Donald G. Cave a Professional Law Corp. v. Commissioner

Donald G. Cave A Professional Law Corporation (the law firm) (plaintiff) was owned and operated by attorney Donald Cave. The law firm often hired recent law school graduates (the attorneys) with minimal professional experience. The law firm did not require the attorneys to sign employment agreements, work from the main office, or work set hours. The arrangement was continuous, and there is no evidence that the attorneys worked for any other law firms while working for the law firm. Cave regularly referred cases to the attorneys to help build their practices. The attorneys were paid one-third of fees earned from cases referred to them by Cave and one-half of fees earned from cases they generated themselves. Cave reviewed at least some of the attorneys’ work product, made suggestions about how to handle certain issues, and expected the attorneys to assist on his own cases. The law firm provided office space, secretaries, letterhead and business cards with the attorneys’ names on them, computers and other necessary technology, and reimbursement of expenses, including mandatory bar fees. The law firm did not classify the attorneys as employees and, therefore, did not pay employment taxes on their behalf. The commissioner of internal revenue (defendant) issued a notice of determination of worker classification finding that the attorneys were employees of the law firm in 2003 and 2004 and the law firm was liable for employment taxes and penalties. The law firm petitioned the court for a redetermination of employment status.