IRS Audits – Employee Classification
(Employee or Independent Contractor)

The IRS Audit on Employee Classification is one of the most common examinations that we handle. The government agencies, both federal and state, have an interest in how workers are paid. More specifically, how their tax is paid.

This examination is the IRS’s process to determine whether your business owes more than tax. IRS’s exam is based on whether you correctly treat your company’s workers as EMPLOYEES or CONTRACTORS. These audits happen within so many industries (ie: trucking companies, dental offices, tax return preparers, restaurants, etc.).

Here are a few basics you need to know:

BASIC #1

Some companies treat their workers like CONTRACTORS. Usually, this means the company does not withhold taxes from the workers’ paycheck and is the opposite from workers’ treatment as EMPLOYEES.
The government usually prefers that companies treat workers like employees. Why? It’s because if taxes are withheld and paid to government by the company instead of the worker, the job of tax collection becomes much easier for, the IRS or state. And unfortunately, extremely expensive for the business owner.

BASIC #2

IRS published information that was supposed to help you decide how to CLASSIFY YOUR WORKERS. The IRS or State wants to learn who controls the relationship. The list of 20 factors considered all come down this one single thing – CONTROL.

Look at this list. Every one of these IRS 20 FACTORS listed wants to know WHO CONTROLS:

  • Instructions
  • Training
  • Integration Throughout the Business
  • Services Rendered Personally
  • Hiring, Supervising, Paying assistants
  • Continuing Relationships
  • Set hour for work
  • Full time requirements
  • Premises where work is performed
  • Order of work process
  • Reporting oral or written
  • Frequency of pay
  • Payments of Business or Travel Expenses
  • Furnishing Tools and Materials
  • Investment in the work
  • Profits and losses
  • Moonlighting or Outside Employment
  • Services Made Available to Public
  • Right to Discharge or Fire
  • Right to Terminate Without Penalty

BASIC #3

The IRS is not always correct. YOU can win an audit against the government. Obviously, you need the best help to represent your company. You don’t win without knowledge.

But also consider, winning comes in many different forms:

  • If the AUDIT IS LIMITED to NO PAST OR FUTURE PERIODS
  • If you avoid the VERY COSTLY IRS PENALTIES
  • If there is NO AUDIT CHANGE

Attorney Collins formerly worked as an auditor within the IRS, and has conducted hundreds of audits. Use his experience to protect you. Allow Tax Law Offices to represent your business, and win your audit. If you have received an IRS Audit Notice, give us a call. We know the IRS rules, and we know how to win for you.