Fort Worth Partner Rick Disney prevailed in a Hearing with the Internal Revenue Service Appeals Office
Fort Worth Partner Rick Disney recently prevailed in a hearing with the Internal Revenue Service Appeals Office. The client had consistently treated its workers as independent contractors; however, in an audit the IRS agent said that the workers had to be reclassified as employees.
Determining whether a worker is an employee or independent contractor under the 20 point common law test can be difficult, even in the best of circumstances. Happily, there is a shortcut created by Section 530 of the Revenue Act of 1978. Section 530 is a safe harbor provisions that can prevent the IRS from retroactively reclassifying workers as employees. To get the benefit of Section 530, the taxpayer must show that it has:
1. consistently treated the workers as independent contractors;
2. completed Forms 1099 for each worker who made over $600.00 per year; and
3. had a reasonable basis for treating the workers as independent contractors.
Reasonable basis includes: 1. judicial or administrative precedent; 2. prior audit of the tax payer; 3. a significant portion of the industry treats similar workers as independent contractors; and 4. reliance on a professional accountant or attorney.
Only one of these items need be proven to constitute reasonable basis.
If the taxpayer makes a prima facie showing that it is entitled to Section 530 relief, the Internal Revenue Manual provides that the IRS has the burden of proving that Section 530 does not apply. It is very unusual for the government to ever have the burden of proof in a civil tax case.
It is always preferable to win the battle without having to wage a prolonged war. Section 530 provides such a shortcut in the appropriate circumstances.
