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Nick Spagnolo v. U.S. Internal Revenue Service

December 18, 2012


The opinion of the court was delivered by: Alan C. Kay Sr. United States District Judge



Mr. Spagnolo's Complaint because he lacks standing to pursue his claims against the IRS, under Article III of the United States Constitution.


Plaintiff Nick Spagnolo filed his Complaint on May 11, 2012. (Doc. No. 1.) The United States*fn1 filed a motion to dismiss the Complaint for lack of subject matter jurisdiction on August 24, 2012. (Doc. No. 18 ("MTD").) The motion was supported by a declaration from counsel and various exhibits. (Doc. No. 19 ("Watson Decl.").) Mr. Spagnolo filed an Opposition to the Motion, along with supporting exhibits, on September 17, 2012. (Doc. No. 26 ("Opp.").) The United States did not file a reply.

Mr. Spagnolo filed a Motion for Summary Judgment on October 10, 2012. (Doc. No. 39.) The United States filed an opposition to the motion on November 26, 2012. (Doc. Nos. 47 & 48.) Mr. Spagnolo mailed a Reply in support of his Motion for Summary Judgment on December 12, 2012, well after the deadline prescribed by Local Rule 7.4. (Doc. No. 53.) In consideration of Mr. Spagnolo's pro se status, however, the Court considered the Reply.

The Court held a hearing regarding both motions on December 17, 2012.


The Social Security Act, 42 U.S.C. §§ 401 et seq., creates a federal insurance scheme which provides old-age, disability, survivors, and Medicare insurance. FICA, the Federal Insurance Contributions Act, is one of the taxing statutes that fund the Social Security Act's programs. See Whitaker v. United States, 194 F. Supp. 505, 507 (D.Mass.), aff'd, 295 F.2d 817 (1st Cir. 1961).

Under FICA, every employer must withhold the FICA tax on wages from its employees' paychecks, 26 C.F.R. § 31.3102-1(a), and must also pay its own tax, generally equal to the employee's tax, for each person who qualifies as an "employee," 26 U.S.C. §§ 3111(a), 3121(d). Employers must also pay Federal Unemployment Tax Act ("FUTA") taxes for each employee. 26 U.S.C. § 3301. Employers do not have to withhold and pay these employment taxes, however, in regard to payments to "independent contractors." If a business uses independent contractors, it need only send annual information returns, on Form 1099 to the contractors and on Forms 1096 & 1099 to the IRS, indicating the income paid during the year. 26 C.F.R. § 1.6041-1(a). The contractors, in turn, must pay their own self-employment contribution taxes.

For FICA and FUTA tax purposes, section 3121(d) of the Internal Revenue Code defines an employee as: (1) any officer of a corporation; or (2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. 26 U.S.C. § 3121(d).

FICA and FUTA's tax obligations are enforced by the IRS. 26 U.S.C. §§ 6201, 6205, 6211. There are many federal cases in which the IRS has pursued employers because they have underpaid FICA taxes by improperly treating employees as if they were independent contractors. See, e.g., Springfield v. United States, 88 F.3d 750, 753 (9th Cir. 1996).


Plaintiff Nick Spagnolo delivered telephone directories for three Pennsylvania directory delivery companies seasonally for at least ten years, until 2007.*fn3 (Compl. ¶¶ 1, 7; Compl.

Ex. 1 at 10; Watson Decl., Ex. 1.) The delivery companies evidently treated Mr. Spagnolo for tax purposes as an independent contractor rather than an employee, as they did not pay FICA or FUTA taxes relating to him and did not withhold those taxes from his paychecks. (MTD at 2.) The companies reported his income on Forms 1099 rather than W-2s. (See Compl. Ex. 9.)

In 2010, Mr. Spagnolo began receiving disability benefits. (Compl. Ex. 1, at 8.) In August 2010, Mr. Spagnolo requested, using IRS Form SS-8, that the IRS examine whether he was an employee or an independent contractor, which he believed would allow him to claim Social Security, Medicare, and Medicaid benefits. (See Watson Decl., Ex. 1.) He also sent the IRS a follow-up letter in September 2010, in which he requested that his income reported on Forms 1099 be transferred to W-2s and that his former employers be required to pay FICA and FUTA taxes relating to his employment. (Compl. Ex. 2, at 1.)*fn4

The IRS collected information from Mr. Spagnolo's former employers and determined that Mr. Spagnolo was an independent contractor. (See Watson Decl., Ex. 2.) It sent him and his former employers a letter ...

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