Tuesday, November 15, 2011
Any Relief if I Misclassified Workers?
Somewhat surprisingly, the answer is often “yes.” Section 530 of the Revenue Act of 1978 generally allows a business to treat a worker as an independent contractor for employment tax purposes regardless of whether the worker would otherwise be treated as an employee under the
IRS 20 factor test, so long as the business has a “reasonable basis” for so treating the worker and certain other requirements are met. The relief provided by Section 530 was originally scheduled to expire in 1979, but was extended permanently.
Under Section 530, a reasonable basis for treating a worker as an independent contractor is considered to exist if the business relied on: (1) published rulings or case law; (2) long-standing practice in the industry; (3) past
IRS audit results for the business; or (4) some other reasonable basis. The legislative history to Section 530 provides that it is to be liberally construed in favor of the business.
Section 530 relief does not apply if the worker or any other person doing similar work has been treated by the business as an employee at any time (after 1977) in the past. Section 530 also does not apply if the worker is a "leased employee" and provides services for another person, pursuant to an agreement between the business and such person, as an engineer, designer, drafter, programmer, analyst or similar skilled worker. There are additional very specific situations, such as workers who serve as school room supervisors or test proctors, where Section 530 does not apply.
Proper classification of workers is important. But if the
IRS determines you have misclassified a worker as an independent contractor, and the worker would be an employee under the IRS 20 factor test, you might be able to use Section 530 to avoid reclassifying the worker and avoid the tax, penalties and interest the IRS attempts to impose. Please call or email me to discuss any issues you may have with proper worker classification at Jsenney@pselaw.com or 937-223-1130. And thanks for sending a copy of SenneySays to your friends.
, Serving You Dayton
Pickrel, Schaeffer & Ebeling Co., LPA, 2700
, Kettering Tower Dayton OH 45423
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