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IRS Audits: Worker Classification

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in Employment Law,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

The IRS has the burden of proof when it interrogates an employer about its worker classifications. Before the Small Business Job Protection Act of 1996, the onus was on the employer to prove that an individual didn't qualify as an employee. But the current law does prohibit employers from relying on a prior audit to validate the classification unless the audit specifically examined the worker’s status.

Section 530 relief

Under revised IRS training manual guidelines, IRS agents must inform you of your so-called Section 530 relief. The law provides you with immunity from back employment taxes if the IRS reclassifies your contractors as employees.

However, employment law experts say many employers miss out on the tax break because IRS agents fail to explain it fully. If an agent doesn’t provide you with a copy of IRS Publication 1976 (9-96), he or she is breaking the rules.

While Section 530 does provide for back tax relief, t...(register to read more)

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