PORTFOLIO

Employment Status — Employee v. Independent Contractor (Portfolio 391)

Tax Management Portfolio, Employment Status — Employee v. Independent Contractor, No. 391-4th, describes in detail who is an “employee” for federal employment tax purposes and emphasizes the controversial difference between “employee” and independent contractor. Defining the “employee” requires an examination of both the applicable common law factors and any special statutory provisions in the area.

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DESCRIPTION

Tax Management Portfolio, Employment Status — Employee v. Independent Contractor, No. 391-4th, describes in detail who is an “employee” for federal employment tax purposes and emphasizes the controversial difference between “employee” and independent contractor. Defining the “employee” requires an examination of both the applicable common law factors and any special statutory provisions in the area.

This Portfolio examines the definition of employee, as well as the definition of wages and of employer for federal employment tax purposes. Since the authorities do not form a cohesive whole, each occupation is also examined separately under the common law rules and — when applicable — under the special statutory rules. Attempted statutory solutions to this controversial area have been examined in particular detail, both as to their applicability as well as their effectiveness.


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AUTHORS

HELEN E. MARMOLL
Helen E. Marmoll, A.B., Marquette University; J.D., Washington College of Law of American University; formerly a Tax Division trial attorney with Department of Justice; member, American Law Institute; member, Virginia Bar, the District of Columbia Bar and the Maryland Bar; member, American Judicature Society, Chairperson, Prince William Bar Association Library Committee; member, Virginia Women Attorneys Association.

TABLE OF CONTENTS

Detailed Analysis

I. Statutory Provisions Involved

Introductory Material

A. The § 530 "Safe Harbor" Statute

1. Reasonable Basis Test

2. Tax Return Test

3. Position Test

4. Exception to § 530

B. Classification Settlement Program & Early Referrals

C. Income Tax Provisions

1. Section 61

2. Section 162

3. Benefit Plans

D. Employment Tax Provisions

1. Federal Insurance Contributions Act

2. Federal Unemployment Tax Act

3. Income Tax Withholding

4. Self-Employment Contributions Act (SECA)

5. Section 3505

6. Section 3509

II. Pertinent Indicators

A. General Tests

B. Indicator Zones and Their Specific Factors

1. Details of Work Performance

a. Instructions:

b. Training

c. Set Hours of Work

d. Full Time Required

e. Order or Sequence Set

f. Oral or Written Reports

g. Skill

h. Labels

2. Expenses of Work Performance

a. Payment of Business and/or Traveling Expenses

b. Furnishing of Tools and Material Names

c. Significant Investment

d. Licenses and Taxes

3. Compensation for Work Performance

a. Payment by Hour, Week, Month

b. Realization of Profit or Loss

c. Insurance

d. Benefits

4. Duration of Work Position

a. Right of Discharge

b. Right to Terminate

c. Continuing Relationship

5. Structure of Work Position

a. Integration

b. Services Rendered Personally

c. Hiring, Supervising, and Paying Assistants

d. Working for More Than One Firm at a Time

e. Making Service Available to General Public

f. Principal in Business

g. Intent

h. Governmental or Regulatory Rules

i. Industry Custom

j. State Law Characterization

k. Incorporation

6. Location of Work Performance.

III. Identifying "Wages"

A. Definition of "Wages"

B. Exceptions

C. Nonresident Aliens

D. Foreign Source Income

E. Benefit Plans

F. Special Situations

G. FICA and FUTA Liability Limits

IV. Identifying "Employment"

A. "Employer" Defined

B. Application

V. Authorities by Occupation

A. Introduction

B. Alphabetical Treatment

1. Accountants

2. Actors

3. Actresses

4. Advertising Sales Agents

5. Anesthetists

6. Apartment Managers

7. Appliance Sales Agents

8. Applicators

9. Appraisers

10. Arbitrators

11. Architects

12. Artisans

13. Artists

14. Associate Physicians

15. Athletes

16. Athletic Officials

17. Attorneys

18. Auctioneers

19. Auditors

20. Automobile Mechanics

21. Automobile Repairers

22. B-Girls

23. Babysitters

24. Bail Agents

25. Bakery Dealers

26. Bakery Distributors

27. Bakery Products Sales Agents

28. Band Leaders

29. Band Members

30. Bar Pilots

31. Barbers

32. Bean Station Operators

33. Beauticians

34. Beef Boners

35. Bellboys

36. Belly Dancers

37. Big Boys

38. Bill Collectors

39. Biologists

40. Blind Persons

41. Board Members

42. Boat Engineers

43. Bonding Agents

44. Bondsmen

45. Bookkeepers

46. Brokers

47. Bulk Oil Distributors

48. Burial Lot Sales Agents

49. Bus Drivers

50. Butlers

51. Cable TV Subscription Sales Agents

52. Car Drivers

53. Car Inventory Services

54. Car Shuttlers

55. Caretakers

56. Carpenters

57. Carpet Sales Agents

58. Case Workers

59. Catalog Sales Merchants

60. Caterers

61. Catering Workers

62. Cattle Buyers

63. Cattle Dealers

64. Central Telephone Services

65. Chauffeurs

66. Chefs

67. Chick Raisers

68. Chick Sexers

69. Child Care Personnel

70. Child Study Research Coordinators

71. Christmas Wreath Makers

72. Circus Performers

73. Clothing Sales Agents

74. Club Membership Sales Agents

75. Coal Hustlers

76. Coal Unloaders

77. Collectors

78. Commodity Buyers

79. Companions

80. Concessionaires

81. Consignees

82. Construction Workers

83. Consultants

84. Corporate Officers

85. Contest Managers

86. Contract Furniture Sales Agents

87. Contractors

88. Cooks

89. Correspondents

90. Cotton Buyers

91. Counsels

92. Country Correspondents

93. Court Reporters

94. CPAs

95. Credit Union Supervisors

96. Custodians

97. Dairy Supervisors

98. Dairy Testers

99. Deboners

100. Deliverymen

101. Demonstrators

102. Dental Hygienists

103. Design Engineers

104. Directors

105. Directory Services

106. Disc Jockeys

107. District Sales Managers

108. Doctors

109. Domestics

110. Door Sales Agents

111. Drainage Construction Workers

112. Drainage Ditch Repairers

113. Dress Contractors

114. Drivers

115. Dry Cleaners' Managers

116. Editors

117. Electrical Appliance Sales Agents

118. Embalmers

119. Embroiderers

120. Engineering Consultants

121. Entertainers

122. Envelope Addressers

123. Escorters

124. Executive Committees

125. Executors

126. Exercise Boys

127. Exercise Riders

128. Factory Outlet Managers

129. Farm Managers

130. Farm Operators

131. Farmers

132. Fashion Designers

133. Fiduciaries

134. Fishermen

135. Fishing Boat Captains

136. Fishing Boat Crews

137. Floor Layers

138. Flour Sales Agents

139. Food Service Equipment Sales Agents

140. Foreign Entertainers

141. Free-lance Jockeys

142. Free-lancers

143. Fruit Packers/Pickers

144. Fur Trappers

145. Furniture Sales Agents

146. Furniture Unloaders

147. Gardeners

148. Gas Station Operators

149. Geologists

150. Go-Go Dancers

151. Golf Pros

152. Governesses

153. Government Contracts

154. Gravediggers

155. Grooms

156. Guardians

157. Gypsy-chasers

158. Hair Dressers

159. Hair Stylists

160. Handicap Secretaries

161. Handicappers

162. Handwork Workers

163. Hatcheries

163a. Hearing Officers

164. Hog Buyers

165. Hog Dealers

166. Home Demonstration Agents

167. Home Improvement Sales Agents

168. Home Improvement Workers

169. Home Study School Sales Agents

170. Homemakers

171. Home Workers

172. Hostesses

173. Hotel Managers/Operators

174. Hotwalkers

175. House Builders

176. House-to-House Canvassers

177. House-to-House Sales Agents

178. Household Furniture Sales Agents

179. Housemen

180. Humpers

181. Income Tax Examiners

182. Inspectors

183. Installers

184. Instructors

185. Insurance Adjusters

186. Insurance Agents

187. Insurance Company Branch Managers

187a. Interpreters

188. Interviewers

189. Inventory Services

190. Janitors

191. Jockeys

192. Land Clearers

193. Landmen

194. Lawyers

195. Lecturers

196. License Plate Distributors

197. Linesmen

198. Livestock Dealers

199. Loan Solicitors

200. Loggers

201. Lumberjacks

202. Machine Tool Accessory Sales Agents

203. Magazine Sales Agents

204. Magazine Solicitors

205. Mailmen

206. Managers

207. Manicurists

208. Manufacturer's Representatives

209. Manufacturer's Representatives' Sub-agents

210. Market Surveyors

211. Masons

212. Meat Slaughterers

213. Mechanics, Home Improvements

213a. Mediators

214. Merchandise Sales Agents

215. Merchants Police

216. Metal Storm Sash Sales Agents

217. Milk Distributors

218. Milk Haulers

219. Milk Sales Agents

220. Miners

220a. Ministers

221. Models

222. Motel Operators/Managers

223. Musicians

224. Narrators

225. Needlework Workers

226. Negotiators

227. Newspaper Boys

228. Newspaper Carriers

229. Newspaper Dealers

230. Newspaper Delivery Personnel

231. Newspaper Plant Operators

232. Newspaper Reporters

233. Newspaper Route District Men

234. Night Watchmen

235. Nurses

236. Oil Distributors

237. Oil Products Distributors

238. Oil Well Pumpers

239. Orchestra Leaders

240. Orchestra Members

241. Organ Tuners

242. Organizers

243. Outside Readers

244. Outside Salesmen

245. Owners/Operators

246. Part-time Teachers

247. Patented Products' Sales Agents

248. Pathologists

249. Patrollers

250. Pattern Makers

251. Peace Officers

252. Periodical Sales Agents

253. Photographers

254. Physicians

255. Piano Tuners

256. Piecemakers

257. Pilots

258. Plant Operators

259. Police

260. Policing Agents

261. Porters

262. Postmasters

263. Poultry Slaughterers

264. Printers

265. Prisoners

266. Process Servers

267. Proctors

268. Professional Athletes

269. Professors

270. Protectors

271. Pursers

272. Quilters

273. Race Track Stewards

274. Radio Sales Agents

275. Radiologists

276. Real Estate Investment Trusts Managers

277. Real Estate Sales Agents

278. Realtors

279. Receivers

280. Redcaps

281. Referees

282. Repairers

283. Research Assistants

284. Research Associates

285. Research Coordinators

286. Researchers

287. Resident Doctors

288. Restaurant Operators

289. Retail Furniture Sales Agents

290. Roofers

291. Roofing Applicators

292. Roofing Sales Agents

293. Sales Agents

a. Ads

b. Burial Lots

c. Catalog Sales

d. Club Memberships

e. Commodities

f. Demonstrators

g. Household Items

h. Loans

i. Manufacturer's Representatives

j. Real Estate and Securities

k. Sales Clerks

l. Stationery

m. Subscriptions

n. Swimming Pools

o. Telephone Solicitations

p. Tires

q. Used Cars

r. Yachts/Ships

294. Sales Agents Helpers

295. Sales Clerks

296. Schochets

297. Seafood Processing Workers

298. Seafarers

299. Seamstresses

300. Securities Sales Agents

301. Security Personnel

302. Servants

303. Sewers

304. Sewing Machines Sales Agents

305. Sextons

306. Sharecroppers

307. Ship Sales Agents

308. Siding Applicators

309. Siding Sales Agents

310. Skidders

311. Slaughtering House Workers

312. Slaughtering Plant Workers

313. Speakers

314. Special Peace Officers

315. Stationery Sales Agents

316. Stenographers

317. Stone Applicators

318. Stonecutters

319. Store Managers

320. Student Researchers

321. Students

322. Subcontractors

323. Subscription Sales Agents

324. Substitute Teachers

325. Supervisors

326. Swampers

327. Swimming Pool Sales Agents

328. Tailors

329. Taxicab Drivers

330. Teachers

331. Teamsters

332. Telephone Directory Distributors

333. Telephone Operators

334. Telephone Solicitors

335. Temporary Sales Clerks

336. Tenant Farmers

337. Tennis Pros

338. Tire Sales Agents

339. Title Examiners

340. Tow Truck Operators

341. Trade Consultants

342. Traffic Controllers

343. Traffic Regulators

344. Trailer Park Managers

345. Trainers

346. Transcribers

347. Truck Drivers

348. Trust Property Managers

349. Trustees

350. Tutors

351. Typists

352. Umpires

352a. Union Officials

353. Unloaders

354. Used Car Salesmen

355. Utility Bill Collectors

356. Vacuum Cleaner Sales Agents

357. Variety Entertainers

358. Vaudeville Acts

359. Waiters

360. Waitresses

361. Watch Repairers

362. Water Well Builders

363. Watermen

364. Weavers

365. Welcome Wagon Personnel

365a. Welders

366. Well Grouters

367. Well Packers

368. Well Sealers

369. Wharf Builders

370. Window Trimmers

371. Window Washers

372. Wrestlers

373. Writers

374. Yacht Sales Agents

VI. Special Situations

A. Introduction

B. Alphabetical Treatment

1. Agricultural Labor

2. Aliens

3. Criminals

4. Domestics

5. Family Members

6. Foreign Governmental Employees

7. Governmental Employees

8. Partners

9. Religious/Charitable Employees

10. Students/Trainees

VII. Special Considerations

A. "Safe Haven" or "Safe Harbor"

B. Burden of Proof & Choice of Forum

C. Stare Decisis Argument

D. Impossibility Argument

E. Math/Credit Argument


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Contract Establishing an Independent Contractor Relationship With a Typist While Avoiding the Homeworker Classification

Worksheet 2 Contract Establishing an Independent Contractor Relationship With a Personnel Placement Service Worker

Worksheet 3 Contract Establishing an Employee Relationship With a Temporary Consultant

Worksheet 4 Contract Establishing Independent Contractor Relationship With a Consultant When the Prime Contractor Has Obtained a Contract From the Government

Worksheet 5 Independent Contractor Agreement for Real Estate Agent

Worksheet 6 Independent Contractor Agreement for Direct Sellers

Worksheet 7 Sample Jury Instructions Regarding the Effect of Local Laws or Regulations

Worksheet 8 Sample Jury Instructions Regarding Shifting the Burden of Proof to the Government and the Nature of the Government's Burden

Worksheet 9 Sample Jury Instructions on the "Safe Haven" or "Safe Harbor" Provisions of Section 530 of the Revenue Act of 1978

Worksheet 10 Sample Jury Instructions on Certain of the Common Law Factors Used in Determining Employee vs. Independent Contractor Status

Worksheet 11 Rev. Proc. 85-18, 1985-1 C.B. 518, Safe Haven Rules

Worksheet 12 Classification Settlement Program (CSP) - IRM 4.23.6

Worksheet 13 IRS Worker Classification Training Materials

Worksheet 14 CCA 200009043 (1/4/00) on When to Issue a Notice of Determination Under § 7436 with Respect to a Worker who is a Corporate Officer

Worksheet 15 CCA 200038045 (8/19/00), Follow-up to CCA 2000009043, on Several Areas Related to Corporate Officer Compensation and Classification

Worksheet 16 Worker Classification - Excerpt from IRM 4.25.5

Worksheet 17 Section 530 Relief - Excerpt from Internal Revenue Manual 4.23.5

Worksheet 18 Section 530 Flowchart - IRM Exhibit 4.23.5-5

Bibliography

OFFICIAL

Statutes:

Treasury Regulations:

Treasury Rulings:

Cases:

UNOFFICIAL

Periodicals:

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007