Inside the IRS

 

      What is it like inside the IRS?  What do IRS employees think of taxpayers?  They don't see us as hardworking and compliant.  They view us as cheaters and con men who are ripping off the government.  The taxpayers are the bad guys.  The IRS employees are the good guys.  One individual who worked for the IRS stated that: "During an audit, we used to watch taxpayers squirm and then later on we would laugh at them. 

 

      The IRS operates under the U. S. Treasury Department.  It currently has about 102,000 employees and it is the largest law-enforcement agency in the United States.  The IRS headquarters in Washington, D. C. has over 9,000 administrators.  There are four regional offices and thirty-three district offices. The IRS also has foreign offices for U. S. taxpayers living overseas and offices in Puerto Rico and Guam.  Each district office serves a specific geographic area and is responsible for four activities: examination, collection, criminal investigation (tax fraud), and taxpayer services.  The IRS' National Computer Center is located in Martinsburg, West Virginia.  The service centers receive the returns, process them, record the data, check the arithmetic and credit the accounts.

Independent Contractors vs. the IRS

 

      There are many individuals who have become independent contractors in recent years and the IRS is fighting back by denying independent contractor status.  Everytime an additional worker is classified as an independent contractor, the IRS loses tax dollars through unpaid social security and income taxes.  Because of the IRS' aggressive stance, it is more important than ever that individuals understand the law on this issue.  The IRS uses a 20-factor test to determine if an individual is a independent contractor.  If you are currently working independently, how do you fit into the following standards?

 

1.  Must comply with employer's instructions about the work.

2.  Receive training from or at the direction of the employer.

3.  Provide services that are integrated into the business.

4.  Provide services that must be rendered personally.

5. Hire supervise, and pay assistants for the employer.

6. Have a continuing working relationship with the employer.

7. Must follow set hours of work.

8. Work full-time for an employer.

9. Must do work on the employer's premises.

10. Must do their working in a sequence set by the employer.

11.  Must submit regular reports to the employer.

12. Receive payments of regular amounts at set intervals.

13.  Receive payments for business and/or traveling expenses.

14.  Rely on the employer to furnish tools and material.

15.  Lack of a major investment in facilities used to perform the service.

16.  Cannot make a profit or suffer a loss from the services.

17.  Work for one employer at a time.

18.  Do not offer their services to the general public.

19. Can be fired by the employer.

20.  May quit work at anytime without incurring liability.

 

      If the individual has control over the performance of the work and the hours worked and he is motivated by profit, he is more likely to be classified as an independent contractor.

 

      The following are points to consider in preparing an independent-contractor contract in order to protect your self as much as possible from the IRS allegation of employee status.

 

1.  Specify the services provided.

2.  List a starting and completing date.

3.  Be sure that the contractor controls the methods of completing the contract.  He, for example, could hire other employees to help him with the job.

4.  The contract should clearly show that the contractor is in charge of supervising the work and deciding how it will be performed.

5.  Agree that the contractor will provide all the insurance.

6.  Payments should be varied and sporadic.

7.  Do not separately provide for expenses; that should be included in the contract.

8.  Training of workers is the responsibility of the contractor.

9.  Do not include office space for the contractor in the agreement.

10.  Don't pay bonuses.

11.  Agree that if work slows down, the contractor will not have other work to do.

12.  Make it clear that if the contractor quits his job he is at risk of a lawsuit for not finishing his contract.

13.  If the independent contractor is incorporated, there is no requirement that the taxes paid to the corporation be reported to the IRS.

      The moral of the story is that you should be very careful if you are operating as an independent contractor.  The IRS will do its best to reclassify you as an employee.