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IRS Gearing Up to Evaluate How Businesses Classify Employees

  • In it’s recently released report, Employment Tax Compliance Could Be Improved With Better Coordination and information Sharing, the Treasury states:

    The misclassification of employees as independent contractors is a nationwide issue affecting millions of employees that continues to grow and contribute to the tax gap.  According to program documents, closing the tax gap remains as one of the biggest challenges for the Small Business/Self-Employed Division.  The Internal Revenue Service (IRS) has several opportunities to enhance compliance in its Employment Tax Program by taking measures to ensure that employment tax forms are not misused to avoid paying proper tax… If you combine the statements in this audit report with the IRS’ recently launched program to audit 6,000 businesses, that was highlighted in a previous post, What’s Your Exposure to This 1099 Issue?, there appears to be a pattern forming, i.e., the IRS will be targeting the use of 1099 workers and going after businesses they believe are misclassifying employees.

    If you are a business that relies heavily on using 1099 contractors, you may want to reevaluate your use of 1099 contractors and determine if you are in compliance.