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Special analysis: Tax relief in misclassification cases

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in Office Management,Payroll Management

The IRS is not in the business of collecting the same taxes twice. This is key in worker misclassification cases. If misclassified workers pay their income and self-employment taxes, you’re off the hook for the income taxes you didn’t withhold and likewise for both the employer and employee portions of FICA (but penalties may still apply).

Snag: You can’t demand that these individuals show their 1040s, so how can you prove they paid their taxes? A recent case and IRS guidance may hold some of the answers.

Tax court OKs disclosure of return information. To prove that the taxes were paid, standard operating procedure requires you to obtain signed Forms 4669, Statement of Payments Received, from your misclassified workers. Problem: What if they’ve moved on and you can’t find them?

That’s what happened to one employer, after the IRS reclassified its independent contractors. When it couldn’t get signed forms from...(register to read more)

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