The risk profile of different markets are not all the same.  Bill Gales made silly amounts of money by having great connections, getting lucky, and executing ruthlessly not just working hard.  A contractor can leverage capital and risk to make money, where the average consultant only risks his time (which can still be worth a lot).  This would not be important except we tax different types of earnings in a different manor.  We don't ask a retired auto worker to pay SS taxes on his pension.<p>Now, as a rule a single employee company is probably a glorified employee working for someone else, but there are a huge number of exceptions to this general rue. For example someone who manage real estate is more like an active investor and the tax code should probably treat them as an investor rater than a working stiff who happens to make whatever they happen to make.<p>Also because people are involved in the loop, an auditor can probably tell what is going on will minor issues.  If you are subletting your basement after the kids graduate from collage != managing a burger king != owning a burger king.