The Internal Revenue Service (IRS) has released IRS Publication 1779 with guidance for workers to help them determine whether they are employees or independent contractors. Interestingly IRS Publication 1779, which is only two pages does not specifically mention the 20 factor test set forth in IRS Revenue Ruling 87-41, 1987-1 C.B. 296. Instead it groups various factors into three categories—Behavioral Control, Financial Control and Relationship of the Parties. For example under the category Behavioral Control it states that “if you receive extensive instructions on how work is to be done this suggests you are an employee.”
While the publication appears to be aimed at workers rather than employers, an employer could be lulled into a false sense of security by relying on the publication since among other things it fails to mention that even though an employer does not actually exercise control, if the employer maintains the legal right to control the worker those workers may well be employees.
Nor does the publication mention that Section 530 of the Revenue Act of 1978 also known as the “safe harbor rules” allows employers to treat individuals as independent contractors even if they do not qualify under the common law rules. For more information on that topic see our article Independent Contractor Treatment for Workers is Broadly Available.
If you are an employer and the IRS or the California Employment Development Department (EDD) has challenged your treatment of workers as independent contractors, or you have other payroll tax problems, contact the tax problem attorneys at Brager Tax Law Group for assistance.