Williams Parker shareholder Mike Wilson recently led a Williams Parker team in the representation of several affiliated taxpayers that were under a combined audit by the Internal Revenue Service (the “Service”) in connection with the taxpayers’ treatment of several thousand workers as partners, instead of as employees or independent contractors, for payroll tax purposes over multiple years. By characterizing their workers as partners, the taxpayers’ took the position that the workers’ compensation was not reportable on Form W-2 or subject to withholding or payroll tax obligations. Instead, the compensation was a guaranteed payment, reportable on the workers’ Schedule K-1, and subject to self-employment tax to be paid by the workers. Not surprisingly, the Service took a very aggressive position regarding the classification of the workers as partners, arguing they were properly characterized as employees. With an exposure for the taxpayers of approximately $16,000,000 of tax, interest, and penalties, Williams Parker was able to settle the four-year dispute with the Service for approximately 12 percent of such amount.
The IRS recently announced it will hire between 600 and 700 new enforcement personnel.
According to the daily news service Government Executive, in an internal IRS memorandum discussing the hires, Commissioner of Internal Revenue John Koskinen noted: “This is a good development for our tax system. When you look at the IRS overall, every dollar invested in us returns at least $4 to the Treasury. Each enforcement position typically returns almost $10 to the U.S. Treasury for every dollar spent — and in many instances, much more.”
The Commissioner indicated the IRS needs the hires to replace employees lost to attrition and retirement. He did not, however, specify exactly who will enjoy the civic opportunity to fund IRS’s almost 1,000% expected return on its investment.
Here is the complete article describing the hires in Government Executive: http://www.govexec.com/management/2016/05/irs-finds-money-recruit-600-700-enforcement-employees/128030/
A person can provide services to a company as an employee or an independent contractor depending upon the nature of the relationship between the service provider and the company. Misclassification of employees as independent contractors remains a primary focus of many government agencies, including the IRS, U.S. Department of Labor, Florida Department of Economic Opportunity Reemployment Assistance Programs, and Florida’s Division of Workers’ Compensation. Investigations by these agencies can be extremely costly, time-consuming, and even lead to personal liability and criminal penalties!
The presentation in the following link explains the detailed federal and Florida tests that are used by these four agencies to properly classify service providers. It also provides practical examples in which the tests can be applied. Additionally, the presentation includes guidance to help mitigate the potential for employer liability regarding other wage and hour complexities and pitfalls.