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Barter For Services Could Be Tax Evasion

On Behalf of | Oct 22, 2013 | Employment Law

A business arrangement that you perceive as a win / win between you and someone providing services for you may result in an unintended employer / employee relationship. Such were the facts of the case decided by the New Hampshire Supreme Court on August 21, 2013, being the Appeal of Thomas Phillips. In that case, Thomas Phillips appealed the decision from the New Hampshire Compensation Appeals Board denying him recovery under the worker’s compensation law.

The facts were that in 2006 Phillips and his wife lived in a trailer that they rented from Norman and Diane Crocker who lived on the abutting property. As part of the lease agreement, Phillips performed yard work and minor home repairs for the Crockers in exchange for a rent reduction.

On August 11, 2006, Mr. Crocker asked Phillips to remove a branch of a tree that was growing near the Crocker’s house. The next day Phillips fell from a ladder while cutting the branch with a chainsaw. No one witnessed the fall and Phillips’ wife found him shortly after the fall and he was taken to the hospital where he was determined to have a blood alcohol content of approximately 0.27. As a result of the fall, Phillips was rendered a quadriplegic. He filed a worker’s compensation claim against the Crockers and their homeowners’ insurance came into play because he was considered a domestic employee under New Hampshire statute RSA 281-A:6.

This case obviously does not need to provide us with the epiphany that if you are over three times the legal alcohol limit that you should not be climbing trees with chainsaws. Hopefully we all knew that already. What can be learned from this case is that a simple business arrangement could later be deemed under the law as an employer / employee relationship which would not only have an impact on whether an injured worker was able to collect worker’s compensation, but it could result in the New Hampshire Employment Security finding there should be unemployment taxes paid, and the Internal Revenue Service finding that the barter arrangement is income tax evasion. The federal and state governments use their own analysis as to whether an employer / employee relationship exists and do not merely rely on what the parties believed their planned arrangement to be.

In the Phillips case, it is likely that the Crockers thought they had a mutually beneficial simple arrangement with Phillips wherein he got a good deal in rent and they did not have to pay for contractors to do basic work around their property; however, it was not that simple.

When in doubt, it is best to speak with your attorney to ensure that the arrangement you think are getting into is what the law will, in fact, recognize.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].