This question keeps coming up here.  For example, see

https://proconnect.intuit.com/community/lacerte-tax-discussions/discussion/sole-proprietor-or-single...

Is it legal?  I'm trying to think of what law is being broken, or what tax is being underpaid.  If an Executive Order were issued to allow this, would anyone object?  I think that Schedule C filers are doing it because it's easier for them to keep current on their personal tax obligations that way.  I don't think IRS is opposed to people wanting to avoid delinquencies.  

But maybe John Smith is thinking that a W-2 from JS Enterprises is an easy way to avoid questions from lenders who don't like dealing with Schedule C filers.  Is it fraud if a loan application states someone is an employee, rather than self-employed?