Tax Shelter Investigations

Employee or Independent Contractor

For federal and state tax purposes, there are two classifications of workers:  a worker is either an employee or an independent contractor.  Either classification can be a valid and appropriate business choice.  The distinction between independent contractor and employee is an important one because it impacts the tax responsibilities of both the business and the workers. 

Recently, the government announced it plans to increase enforcement efforts in the area of worker misclassification by businesses.  The Internal Revenue Service announced it will be paying more attention to worker classification issues as the number of workers being classified as independent contractors is steadily increasing.  As part of the Questionable Employment Tax Program – a joint initiative among the IRS, the National Association of State Workforce Agencies, the U.S. Department of Labor, the Federation of Tax Administrators and several state workforce agencies – the IRS will share information, including tax returns, audit reports and audit plans, with state workforce agencies in order to uncover employers who may be misclassifying workers or taking other inappropriate actions involving employment taxes.

Businesses found to have misclassified workers as independent contractors rather than employees may be subject to significant back taxes and penalties and, in egregious cases, criminal prosecution.  At Thorn Law Group, we are experienced at advising clients on the process the IRS and the courts use to determine whether a worker is appropriately classified as an employee or independent contractor for tax purposes.  If you are or believe you may be subject to a worker classification audit, contact Kevin E. Thorn, Managing Partner of Thorn Law Group, at 202-349-4033 for advice.