U.S. Tax Court

Corporation Liable for Payroll Tax That Should Have Been Paid to Officers:  Mr. and Ms. Hacker were co-owners of Blossom Day Care Centers, Inc. (Blossom). In addition, the Hackers were sole shareholders of Hacker Corp. that provided management services to Blossom. Hacker Corp. paid salaries to the Hackers. Blossom paid no salaries to the Hackers. The IRS contended that the Hackers were employees of Blossom and had additional wage income (reasonable wage determination) along with the related payroll tax liability. Blossom argued that if the Hackers were employees, the Hacker Corp. salaries should offset Blossom’s reasonable wage determination. The Tax Court held that the Hackers were employees of Blossom and that Blossom was liable for its share of payroll taxes on the IRS’s reasonable determination of what the corporation should have been paying the officers and Blossom could not offset that reasonable determination with wages from Hacker Corp. Blossom Day Care Centers, TC Memo 2021-86 (Tax Ct.).