Sunday, February 15, 2009


Below is the report to Congress on independent contractors. Nothing really new here, just more emphasis on cracking down on misclassified employees as independent contractors. Not only are we seeing the federal government looking at this issue, the states are starting to crack down. The problem with the states is they don't have to abide by the Section 530 relief.

Larry Kopsa CPA

Despite the past efforts of IRS and the agency's plans for the future, more work must still be done to address the misclassification of employees as independent contractors, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit. (Audit Report No. 2009-30-035) “The misclassification of employees as independent contractors is a nationwide issue affecting millions of workers that continues to grow and contribute to the tax gap,” TIGTA said.

As described in the audit, the tax gap is the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. Based on '84 data, an estimated $1.6 billion in lost revenue per year can be attributed to worker misclassification, although a preliminary analysis of fiscal year 2006 data suggests the amount is now “markedly higher than the $1.6 billion,” TIGTA said.

Research conducted by IRS has found several reasons for employers misclassifying workers as independent contractors, including the following: they have a lack of knowledge or receive poor advice; they might have protection under
Code Sec. 530 and can legally treat workers as independent contractors who would otherwise be employees; or they deliberately misclassify workers to cut costs and to gain a greater competitive advantage. The audit report is located at .