Aaron, a resident of Minnesota, has been a driver for Green Delivery Service for the past six years. For this purpose, he leases a truck from Green, and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Green allows its drivers to choose their 10-hour shifts and does not exercise any control on how these services are carried out (e.g., the route to be taken or the order in which parcels are delivered or picked up). Under Green's operating agreement with its drivers, Green can terminate the arrangement after 30 days' notice. In practice, however, Green allows its truckers to quit immediately without giving advance notice. The agreement also labels the drivers as independent contractors.
Green maintains no health or retirement plans for its drivers, and each year it reports their income by issuing Forms 1099-MISC (and not Forms W-2). Green requires its drivers to maintain a commercial driver's license and be in good standing with the state highway law enforcement division.
Citing the employment tax Regulations in §§ 31.3121(d)-1(c)(2) and 31.3306(i)-1(b), an IRS agent contends that Aaron is an independent contractor and, therefore, is subject to the self-employment tax. Based on Peno Trucking, Inc. (93 TCM 1027, T.C.Memo. 2007-66), Aaron disagrees and contends that he is an employee (i.e., not self-employed). Who is correct? Why?