Financial Advisor Working on Commission Is Not an Independent Contractor

(Parker Tax Publishing November 2025)

A district court held that while a financial advisor worked on commission, created his own schedule, had flexibility to work from home, and ostensibly resembled an independent contractor, the fact that he was supervised, enjoyed certain employee benefits and work-related resources, and received clear notice of worker classification from his employer weighed in favor of him being classified as an employee. The court also held that the taxpayer did not qualify as a statutory employee. Gil v. U.S., 2025 PTC 329 (E.D. Pa. 2025).

Background

After college, Francisco Gil began a career as a financial advisor. By 2020, Gil was working for Wells Fargo where he was responsible for retaining his own clients, for whom he would develop financial plans and assist with investments, and for maintaining professional licenses for that role.

Wells Fargo afforded Gil significant flexibility. He was paid exclusively through commissions linked entirely to his performance and there was no limit on how much Gil could earn. He chose his own working hours and recruited his own clients. Although he used to work full-time out of the company's office, Gil switched to primarily working from home following the Covid-19 pandemic and occasionally going to the office to collect mail or use the printer.

However, Gil was also subject to Wells Fargo's supervision and policies. The Branch Manager oversaw Gil's work, provided annual reviews, and set performance goals. Gil was also expected to check in periodically with the Branch Manager to appraise him of his progress and Wells Fargo had continuous access to Gil's Outlook calendar to determine when he had client meetings. Finally, Wells Fargo could fire Gil at any time without notice, and upon Gil's departure, his client list and corresponding notes would be considered the property of Wells Fargo.

Wells Fargo offered many financial benefits to Gil, including firm-sponsored health insurance and the opportunity to participate in Wells Fargo's 401(k) plan. Wells Fargo also bore the cost of the office lease and related bills, provided Gil with his computer and printer, employed and paid the salaries of office assistants who helped Gil with his work obligations, and hosted a website featuring Gil's contact information. But Gil was not afforded any sick leave or paid time off, in part because he made his own schedule and was paid through commissions.

Wells Fargo also offered a sponsored expense reimbursement program for costs of "all travel, prospect and client entertainment and promotional events used for business development." The reimbursement program was available to financial advisors bringing in over one million dollars in revenue. But because Gil did not meet the revenue threshold, he was not eligible for reimbursement, forcing him to cover his own work-related costs, including client entertainment and advertising, travel, and some research related to the financial market.

Wells Fargo considered Gil to be an employee and issued him an annual Form W-2 and withheld federal and state income, Medicare, and his portion of social security taxes from his pay. While Gil asked Wells Fargo to reclassify him as a statutory employee for tax purposes, Wells Fargo denied those requests. Gil ultimately left Wells Fargo to work at another firm because he wanted to be an independent contractor rather than an employee.

In 2020 and 2021, Gil and his wife jointly filed their tax returns, reporting Gil's W-2 income on a Form Schedule C and requesting tax refunds of almost $37,000 for both 2020 and 2021. The IRS subsequently levied a $5,000 civil penalty under Code Sec. 6702(a) for filing a frivolous income tax return. In March 2023, Gil sought refunds for the 2020 and 2021 tax years and when he didn't get them, he filed a lawsuit in district court seeking the refunds.

Under Code Sec. 3121(d)(2), an "employee" is defined as any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of employee. The statute also lists several specific types of workers who are not considered common-law employees but are nevertheless classified as "statutory employees." These workers include any individual (other than an individual who is an employee) who performs services for remuneration for any person as a full-time life insurance salesman.

The parties disputed the appropriate test to evaluate Gil's worker status. Gil urged the court to adopt a three-pronged test from the IRS Employer's Supplemental Tax Guide (2020) and to find that he was an independent contractor. Alternatively, he argued that he was a full-time insurance salesman and thus a statutory employee. Under either scenario, Gil said, he was entitled to deduct business expenses on Schedules C. Conversely, the government maintained that Gil was a common-law employee to whom Schedule C deductions were unavailable.

Analysis

The district court rejected Gil's arguments after concluding that Code Sec. 3121(d)(2) explicitly invokes "the usual common law rules" to determine whether an employee relationship exists and the IRS Tax Guide relied on by Gil repeatedly directs the reader to rely upon the common-law test for employee classification.

The district court noted that courts evaluating worker status for the purposes of federal employment tax suits consider the following factors: (1) degree of control exercised by the principal (i.e., Wells Fargo); (2) investment in work facilities by the principal; (3) opportunity for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; and (7) the relationship the parties believed they were creating. Further, the court said, many courts also consider the provision of benefits, such as health insurance or a retirement plan, as an eighth factor, which the district court thought was important in the totality of the circumstances. While no single factor is determinative, the court observed, the degree-of-control factor is "crucial" to determining the nature of the relationship.

The court concluded that the first factor weighed in Wells Fargo's favor because it had the right to step in and assert additional control if desired and the second factor also weighed in Wells Fargo's favor because it paid for nearly all the substantial costs essential to Gil's work facilities, including the costs of maintaining a physical office space, maintaining a website, and paying the salaries of office assistants who supported Gil's work. However, the court found that because Gil was paid entirely through commissions, this gave him complete control over his earning potential and the third factor thus weighed in his favor. The remaining factors, the court said, all favored Wells Fargo since it had the right to discharge Gil, his work was part of Wells Fargo's regular business, his 35-year tenure as a financial advisor for Wells Fargo and its predecessors constituted a lengthy working relationship, he was offered health insurance and the opportunity to participate in Wells Fargo's 401(k) plan and, finally, the record was clear that Wells Fargo considered Gil to be a common-law employee rather than an independent contractor or statutory employee.

The court rejected Gil's contention that, in filling out his Schedules C for 2020 and 2021, he earnestly believed he was a non-employee. That belief, the court said, was contradicted by the record which showed that while Gil strongly desired non-employee status, he had ample notice that he was an employee. Finally, the court also rejected Gil's assertion that he was a statutory employee because, under Code Sec. 3121(d)(3)(B), his common-law status as an employee of Wells Fargo precluded him from being a statutory employee.

For a discussion of who is considered an employee versus an independent contractor for employment tax purposes, see Parker Tax ¶210,110. For a discussion of the tax consequences of misclassifying employees, see Parker Tax ¶210,115.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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