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Discussion:Section 530 Relief

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Discussion Forum Index --> Tax Questions --> Section 530 Relief

Tp46 (talk|edits) said:

15 December 2005

Has anyone had any luck claiming section 530 relief based on reasonable basis that construction industry has long standing practice of using subcontractors and not employees? Am currently going through IRS audit, and agent wants to reclassify subs to employees. Business is construction related, installing kitchen updates, windows, etc and they contract with Lowes. They have always filed 1099's for subs, have never treated them as employees. I brought up section 530 to agent, but she said construction industry does not qualify, The agent offered a CSP agreement which basically will charge tax on one year only and give immunity for 2004 & 2005, with no interest or penalties. Shoud I take the offer or appeal?

Sheldon (talk|edits) said:

3 July 2008
TP46: You no doubt got through this issue of 2.5+ years ago, but perhaps more of us could learn from your experience. I have a client in a situation where the employee challenged the independent contractor status, even though they had signed an agreement to that effect and the IRS ruled against my client. Initially thought we would pay some payroll taxes. When I calculate that for 3 years, it is an amount that the client thinks would put him out of business and he doesn't want to go ahead with changing all of that to employee status. My understading is that you then wait to see if the IRS challenges the employer after this ruling. The client indicated in his industry (Radon testing and improvements) the workmen's compensation insurance had no history / record of employees in this industry. He had also always said that he knew of others in his industry that were treating workers as independent contractors. Is this anything to go on to indicate that the employer / payor / taxpayer was relying on proper evidence to dispute any changes that the IRS would propose in a section 530 case. I do hope that my taxpayer's experience is no worse than what Tp46 experienced with only one year being changed. The taxpayer is treating new workers as W-2 employees, so it should not be an issue for the future.

Solomon (talk|edits) said:

3 July 2008
"(2) Statutory standards providing one method of satisfying the requirements of paragraph (1).--For purposes of paragraph (1), a taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the taxpayer's treatment of such individual for such period was in reasonable reliance on any of the following:
   (A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;
   (B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or
   (C) long-standing recognized practice of a significant segment of the industry in which such individual was engaged."

From Sec. 530 - If the industry, (most of it) rather than one employer in the industry, meets (C) it appears you win.

Kevinh5 (talk|edits) said:

3 July 2008
and I sincerely hope you get some helpful response sooner than 2 1/2 years.

Kevinh5 (talk|edits) said:

3 July 2008
well there it is - Solomon to the rescue

he posted same time I did

Solomon (talk|edits) said:

3 July 2008
Revenue Ruling 87-41. Seems to me part of this enhances your position - contractors and subs are generally not employees.

" Conversely, these sections provide, in part, that individuals (such as physicians, lawyers, dentists, contractors, and subcontractors) who follow an independent trade, business, or profession, in which they offer their services to the public, generally are not employees."

Mscash (talk|edits) said:

3 July 2008
Do the workers have their own contractor's licenses and business licenses? In my state, California, it is illegal to contract for a construction project worth more than $500 without a contractors license. "Worth more than $500" includes labor PLUS any materials purchased directly by the customer. This allows unlicensed handyman types to work, but most everybody else has to satisfy the state that they are at lease minimally competent to be out on their own.

Taking the one year break, the revenue agent is offering will lock the client into employee status in the future. Going for double or nothing will risk liability for imputed withholding tax and bankruptcy. I don't even want to think what the risks with workers compensation insurance are.

Sheldon (talk|edits) said:

28 August 2008
I appreciate all the good comments here. I am advising my client to document the industry standard as best we can as that seems like the best peg to pin my client's hopes on. Have any of you tried to documunent the "long-standing industry practice" before? He's always had verbal evidence from competitors, but they generally do not want to put there name on the line for my client. It seems some Workmen's Compensation insurance history does help some and we are trying to get that in writing as they did not even know how to rate him at first. Beyond that it seems like the only thing to do is to get some contacts that will help you in a trade association, but any helpful comments are appreciated.

Kwcpa (talk|edits) said:

24 February 2009
I currently have a client who through Form SS-8 it was determined the contractor should have been an employee. (Small amount for a client with alot of contractors)

My understanding is that if we meet the Section 530 relief - (and I believe we do) - we are ok for this. But what about the future? Does the determination on this one person impact the reasonable basis for all future workers? Thanks for any input.

Porterj5 (talk|edits) said:

13 May 2010
I have a client who recently received an SS-8 determination classifying an independent contractor as an employee.

For Section 530 relief, do we just wait to be contacted by the IRS about the taxes then claim relief or should we file anything?

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