Magazine article The CPA Journal

Sec. 530 Relief under Independent Contractor Arrangements

Magazine article The CPA Journal

Sec. 530 Relief under Independent Contractor Arrangements

Article excerpt

Sec. 530 of the 1978 Revenue Act was enacted to provide relief from retroactive reclassification by the IRS to employee of a person a taxpayer considers to be an independent contractor. It was intended to be a temporary measure in response to the voluminous litigation arising from the application of the ambiguous common law test. Although not part of the IRC, it continues to be effective. However, it has been targeted for revision or repeal. In particular, the "prior-audit rule" has been characterized as allowing firms to receive undeserving benefits. Therefore, future reliance on Sec. 530 may be tenuous.

Specifically, Sec. 530 provides that for a firm to receive relief it-

1. must not have treated the worker as an employee for any period.

2. must have filed all necessary tax forms (including forms 1099 and 1096) consistent with its treatment of the worker, and

3. must have a "reasonable basis" for treating the worker as an independent contractor.

Sec. 530 provides that a firm will have a reasonable basis if-

1. …

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