If the IRS reclassifies workers you consider independent contractors as employees, you could be liable for a big employment-tax bill. But you may be able to rely on a 1978 law to bail you out. For instance, you could be off the hook if you’ve consistently treated the workers as independent contractors and you have a reasonable basis for doing so.
On the other hand, you can’t suddenly shift gears once you fall under the IRS microscope.
New case: A foundation repair company didn’t treat certain construction workers as employees in the past. But it never issued Form 1099s to those workers either. After the IRS selected the company for an audit, the company issued 1099s for the tax year in question. The verdict: Too little, too late. (Bruecher Foundation Services, DCTex., No A06-CA-376-LY, 5/07/07)
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