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Contract Labor vs. employee

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pfcs2

Guest
A sole proprietor - small business (floor cleaning) in Tennessee has 6 'independent contractors' that have worked for this company for 5 years - we have no 'employee' classifications. All pay reported via 1099 - no benefits offered (we do have worker's comp based on our annual total payroll - it is required by one of our accounts) - we exhibit no will or control over the workers - can work as they want, etc. The problem comes in that according to some of the guidelines of the IRS 'contract worker vs. employee classification check off lists' - these people could be classified as employees by the IRS if we were audited. Do we try to straighten this out by changing class. to employee and start with-holding etc? or would this raise a 'red-flag to the IRS and trigger a possible audit - (although - these people all file and pay each year - we have had no complaints from the IRS about anyone being classified as a independent contractor or not filing their taxes, etc.)........or should we keep current classification intact and continue on - any advice on how to make us more legit in this area?..... Also are we liable for anything if these people were evaluated and considered by the IRS as employees and not contract laborers even if they have filed and paid their taxes each year? Thanks for your valuable opinion and direction.....
 


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loku

Guest
Even if the “employees” pay their taxes, you could be subject to large penalties and some employment taxes if the IRS finds you have misclassified employees as independent contractors. Since this has been going on for 5 years, the amount could be substantial. I very much advise you to hire a competent CPA or tax attorney to advise you on this. What you should do depends on more factors than can be determined over the Internet.
 
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loku

Guest
Generally 3 years; however, If on a tax return a taxpayer omits from gross income more than 25 percent of that income, the assessment period is six years. There is no statute of limitations) on assessment of tax liability when the taxpayer:
• files a false or fraudulent return with the intent to evade tax
• willfully attempts to defeat or evade taxes
• fails to file a tax return
 

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