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Our Weblog of the 21st Century. |
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IRS Cracks down on Lifelong Learning Programs |
| By Julie Coates, LERN Vice President for Information Services |
Over the next three years, the IRS plans to undertake 6,000 random audits nationwide, and the government expects to generate an additional seven billion dollars in revenue over the next ten years as a result of reclassifying workers from independent contractors to employees. Not only is the IRS undertaking increased investigations, the Department of Labor has also allocated dollars in its budget to hire additional investigators, and at least 37 states have increased their diligence in identifying organizations that have misclassified their workers. Since 1988 when the last crackdown began, there has been a growing trend toward classifying workers as independent contractors. While this is legitimate in some cases, abuse has also grown as employers have sought to reduce their employee costs. With the downturn of the economy in 2009, the situation became even worse, and now the crackdown has begun as state and federal governments look for ways to increase their revenues.
There is no legal definition of what constitutes an independent contractor. The determination is made on the basis of 20 factors developed by the IRS. These 20 factors are sometimes difficult to interpret and apply. LERN recommends that you immediately seek consultation with your organization’s legal counsel to determine your level of risk of being audited. Penalties for misclassification can be quite severe and include requirements to pay back taxes and other penalties. In at least one state, the legislature has made misclassification a third degree felony, classifying it as tax fraud. |
| There are several things that can trigger an audit: |
1. You may be randomly selected
2. You provide a 1099 form instead of a W-2 form to report employee earnings
3. A worker applies for worker’s compensation or unemployment but are classified as an independent contractor
4. A worker files a request for review of his or her status
5. A worker checks the box on his or her tax return stating that they believe they should be an employee although they are classified as an independent contractor. |
LERN does not provide legal advice, is not a legal firm, and this article is information only.
This issue has significant consequences for lifelong learning programs, and it is one that we need to understand and prepare for.
For more information on this topic and how it may affect you, click the following links: |
Employee vs. Independent Contractor – Ten Tips for Business Owners
IRS document Independent Contractor or Employee
IRS document Independent Contractor of Employee: Training Materials
1099 Risk Blog |
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| Documents that Interpret the 20 IRS factors: |
http://www.nata.aero/data/files/GIA/flight%20training/a%20taxing%20question.pdf
www.unr.edu/vpaf/controller/controllers-office/ICRulings.doc
search document for "Tests for Independent Contractor Status"
http://www.rainassoc.com/employee |
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