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Independent Contractor vs. Employee Part 2 Case Studies and Classification Using the IRS 20-Factor Test and 8 Court Factors Your webinar will begin shortly.

Tanya Baber

Tax Edge

Independent Contractor vs. Employee Part 2 Case Studies and Classification Using the IRS 20-Factor Test and 8 Court Factors

Tanya Baber, EA, CTRS Tax Edge, Inc.

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Employee or Independent Contractor? ● This course is two parts ● Serve as a comprehensive guidebook ○ Part One - Defining the Employee and Contractor, + Proper Classification, and VCSP options ○ Part Two - Understanding Mis-Classification, IRS and Court Factors, + Court Cases, Safe Harbors and SS-8 Determinations

Course Manual - www.TaxEdge365.com/Canopy

Course Overview ● IRS ‘20’ Factors ● Court ‘8’ Factors ● Court Case Examples ● Safe Harbors ● Form SS-8 Determination

IRS Factors

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

IRS Factors ● Background of ‘20’ Factors ● Financial Control ○ Right of business to control financial aspects ● Behavioral Control ○ Ability to control how the work is done ● Relationship of the Parties ○ How the business and worker interact

Poll Question

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Financial Factors

Behavioral Factors

Relationship Factors

1. Hiring Assistants

7. Oral or written reporting

16. Right to discharge

2. Payments by Hour / Week / Other

8. Work on Premises

17. Right to terminate

3. Realize Profit or Loss

9. Set hours of work

18. Available to general public

4. Tools and Materials

10. Full time

19. Working for 2/+ organizations

5. Expense Reimbursement

11. Order or sequence

20. Continuing relationship

6. Significant Investment

12. Instructions 13. Training 14. Services Rendered Personally 15. Integration with staff

Court Factors

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Court Factors 1. Degree of Control 2. Investment in facilities 3. Risk of loss 4. Right to discharge 5. Integral part of the business 6. Permanency of the relationship 7. Relationship the parties thought they were creating 8. Provision of employee benefits

Poll Question

Court Case Examples

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Court Case Examples ● Jorge Quintanilla (T.C. Memo 2016-5 January 7, 2016) ○ Degree of Control ○ Investment in Facilities ○ Risk of Loss ○ Right to discharge ○ Part of regular business of company ○ Permanence of relationship ○ Relationship to the parties ○ Decision : Contractor

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Court Case Examples ● Atlantic Coast Masonry (T.C. Memo 2012.233 August 13, 2012) ○ Degree of Control ○ Investment in Facilities ○ Risk of Loss ○ Right to discharge ○ Part of regular business of company ○ Permanence of relationship ○ Relationship to the parties ○ Decision: Employees

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Court Case Examples ● Keller / Action Auto Body (T.C. Memo 2012-62) ○ Degree of Control ○ Investment in Facilities ○ Risk of Loss ○ Right to discharge ○ Integral part of the business ○ Permanence of relationship & Relationship to the parties ○ Provision of Employee Benefits ○ Decision: Auto Body Workers - Contractors (other three were employees)

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Court Case Examples ● Dean Cibotti / Liberty Mortgage (T.C. Memo 2012-21) ○ Degree of Control ○ Investment in Facilities ○ Risk of Loss ○ Permanency of Relationship & Right to discharge ○ Part of regular business of company ○ Relationship to the parties ○ Provision of employee benefits ○ Decision: Contractor

Poll Question

Safe Harbors

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Safe Harbors ● Code Section 530 of the Revenue Act of 1978

IRC sections §6041 ● Relief from employment tax (FICA, FUTA, Federal Income, RRTA)

○ Reasonable Basis ○ Substantive Consistency ○ Reporting Consistency

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Safe Harbors - Reasonable Basis

● Judicial Precedent / Published Rulings ○ Can include reliance on advice from expert (Attorney/CPA) + Must be in writing and reference case supporting position ● Prior IRS Examination of organization ○ Must include employment classification exam ● Long standing recognized industry practice ○ Most used, most difficult

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Safe Harbors

Substantive Consistency ● Must be consistent with treatment of all workers ● Holding substantially similar positions

Reporting Consistency ● All forms 1099 required must be timely filed ● And consistent with treatment as Contractor ● If filed in one period and not another, this is not consistency ● Also filing of incorrect forms, even if in good faith will not be eligible

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Safe Harbors ● If all three of these requirements are met ● And in cooperation with the IRS ○ IRS will bear burden of proving treatment of workers is inaccurate ○ If entitled to relief under §530, the IRS will halt inquiry + Workers will continue to be treated as independent contractors

Note: §530 Relief is only available through IRS and does not apply to other agencies

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Safe Harbors Note: §530 Relief also affects the employee ● This relief does not make the employee a self-employed business person ○ They must report income on line 7 (as opposed to Sch C) ○ Liable for employee’s share of FICA + Reported on Form 4137 ○ If previously reported on Schedule C - May claim refund for employers share FICA ○ Must deduct expenses as 2106 as opposed to business expenses

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

Determining Status ● SS-8 Form ○ If a worker believes they are misclassified, they can file this form ○ The employer can also file this form seeking classification + Once a determination is made, if the classification is changed + Amended returns must be filed by all parties

Poll Question

Independent Contractor vs. Employee - Part 2 Tanya Baber, Tax Edge

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Tanya Baber [email protected] | 855-726-EDGE

INSTRUCTOR

Tanya Baber EA, CTRS Tax Edge Tanya has been an Enrolled Agent with the IRS since 2006 and received her Bachelor’s degree in Public Accounting and Business Administration from Colorado Mesa University. Tanya practices as a public accountant from her hometown of Grand Junction, CO, and also helps clients from the east coast to Hawaii and a few internationally. Since 1994, Tanya has guided clients in the areas of accounting and payroll, personal, business, and non-profit tax preparation, planning, consulting and representation as well as solving their complex tax problems.