Scranton sole practitioner has to pay unemployment taxes, Commonwealth Court decides

By Nicholas Malfitano | Jan 8, 2018

HARRISBURG – A self-employed attorney who is the only shareholder of his Scranton law firm is required to pay unemployment compensation taxes, the Commonwealth Court of Pennsylvania ruled on Thursday.

Judges Robert Simpson, Anne E. Covey and Dan Pellegrini concluded Pennsylvania’s Department of Labor and Industry was correct in determining the firm of Greco Law Associates owes said unemployment taxes, despite the firm being of only one attorney, Carl J. Greco.

Greco had argued under Section 4(l)(1) that the current Unemployment Compensation Law supports that “a corporate officer must also be engaging in service under an express or implied contract of hire in order to be engaged in employment for unemployment compensation tax purposes.”

It was a rationale the Court did not find favor with. The judges pointed to the wording of the law in question, as well as federal and state appellate precedent in clarifying the Court’s decision.

Simpson said, “The Department correctly reasoned that both the plain language of Section 4(l)(1) [of the Unemployment Compensation Law] and common sense support the legislature’s intent that service as a corporate officer would stand alone as constituting employment.”

“More importantly, even were this Court to accept Greco’s construction…as otherwise tenable, we would still agree with the Department’s conclusion that service as a corporate officer is employment within the meaning of the UC Law. Applicable federal employment laws, incorporated into the UC Law, unequivocally make service as a corporate officer ‘employment’ for UC tax purposes.”

Simpson further referenced the Federal Unemployment Tax Act in explaining that it specifies employment tax purposes consider a corporate officer as an “employee”, with no further requirements.

“The language of the statutory definition is unqualified,” Simpson said. “Moreover, federal courts interpreting FUTA have expressly determined that profit distributions to shareholders of S Corporations are subject to FUTA taxation.”

Simpson continued that federal appeals courts ruled in similar matters on two previous occasions; In the 2004 action Nu-Look Design v. Commissioner of the Internal Revenue Service (where the Third Circuit Court ruled a corporation like the plaintiff’s was also under the auspices of FUTA tax regulations due to a corporate officer’s “employee” status), and in the 1990 case of Joseph Radtke, S.C. v. United States of America, (where the Seventh Circuit Court also dismissed an attorney plaintiff’s claim that shareholder dividend payments weren’t subject to FUTA regulations).

“Greco focused its argument on application of the federal requirement that shareholder employees of S corporations must receive reasonable salaries, and on whether the UC Law imposes a similar requirement. This argument missed the mark. Greco still failed to refute, or even address, the straightforward statutory language providing that service as a corporate officer constitutes employment for federal employment tax purposes,” Simpson said.

Greco did not respond to an inquiry from the Pennsylvania Record on whether he plans to appeal the Court’s decision.

Commonwealth County Court of Pennsylvania case 304 C.D. 2017

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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