IRC 3121(d)

The United States Tax Court ruled in Bell Capital Management, Inc. v. Comm’r of IRS at Docket No. 21714-07 filed June 14, 2021 that the IRS reclassification of Petitioner’s President, Ron H. Bell, as an employee was correct. The IRS used Code section 3121(d), which describes individuals who are considered employees regardless of their status under common law. In particular, the IRS and Court focused on the Treasury Regulations at Section 31.3121(d)-1(b) relating to Corporate Officers. That provision states that “[g]enerally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is considered not to be an employee of the corporation.” In this case, the petitioner admitted he was an officer. However, many years before the periods associated with the case, the Petitioner moved Mr. Bell from an employee to a leased position and entered a contract for personal services. Mr. Bell continued to render the same services before and after the lease which could not be deemed to be minor services. The Court ruled that because of these factors and the fact that Mr. Bell received indirect remuneration through the leasing company, he could be appropriately classified as an employee.