Employee vs. contractor case challenges IRS double-tax collection
- A tax court judge sided with plaintiffs in challenging the IRS’s double-taxing practice over worker classification, reports The Wall Street Journal. The Mescalero Apache Tribe took on the IRS for classifying as employees workers the tribe said it hired as independent contractors.
- The IRS charged the tribe $565,178, plus interest, for not withholding taxes from part-time workers that the IRS classified as employees.
- The tribe correctly argued that independent workers are responsible for paying their own taxes and that, by fining the tribe instead of confirming payments from the workers, the agency was collecting double taxes. The tribe asked the IRS to confirm the workers’ tax payments, but it declined. The judge, however, sided with the tribe.
The case isn’t completely settled, but the judge’s ruling in support of the tribe is a positive sign for employers.
Interestingly, the IRS could have easily settled the employee-versus-contractor argument if it had accepted the tribe’s request to confirm in its records any tax payments it received from the workers. The judge's decision now adds an interesting wrinkle into the debate over employee classification.
Compliance issues in this area aren't going away, either. An increasing number of workers are expected to work so-called "gig" positions over the next decade, and such workers are rarely classified as employees.
A more fool-proof approach is to make all contractors sign a Form 4669. Employers will have a record of the workers’ agreement, including their classification, even if the parties never see each other again after the work is complete. The key takeaway, in any case: Thorough documentation is absolutely essential when dealing with contingent employees.