facts is Hospital Resource Personnel, Inc. v. United States, 860 F.Supp. 1557 (S.D.Ga.1994).