In 2007, the IRS launched the Questionable Employment Tax Practices initiative. This program includes agreements between the IRS, Department of Labor, and several state agencies (including Colorado) to collaborate during investigations involving employment tax schemes. The primary focus is directed towards employers who, intentionally or not, avoid employment related taxes by incorrectly classifying workers as independent contractors rather than as employees.

Employers face liability for 100% of the tax not withheld, as well as penalties and interest. With the plethora of agencies involved, an audit may reveal additional issues that have been inadvertently overlooked and potentially result in fines or damage to a business’s reputation.

So what can be done? IRS incentives allow employers to voluntarily prospectively reclassify workers in exchange for reduced liability, along with peace of mind through compliance. While incentives provide some relief the process can be tricky, and planning to avoid the issues is always preferred. Numerous risk mitigating strategies exist, but unintended consequences can prove devastating, thus caution and consulting an experienced tax advisor are strongly advised. 

Roc A. DeLuca, CPA
970.352.1700
rdeluca@acmllp.com
www.acmllp.com