IRS to Increase Worker Classifications Cases Referred by States

May 16, 2013

Under memoranda of understanding (MOUs) that IRS has with 37 states, IRS and state workforce agencies (SWAs) are permitted to: (1) exchange audit reports; (2) exchange audit plans; (3) participate in side-by-side examinations, when appropriate; (4) receive information; and (5) participate in reciprocal sharing of information. After IRS conducts a worker classification examination that results in the misclassification of an employee as an independent contractor, it determines whether information regarding the examination should be forwarded to the appropriate SWA. SWAs make a similar determination when they conduct an employment examination. Since 2004, IRS has been using information received from states to identify potential candidates for employment tax examinations.

In 2009, IRS announced that it would be launching an Employment Tax National Research Project . Under the Employment Tax National Research Project (NRP), IRS selected approximately 2,000 employment tax returns for each calendar year 2008, 2009 and 2010. It began examining the 2008 returns in the spring of 2010. Of the more than 6,000 returns selected for examination, IRS has closed about 70 percent of the cases. IRS now expects to complete the remaining examinations in eight to ten months.

Once the NRP examinations are completed, IRS intends to turn the attention of its employment tax agents who have been working on the NRP examinations to worker classification referrals from SWAs. This will increase the likelihood that an employer that has been the subject of an SWA employment examination (whether labor or tax related) will find itself the subject of an IRS employment examination.

For additional articles regarding worker misclassification, please see:

Reminder: New California Law Regarding Worker Misclassification is Effective Jan. 1, 2012
IRS Announces New Voluntary Program For Resolving Worker Classification Issues
IRS and DOL Sign MOU to Address Worker Classification
Adjunct Professor Held an Employee; Teaching Expenses Subject to 2% Floor
Obama Administration’s Revenue Proposals Address Worker Misclassification
The Department of Labor and IRS Continue to Examine Worker Classification Issues
White House Backs Worker Classification Bill
IRS to Begin Employment Tax Examinations (Forms 941)
Proposed Legislation Likely to Classify More Workers as Employees
Proposed Federal Legislation Seeks to Remedy and Penalize Worker Misclassification
NY Legislation Would Presume Construction Workers are Employees
Legislation Proposed to Modify Rules Regarding Employers’ Classification of Individuals as Independent Contractors