## Facts

- William Edward Schramm taught online economics courses for Nova Southeastern University (NSU) as an adjunct professor from 1999 to 2007; during 2006 he taught multiple six-week courses under separate course-by-course contracts.
- NSU paid Schramm a fixed amount per course; in 2006 he received $20,000.
- NSU set course start and end dates, provided a course syllabus and required textbook, and supplied a web-based platform for the online classes.
- NSU required compliance with institutional policies (including sexual harassment, drug, and conflict-of-interest policies).
- Schramm could work from any location with internet access, set his own hours, and developed more detailed course materials such as assignments and examinations.
- NSU treated Schramm as an employee for tax purposes, withheld taxes, and issued a 2006 Form W-2 (not marked as a statutory employee).
- Schramm reported the NSU payments on Schedule C as business income and claimed $2,785.63 in Schedule C deductions for expenses related to the teaching work.
- The IRS issued a notice of deficiency for 2006; after a computational concession, the remaining disputed deficiency was about $700.

## Issues

1. Whether Schramm was a common-law employee of NSU in 2006 or instead qualified as a statutory employee under I.R.C. § 3121(d)(3).
2. Whether Schramm’s NSU-related expenses were deductible on Schedule C or, if deductible at all, only as unreimbursed employee business expenses on Schedule A.

## Decision

- The court held Schramm was a common-law employee of NSU in 2006.
- Because a common-law employee cannot be a statutory employee, Schramm did not qualify as a statutory employee under I.R.C. § 3121(d)(3).
- The court sustained the IRS’s reclassification of the NSU payments as wages rather than Schedule C income.
- The court disallowed Schedule C treatment of the $2,785.63 in claimed expenses; they were employee business expenses deductible, if at all, on Schedule A.
- Judgment was entered for the Commissioner for the remaining deficiency (approximately $700 after concessions).

## Legal Principles

- Worker classification for federal employment tax purposes turns on common-law principles, with the principal inquiry being the employer’s right to control the manner and means of the work.
- Relevant classification factors include control (or right of control), investment in facilities and tools, opportunity for profit or risk of loss, permanency of the relationship, and the parties’ understanding; no single factor controls.
- A worker who is a common-law employee cannot also be treated as a statutory employee under I.R.C. § 3121(d)(3).
- Expenses connected to services performed as an employee are not deductible on Schedule C as trade-or-business expenses; they are treated as unreimbursed employee business expenses, deductible only as itemized deductions subject to applicable limitations.

## Conclusion

The Tax Court determined that NSU’s retained right to control key aspects of the online courses, along with NSU’s provision of core instructional infrastructure and employee tax treatment, made Schramm a common-law employee; therefore, his teaching income was wages and his related expenses were not deductible on Schedule C.


Schramm v. Commissioner, T.C. Memo. 2011-212 (2011)