Headline:
FIRMS
THAT TREAT THESE WORKERS
AS
INDEPENDENT CONTRACTORS
ARE
AT
RISK IN
AN
IRS AUDIT
Moreover,
firms that
treat these workers
as independent contractors and not as employees are
AT RISK for aggressive
State reclassification audits.
Headline:
RNs AND LVNs (WORKING IN HOSPITAL) PAID BY NURSE REGISTRY
ARE INDEPENDENT CONTRACTORS
FOR CALIFORNIA EMPLOYMENT TAX PURPOSES
THE AUDIT AND THE TRIAL. The State of California,
Employment Development
Department (EDD), determined after audit that the subject registered nurses
(RNs) and licensed vocational nurses (LVNs) were employees, and
not independent contractors (ICs) of the alleged employer --- a nurse
registry. The EDD assessed
over $800,000 in back
employment taxes, interest and penalties. After a trial (non-jury)
where
many witnesses testified, an administrative law judge
(ALJ)
overruled the EDD and upheld IC status. The ALJ also found
that 10% penalty assessed for alleged negligence or
intentional disregard of the tax laws was not justified.
EDD APPEAL. The EDD
appealed and then, when appeal briefs were due, wrote a letter (March,
2008) stating that the EDD,
"wishes to withdraw its appeal." The case is now final and
the decision of the ALJ in favor of the firm and IC status is final.
The attorney for the employer was the Southern California
Law Firm of James R. Urquhart III. Mr. Urquhart is
also
the editor of The Independent Contractor Report.
SOURCE:
State of California, Employment Development Dept. vs. XYZ NURSE REGISTRY
[real firm name omitted]
(Date
of Decision: November 20, 2007)
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Contact Information for the Law Offices of James
R Urquhart III
Resume of James R Urquhart III, Attorney
at Law
Headline:
COURIERS AND MESSENGERS
HELD EMPLOYEES AND NOT INDEPENDENT CONTRACTORS
The firm provided courier and messenger
services to title companies and law offices. The firm treated
couriers and messengers as
independent contractors and provided IRS Form 1099s.
An agent of the California Department of Industrial Relations determined the
subject workers were
employees, issued a stop work order and $15,000 penalty for failure to
have workers' compensation insurance as required by state law. The firm
litigated the controversy all the way to the California Court of Appeal - without
success.
SOURCE:
JKH Enterprises dba AAA Courier vs. California Dept. of Industrial
Relations
(Date
of Decision: August 22, 2006)
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Headline:
RNs AND LVNs,
JUDGE RULED,
ARE INDEPENDENT CONTRACTORS AND NOT EMPLOYEES IN PRIVATE DUTY, IN-HOME
CARE SETTING
The State of California,
Employment Development
Department (EDD), determined after tax audit that registered nurses
(RNs), licensed vocational nurses (LVNs), and certified nursing
assistants (CNAs) were employees, and
not independent contractors, of the alleged employer. The EDD assessed
over $280,000 in back
employment taxes and interest. After a hearing in which a number of witnesses testified, an administrative law judge
(ALJ)
overruled the EDD
as to the RNs and LVNs and upheld non-employee status. As to the CNAs,
the EDD determination was affirmed. The EDD did not appeal and the ALJ
decision is now final.
The attorney for the firm was the Southern California
Law Offices of James R. Urquhart III. Mr. Urquhart is
also
the editor of The Independent Contractor Report.
SOURCE:
State of California, Employment Development Dept. vs. XYZ
Registry [real firm name omitted]
(Date
of Decision: December 22, 2006)
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Contact Information for the Law Offices of James
R Urquhart III
Resume of James R Urquhart III, Attorney
at Law
Headline:
DISC JOCKEYS
(DJs) AND MASTER OF CEREMONIES (MCs) PAID BY ENTERTAINMENT FIRM HELD INDEPENDENT CONTRACTORS AND NOT
EMPLOYEES
The State of California,
Employment Development
Department (EDD), determined that DJs and MCs were employees, and
not independent contractors as they were treated by the firm /
petitioner. The EDD assessed
employment taxes against the firm / purported
employer. After a hearing in which a number of witnesses testified, an administrative law judge
(ALJ)
overruled the assessment
as to the DJs and MCs and upheld non-employee status.
The attorney for the firm was the Southern California
Law Offices of James R. Urquhart III. Mr. Urquhart is
also
the editor of The Independent Contractor Report.
SOURCE:
State of California, Employment Development Dept. vs. L.A. GrooveWorks
LLC
(Date
of Decision: January 18, 2006)
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Contact Information for the Law Offices of James
R Urquhart III
Resume of James R Urquhart III, Attorney
at Law
Headline:
MANICURISTS AND
COSMETOLOGISTS IN NAIL SALON HELD INDEPENDENT CONTRACTORS AND NOT
EMPLOYEES
The State of California,
Employment Development
Department (EDD), determined that licensed manicurist and cosmetologist workers were employees and
not booth / station renters or independent contractors. The EDD assessed
roughly $75,000 in back employment taxes against the nail salon / purported
employer. After a five day trial with many witnesses, the administrative law judge
(ALJ)
overruled the EDD assessment
and upheld non-employee status.
The attorney for the firm was the Southern California
Law Offices of James R. Urquhart III. Mr. Urquhart is
also
the editor of The Independent Contractor Report.
SOURCE:
State of California, Employment Development Dept. vs. Nail Star Salon
(Date
of Decision: September 9, 2005)
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EDD APPEALS AND LOSES
The EDD
appealed the above ALJ
decision (Nail Star) to the full California Unemployment Insurance
Appeals Board (Appeals Board). After a careful review of the entire
record, the Appeals Board affirmed the ALJ and upheld the granting of
the firm's petition for reassessment. The attorney for the petitioner /
firm was the Law Offices of James R. Urquhart III, Irvine, California.
VIEW KEY AUTHORITIES IN FULL-TEXT
Contact Information for the Law Offices of James
R Urquhart III
Resume of James R Urquhart III, Attorney
at Law
Headline:
IRS SAYS
“TEMPORARY” PHYSICAL AND
SPEECH THERAPISTS ARE NOT INDEPENDENT CONTRACTORS.
IRS ASSESSED
MORE THAN $22
MILLION IN PAYROLL TAXES AGAINST THE FIRM. COURT RULED THAT
SECTION 530
SAFE HARBOR MAY APPLY IN FAVOR OF THE FIRM.
The
purported employer / firms sued the IRS claiming that the safe harbor
under section 530 of the Revenue Act of 1978 should apply. The IRS contended
that the section does not apply. The
District Court denied summary judgment motions filed by both the firm and
the government. The case will go to trial on the section 530 issue and
other issues.
SOURCE:
VTA Management Services v. United States
(Date
of Decision: December 14, 2004)
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Headline:
PAID VOLUNTEERS TREATED
AS NON-EMPLOYEES
The
Firm (purported employer) was a “therapeutic
residential community dedicated to the care and well being of
those with developmental disabilities (Residents).” It
used
workers / volunteers
with academic credentials and
gave them money plus various fringe benefits. The
workers were NOT treated as employees. Past IRS audits of
the firm triggered
section 530 safe haven relief in the current audit.
The
IRS Classification Settlement Program (CSP)
is
available if certain conditions are met. If the safe harbor applies,
then the CSP program in moot.
Source:
IRS National Office
Tech. Advice Memorandum (Release
Date: May 21, 2004).
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Headline:
IRS
ISSUES NEW PUBLICATION FOR OWNERS OF BEAUTY AND NAIL SALONS
Use of
booth renters is acknowledged. Qualified booth
renters may be treated as non-employees by the firm
or shop.
Publication has tips and suggestions for both the
firm or shop as well as for the workers (both renters or not).
SOURCE:
IRS Publication,
February
2004.
VIEW AUTHORITIES IN FULL-TEXT:
Headline:
STATE IS NOT BOUND BY SECTION 530
WORKER MISCLASSIFICATION SAFE HARBOR LAW
Tennessee Claims
Commission found that firm misclassifying stage hands was not liable for
state employment tax by virtue of section 530. Court of Appeals reversed
holding that section 530 is a Federal law not binding on Tennessee. The Court disagreed with firm’s assertion that
construing Tennessee’s Employment Security Law “in pari materia”
with Federal law mandates a holding that Tennessee must include a
provision parallel to section 530.
Source:
Crew One Productions, Inc.
v. State of Tennessee; Court of Appeals of
Tennessee; Filed February 25, 2004.
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Headline:
EMERGENCY ROOM DOCTORS SUCCESSFULLY
TREATED AS INDEPENDENT CONTRACTORS FOR FEDERAL EMPLOYMENT TAX PURPOSES
The
Tax Court held that late
filing of IRS Form 1099s did not disqualify firm from relief under Section 530
safe-harbor.Tax Court is not the final word on this
issue. IRS not likely to acquiesce in this
decision.
Source: Medical
Emergency Care Associates v. Commissioner of
Internal Revenue, United States Tax Court,
Filed May 19, 2003
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Headline:
VIDEO STORE WORKERS USED TO COLLECT
OVERDUE ACCOUNTS ARE NOT INDEPENDENT CONTRACTORS FOR
FEDERAL EMPLOYMENT TAX PURPOSES
The workers performed services
at the video
store premises and used the store’s equipment and
supplies. The Tax Court held that
the Section 530 safe-harbor did not apply because the firm failed to prove
that it had a reasonable basis to treat the subject workers as independent
contractors and not as employees.
Source: Ronald
McLean Eastern Video v. Commissioner of Internal Revenue;
U.S. Tax Court; Decision dated
Jan. 14, 2003.
.VIEW KEY AUTHORITIES IN FULL-TEXT
Headline:
SECTION 530 SAFE-HARBOR
RELIEF NOT ENTIRELY FORFEITED BY FAILURE TO ISSUE FORM 1099s IN EARLIER YEAR
An
employer can
qualify for relief under the section 530 safe-harbor for a period
following a period where it failed to file Form 1099-MISCs to report
non-employee compensation. According to the IRS, it
is possible for a taxpayer-employer to receive section 530 relief for a
subsequent year even if in a prior year it failed to file Form 1099s. This
assumes that the firm is otherwise entitled to section 530 relief for the
later year(s).
Source: IRS
Internal Legal Memorandum; Release Date March 15, 2002.
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Headline:
SECTION 530 SAFE-HARBOR
TESTED ON ENTITY-BY-ENTITY BASIS AND NOT ON CONSOLIDATED BASIS
The parent corporation and
each subsidiary are considered separately. A violation of one of the
elements of section 530 by one
member of the corporate family will not destroy the section 530
safe–harbor for the others. Section 530, for purposes of the
substantive consistency test, is applied on an entity by entity basis and not
on a consolidated basis. Using a paying agent does not have an impact
on
the application of section 530 safe–harbor
relief.
Source: IRS
National Office Field Service Advice; Release Date July 20, 2001.
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Headline:
AIR CONDITIONING FIRM NOT GUILTY OF FRAUD FOR CLASSIFYING
WORKERS AS INDEPENDENT CONTRACTORS
The U.S. Tax
Court held that the firm did not commit fraud for purposes of the statute
of limitations. Absent fraud, the IRS was barred from assessing additional employment
taxes. The firm cooperated with the revenue agent, "in every aspect
requested" and provided her with all pertinent documents.
Source: U.R. Neely v. Commissioner of Internal Revenue,
U.S. Tax Court, February 13, 2001.
VIEW KEY AUTHORITIES IN FULL-TEXT
Headline:
Firm Owner's Testimony That He Was
Independent
Contractor For Others Did Not Establish Entitlement to Safe-Harbor
Relief
Congress
enacted the section 530 safe-harbor to alleviate what it perceived as the "overly
zealous pursuit and assessment of taxes and penalties against employers
who had, in good faith, misclassified employees as independent
contractors." Section 530(a)(1) shields a taxpayer who has mistakenly
classified his workers as independent contractors from employment tax
liability, provided the taxpayer had a reasonable basis for not treating the
workers as employees and has filed all required Federal employment tax
returns on a basis consistent with the non-employee this treatment.
Source: Robert Patrick Day v. Commissioner of Internal
Revenue, U.S. Tax Court, December 13, 2000.
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HTML FORMAT
Headline:
CORPORATION MISCLASSIFYING
ITS OFFICERS AS INDEPENDENT CONTRACTORS MAY QUALIFY FOR SAFE-HARBOR RELIEF
In an internal legal
memorandum, the IRS determined that firms that misclassify corporate
officers might be entitled to relief under the safe-harbor contained in
section 530 of the Revenue Act of 1978. In certain circumstances, use of
IRS Form 1099 MISCs may be sufficient to establish the firm's treatment of
the officer as an independent contractor.
Source: IRS
ILM 200038045 (August 9, 2000).
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HTML FORMAT
Headline:
SECTION 530 WORKER
CLASSIFICATION SAFE-HARBOR NOT SUPPORTED BY IRS PRIVATE RULINGS
Firm (not-for-profit
organization) used workers with
developmental, behavioral, and/or physical disabilities. Firm deemed
workers to be clients or "consumers" and did not treat them as
employees for Federal employment tax purposes. IRS determined them to be
employees for purposes of the FICA. Court held safe-harbor did not apply
despite several IRS Private Letter Rulings.
Source: Hope
Network v. United States, 85 AFTR2d Par. 2000-611 (United States District
Court for the Western District of Michigan, February 16, 2000).
VIEW RELATED REPORT ARTICLE IN ADOBE PDF FORMAT
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HTML FORMAT
Headline:
TRUCK OWNER-OPERATORS
RECEIVED EMPLOYEE WAGES AND NOT LEASE PAYMENTS ATTRIBUTABLE TO INDEPENDENT
BUSINESS
Each driver signed a
so-called "Owner-Operator Equipment Agreement." The Court found
that the equipment leases had “no independent economic
significance." Certain drivers reported payments as
“wages” on their Form 1040 thus making a case for the Government.
Source: Marcos Eliseo and
Teodora C. Escobar De Paz vs. Commissioner of Internal Revenue (United
States Tax Court, May 26, 2000).
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HTML FORMAT
Headline:
CAR
“SHUTTLERS” OR “HIKERS” HELD EMPLOYEES FOR FEDERAL EMPLOYMENT TAX
PURPOSES
Firm
paid drivers a "flat rate” based on distance. IRS held, and U.S.
District Court agreed, that shuttlers were employees and not independent
contractors.
Source: Leb's
Enterprises Inc. v. United States (United States District Court, January
24, 2000).
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HTML FORMAT
Headline:
COURIER AND MESSENGER FIRM
IMPROPERLY PAID DRIVERS USING “TWO-CHECK SYSTEM”
First check was for
“wages.” Firm treated second check as non-taxable "expense
reimbursement.” IRS held, and U.S. District Court agreed, that second
check was actually disguised wages.
Source: Shotgun Delivery
Inc. v. United States (United States District Court, January 20, 2000).
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HTML FORMAT
Headline:
IN ATTEMPT TO AVOID
EMPLOYMENT TAX, FIRM
REQUIRED EMPLOYEES
TO
INCORPORATE
IRS disregarded sham
corporations and assessed employment tax, interest and penalties. Firm
owner tried personal bankruptcy to no avail.
Source: Robert Allen Smith v. United
States (In re Smith, October 27, 1999).
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Headline:
CAN CORPORATION TREAT
ITS SOLE SHAREHOLDER-OFFICER
AS AN INDEPENDENT CONTRACTOR?
Court affirmed IRS finding
that owner-officer (an attorney) was an employee and not an independent
contractor and that the Section 530 safe-harbor did not apply. Attorney
contended he was "never paid" by his corporation.
Source: Western
Management Inc. v. United States (United States Court of Federal Claims,
January 21, 2000).
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