The Tax Court is a court of limited jurisdiction, which means it can only hear cases that the Internal Revenue Code provides that it can hear. In Chief Counsel Advice 201735021 the issue was whether a payroll tax examination was a worker classification exam, as the Tax Court has the right to hear cases regarding employee classification under IRC §7436(a), but does not have jurisdiction to hear a case where the issue is whether certain payments represented disguised compensation to employees.

In this case, the IRS was examining an S corporation which, for some years in question, had used a professional employer organization (PEO) for its payroll. Under the agreement with the PEO, all individuals working for the taxpayer, including the officers of the corporation, were treated as employees of the PEO and received paychecks from that organization.