Employee/Contractor

[DaveinTexas]

Thought this might be of interest to some:

TC Memo 2007-66

A good look and summary of what factors determine the outcome of a reclassification of independent contractor to employee.

Also a side note, yet another reason why a contract saying workers are independent contractors have no tax effect. The IRS still has the power to reclassify if the firm has control over it's workers. Some tax seminars I've been to recommend the employer have the contractor sign an agreement to solidify the independent contractor relationship; I never thought this was good advice.

Pretty interesting stuff. I would paste the whole case, but it is quite long.

[Jiggers]

Contract Workers

Thought this might be of interest to some:

TC Memo 2007-66

A good look and summary of what factors determine the outcome of a reclassification of independent contractor to employee.

Also a side note, yet another reason why a contract saying workers are independent contractors have no tax effect. The IRS still has the power to reclassify if the firm has control over it's workers. Some tax seminars I've been to recommend the employer have the contractor sign an agreement to solidify the independent contractor relationship; I never thought this was good advice.

Pretty interesting stuff. I would paste the whole case, but it is quite long.

For those clients that insist on contract laborers, I strongly recommend 1099's. Get the SS number and address. Also, if possible, get an invoice from the person. I told my clients that use contract laborers to get one of those statement pads from Wal-Mart, Office Depot, Sam's, where ever, and have that person complete one, from which my client is to issue payment.

In an audit, the IRS does want to see those 1099's. If your client doesn't have them, he will have to issue them, even though late. Been there, done that with a client that wouldn't listen. Now he does.

[DaveinTexas]

I agree

with the invoicing. Having the "independent contractor" issue an invoice for services rendered would enhance the employer's position. This was actually mentioned to me by a TWC, state unemployment office of Texas, auditor last week. He forgave one "questionable" employee/independent contractor that my client hires and pays a regular weekly paycheck that happens to be the same amount every week. The auditor told me that either my client should make the contractor an employee and pay the payroll taxes or if not, the payments should be substantiated by an invoice declaring the services rendered.

I was glad he was lenient; you don't see that too often from the IRS.

[Snaggletoof]

Contract

I disagree Dave. I think a contract is a powerful defense establishing the status of an independent contractor. I have consulting agreements for ALL work I do in the off-season.

A good contract should be more than a piece of paper. If it specifies the objectives of the work and leaves the reader with the impression that the independent contractor is going to fulfill the objectives from his own expertise, this is ideal. Micro-management by the payer, either implicit or actual, essentially negates the value of such a contract. I do agree that a contract by itself cannot adequately provide a defense, especially if the payer is calling all the shots.

For a long time, back in the '90s, the IRS had the stated objective of reclassifying ALL independent contracts to employees. They were losing court cases galore and still maintained their position because they knew a majority of taxpayers would not seek relief from the courts. I believe they stepped on some influential toes, because Congress began looking over their shoulders in 1998.

At one point, they published guidelines for "20 factors" to consider. Supposedly a preponderance of these 20 factors would determine whether someone could be an independent contractor or not. At the height of their arrogance, I think they quit using the 20 factors because they didn't want defendents using them in court. Many times the IRS will not definitize issues because they don't want to provide a "safe harbor", even though this would greatly ease the burden on taxpayers and practitioners.