STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

STEFANIK BUILDERS INC, Employer

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 573949, Hearing Nos. S0600204JV & S0500207JV


An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.

DECISION

The decision of the administrative law judge is affirmed. Accordingly, the employer is liable for contributions to the Unemployment Reserve Fund for the four calendar quarters of 2003 and the four calendar quarters of 2004 as found in the department's initial determinations, including the amounts the employer paid to William Atkinson, Clint Roesslein, and Larry Stefanic during that period.

Dated and mailed May 31, 2007
stefabu . ssd : 105 : 1   EE 410  UW 900

/s/ James T. Flynn, Chairman

/s/ Robert Glaser, Commissioner

MEMORANDUM OPINION


The first issue in this case is whether two individuals, William Atkinson and Clint Roesslein, performed services for the employer construction company as employees or as independent contractors. The commission agrees with the administrative law judge that they did so as employees. The second issue is whether certain loans by the construction company to a farm also owned by the Stefaniks should or should not be considered taxable wages. The commission agrees with the administrative law judge that they should.

William Atkinson is a neighbor of the Stefaniks who does carpentry finishing work for the construction company. The construction company finishes and sells modular homes. The Stefaniks did not establish that Mr. Atkinson holds or has applied for an FEIN, or that he filed a business or self-employment tax return with the federal government. They conceded that Mr. Atkinson did not have a business or an office, and they did not establish that he advertised or held himself out as having a carpentry business. There was no written contract between Mr. Atkinson and the construction company, rather an informal arrangement whereby Mr. Atkinson would bill the company monthly for the hours he worked. Although the Stefaniks asserted that Mr. Atkinson incurred expenses in connection with the performance of his services, the commission does not consider the expenses they mentioned, truck insurance, gas, and miscellaneous tools, to fall within this criterion. Mr. Atkinson is responsible for satisfactory completion of the services he performs for the construction company, but he also appears to have been billing the employer an hourly rate. The record does not establish that he could realize a profit or suffer a loss in his work for the company, the only recurring business liability he appears to have is liability insurance, and it cannot be said that the success or failure of his business depends on the relationship of business receipts to expenditures. Mr. Atkinson therefore meets at most two of the Wis. Stat. § 108.02(12)(bm) independent contractor criteria, and not the requisite seven.

The same factors work against Mr. Roesslein. The Stefaniks could not say whether he had an FEIN or whether he had filed business or self-employment tax returns with the federal government. Mr. Roesslein did have a business, CR Builders, but the record does not establish that the services he performed for the construction company were performed under the auspices of that business. As the administrative law judge found, the remuneration to Mr. Roesslein was to him individually and not to CR Builders. The construction company paid Mr. Roesslein by the hour, and the record establishes only that he incurred minor expenses related to his work for the company (and not main expenses, as contemplated by (12)(bm)5). Mr. Roesslein was responsible for satisfactory completion of his work, although it appears never to have been an issue with him (or with Mr. Atkinson). Mr. Roesslein also has recurring insurance premium obligations, but the record does not establish that he could realize a profit or suffer a loss in his work for the company or that the success or failure of his business depends upon the relationship of receipts to expenditures. Mr. Roesslein thus also meets only two of the ten independent contractor criteria.

The Stefaniks, in addition to owning and running the construction company, own and operate a farm. Also at issue are several payments from the construction company to the farm, payments the Stefaniks characterized as loans to the farm for it to meet occasional obligations (such as taxes, an irrigation system, etc.). The federal tax law is clear that these payments, even if the Stefaniks in good faith considered them to be loans, are properly categorized as income to the Stefaniks (and thus wages to be taxed).

Mrs. Stefanik, the president and one of the owners of the construction company, testified that in the 2003 and 2004 calendar years the construction company loaned their farm approximately $59,000.00 and $10,000.00, respectively. Absent an assertion that these were loans to the farm which were repaid, there would be no question whatsoever but that the payments constituted remuneration to the Stefaniks for their work on behalf of the construction company. The Stefaniks testified, however, that in fact the payments were loans and, indeed, they established that the farm repaid some of the loans, $22,000.00 in 2003 and $37,500.00 in 2004. Based upon the evidence and the law, the commission does not believe the payments from the construction company to the farm can be considered loans for the tax purpose at issue here despite such repayment.

The unemployment insurance law and the federal tax code fall under the same title of the United States Code. It thus is appropriate to look at federal law on the issue of the proper characterization of these transfers of funds. In order for such payments to constitute a loan, at the time the funds are transferred the recipient must intend to repay the advance, and the transferor must intend to enforce the payment. Haag v. Commissioner, 88 T.C. 604, 615-616 (1987), aff'd without published opinion, 855 F.2d 855 (8th Cir. 1988). This condition seems to be met. In addition, however, "the obligation to repay must be unconditional and not contingent upon a future event." Morgan v. Commissioner, T.C. Memo 1997-132 (1997). This condition was not met, and it is fatal to the Stefaniks' case. The idea of this requirement also underlies the administrative law judge's reasoning on the issue, that the loans were interest free and not evidenced by a written instrument (such as a promissory note requiring repayment).

For these reasons, and those stated in the appeal tribunal decisions, the commission has affirmed those decisions. In their appeal the Stefaniks state they did not realize they would be in a court setting, they were not represented by an attorney, and they feel they did not present the correct evidence or witnesses. The commission takes this to be an implicit request for further hearing, but there is no basis for granting it. Via the September 25, 2006 Acknowledgement of Request for Hearing, the Stefaniks were informed that the department would be represented by one of its attorneys and that the Stefaniks could represent themselves or arrange for their own attorney, accountant, or other agent to represent them. The acknowledgement also stated that the Stefaniks would have to arrange for the appearance of their own witnesses, that they could subpoena those witnesses if necessary, and that only those persons with firsthand knowledge of the facts of the case would be considered qualified witnesses. Given these factors, the Stefaniks cannot claim surprise about the nature of the proceeding or what was expected of them in terms of presentation of evidence. The Stefaniks also had full knowledge, finally, both of their right to be represented by an attorney and of the fact that at the hearing the department would be represented by one of its attorneys.

cc: Attorney Michael J. Mathis



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