Payroll Tax Matters – Audits

Independent Contractor Audit Lawyer

Independent contractor audits have become an area of increasing prominence within the IRS.

There is a perception within the IRS, perhaps not an inaccurate one, that the misclassification of workers as independent contractors is leading to a substantial loss of revenue for the government. As a result, independent contractor audits have been on the rise over the last several years. Therefore, it is important for taxpayers, particularly small businesses, to be especially vigilant.

Advantages of Independent Contractors

Utilizing independent contractors has several distinct advantages for a small business.

  • They reduce labor costs by being able to be hired only when they are needed (rather than retained full time on salary).
  • Employers are not responsible for payroll taxes associated with an independent contractor, nor are required to pay benefits.

This has become increasingly in the spotlight with the passage of the Affordable Care Act and other recent legislation.

Disadvantages of Independent Contractors

Independent contractors are great sources of revenue for the government and, as a result, potentially costly for business owners. For each worker that is found misclassified, the employer is responsible for the past due portions of FICA, Social Security, and Medicare tax. This multiplies exponentially when you consider that this is multiplied for each worker and each open year of audit. Tax liabilities associated with independent contractor audits have the potential to bankrupt businesses or create an extreme financial hardship.

No Legal Standards for Independent Contractors

The dangers posed by an independent contractor audit are also raised by the fact that there is no clear-cut legal standard for determining whether or not a worker is an independent contractor or an employee. Rather, the IRS has developed a multi-factor test revolving around three areas:

  • Behavioral control
  • Financial control
  • The relationship between the two parties

Because there is no clear standard and multiple factors that play into this three-part test, judgments on whether or not workers are independent contractors are usually highly subjective. A revenue agent conducting an independent contractor misclassification audit may take a hardline stance, potentially costing an employer hundreds of thousands of dollars, even millions, depending on the size of the business.

As you can see, given the complexity of the issue and the risk present to the client business, it is almost a necessity to have a qualified advocate on your side.

Brotman Law Is Such an Advocate

Battle tested after scores of independent contractor misclassification audits, we know the intricacies and technicalities of the code when it comes to this issue. In addition, Sam Brotman’s experience as corporate counsel for two major Southern California conglomerates and frequently drafting these types of agreements gives him the advantage over less experienced counsel.

Independent contractor audits are serious matters and require the assistance of a very skilled representative to navigate you through the process.
Even a quick conversation with an experienced representative can make a difference in how you decide to proceed with your independent contractor audit.

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