Heightened IRS Scrutiny on Worker Misclassification and Tax Compliance

Description

For the past year, the IRS has aggressively investigated whether companies are properly classifying workers as independent contractors for payroll tax purposes. IRS plans to share information and coordinate enforcement with the DOL and states such as New York and Maryland to raise the bar even higher.

Company federal and state tax professionals must focus even more intensely on evaluating whether independent contractors should be reclassified as employees. That's not always an easy decision, given the complexity of the rules and the unique aspects of each worker's situation.

The IRS is also offering a voluntary classification settlement program, with a fee for part of past payroll obligations to help escape certain tax liability. But, questions remain: Will a rejected application invite audit? Does a statute of limitations extension apply to employment taxes generally?

Listen as our panel of experienced advisors explores the potential ramifications of the IRS/Labor Department/state agency memoranda of understanding and the benefits and risks of the classification settlement offer. The panel will offer their insights to help evaluate when employee or independent contractor is the proper classification.

Outline

1. IRS-Labor Department memorandum of understanding
   1. Information-sharing on possible misclassification of independent contractors
   2. Designed to curb fraudulent filings and reduce employment tax gap
   3. States on board: Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, Washington
   4. Other states waiting to join: Hawaii, Illinois, Montana, New York
2. IRS voluntary classification settlement program
   1. Material terms
      1. Applies to federal employment taxes only
      2. Must have consistently treated workers as non-employees, filed all 1099s
      3. Employers that voluntarily reclassify contractors as employees pay fee for part of past payroll obligations
         1. No tax liability for improper misclassification
         2. No audit for these workers for prior years, interest or penalties
      4. Extended statute of limitations to three years
   2. Possible pitfalls
      1. What if IRS doesn’t accept application?
      2. Will three-year limitations period apply to employment taxes generally?
      3. No alleviation of state taxes
      4. Questions about possible disclosure of submission to IRS
3. Best practices for reviewing contractor vs. employee status
   1. Fact-specificity of each situation
   2. Possible variance in interpretations

Benefits

The panel will review these and other key questions:

• Federal and state agency information-sharing: How much of a game-changer is this for corporate taxpayers? What states are on board now, and which are likely to join?
• The voluntary classification settlement program: What are the terms and benefits of the IRS deal? What are the potential risks and exposures?
• Evaluating employment status: What steps can corporate personnel take to make informed decisions?

Upon completing this seminar, you will be ready to help your company make a sound response to ramped-up government enforcement efforts on worker misclassification and decide whether the IRS voluntary settlement program makes sense for you.

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