Paul L. Caron

Sunday, November 2, 2008

Employee v. Independent Contractor: The IRS Classification Settlement Program

Judson D. Stelter (J.D. 2008, Cleveland State; Taft Stettinius & Hollister, Cleveland) has published Note, The IRS' Classification Settlement Program: Is It An Adequate Tool To Relieve Taxpayer Burden For Small Businesses That Have Misclassified Workers As Independent Contractors?, 56 Clev. St. L. Rev. 451 (2008).  Here is the Conclusion:

Correctly classifying workers can be a daunting task for employers of all sizes, as well as the IRS. The problem is compounded for small businesses with limited resources to secure adequate legal services to ensure correct worker classification. When misclassification occurs and an employer does not qualify from statutory relief otherwise, the CSP can be a positive program for a small business to relieve taxpayer burden where appropriate. However, the CSP is inadequate in its present form because it unnecessarily conditions settlement on the filing of informational tax returns. The CSP would more effectively achieve its goal of relieving taxpayer burden among small businesses by omitting the requirement of timely filing returns and allow some degree of settlement in the complete absence of filing, insofar as the employer has treated similarly situated workers consistently and has a reasonable basis for treating the workers as independent contractors. Additionally, more types of settlement offers should be permitted to allow for a more graduated series of settlements and extending settlement offers should be mandatory to all employers who qualify. By adopting the propositions set forth in this Note, the IRS may encourage more compliance with IRS regulations.

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