Worker Classification

• Practice Areas
• Business Tax Matters
• Worker Classification

Be ready to cope with the reality of the IRS’s employment tax audit initiative and its potential impact on your business. Whether your business has been audited, is under investigation or has been notified of alleged violations, contact Brown, PC. Attorney Lawrence Brown, a former prosecutor with the U.S. Department of Justice Tax Division, welcomes the opportunity to advise you on employment tax issues including the following:

• Worker classification and employment tax audit initiative
• Contractor vs. employee worker classification (see Twenty factors for worker classification)
• Independent contractor or employee: Which have you hired?
• Exempt vs. nonexempt employee classification
• Fringe benefits and employer tax audit initiative
• Expense reimbursement
• Officer compensation
• Other related payroll issues
• High net worth initiative

The most recent IRS employment tax audit initiative started in 2010 and is now in full operation. This tax audit initiative is related to a national research project (NRP) concerning business practices and employer practices. Employers of all sizes and types are under scrutiny as the IRS looks for ways to collect revenue that is not being withheld or paid to the IRS. Under the guise of information gathering, the IRS has been studying different types of businesses and learning more about business practices, cash flow channels, compliance practices and tax liability gaps and loopholes. What the IRS characterizes as research has, of course, the ultimate goal of collecting more revenue. To date, the IRS has estimated that employers are underreporting and underpaying to the tune of $14 billion annually.

Nationwide Employment Tax Audit Lawyer

Lawrence Brown brings key insights into every tax matter thanks to experience gained as a former trial lawyer for the Department of Justice Tax Division. Brown, PC, collaborates with tax experts such as CPAs, auditors and former IRS agents in order to devise an appropriate strategy for employers with much at stake. We operate with nothing less than success as the goal as we work to aggressively counter the IRS.

Brown, PC, serves individuals and businesses in the Dallas-Ft. Worth Metroplex, statewide in Texas and nationwide. Will your business be targeted in the IRS employment tax audit initiative? Attorney Lawrence Brown can advise and represent you as needed. Contact Lawrence Brown at 888-870-0025 to arrange a confidential consultation about your impending employment tax audit.

View our IRS audit success stories.

Expense Reimbursement

As part of its National Research Program begun in 2010, the Internal Revenue Service (IRS) has examined tax returns of thousands of small, medium-sized and large businesses looking for areas of under-compliance and under-taxation. These special audits focused on several areas of concern including the following:

• Worker misclassification
• Fringe benefits
• Officers’ compensation
• Employee expense reimbursement plans
• Non-filers

Scrutiny of employee expense reimbursement has focused on employer reimbursements that have not been taxed as income, including the following:

• Tool and equipment expenses
• Travel expenses, including airplane tickets and train tickets
• Hotel expenses
• Entertainment
• Meals

The IRS expects employers to have accountable plans in place to keep close tabs on expense reimbursement, protect reasonable expense reimbursement and prevent abuse in this area. Is your business facing an audit and do you anticipate scrutiny related to expense reimbursement? Attorney Lawrence Brown of Brown, PC, can advise and represent your business.

High Net Worth Initiative

Since October of 2009, the IRS has been focusing many resources on what the agency calls the “global high wealth industry group.” The IRS has created a section by the same name within its agency consisting of analysts and agents devoted to close scrutiny of the very wealthy through this initiative. These high-net-worth individuals and businesses tend to have diversified asset portfolios including the following:

• Real estate
• 401(k) accounts
• Multiple domestic bank accounts
• Offshore bank accounts
• Royalty-generating assets
• Trusts
• Privately owned companies
• Hedge funds

If you have been targeted or if your business is in the line of fire of the Global High Wealth Industry Group section of the IRS for potential auditing, you are invited to contact Brown, PC, for qualified legal counsel and representation. Attorney Lawrence Brown brings a wealth of knowledge and experience to resolving complex tax issues faced by individuals and businesses.

High Net Worth Initiative Representation · Bring Experience to Your Table

Lawrence Brown employs sophisticated methods honed through experience as a former trial lawyer for the Department of Justice Tax Division. With more than 20 years of experience in tax law, he gathers teams of tax experts such as CPAs, auditors and former IRS agents to help develop effective strategies for clients facing challenging IRS audits. Brown, PC, is prepared to aggressively counter the IRS while working to resolve your high-net-worth case in your best interests.

Independent Contractor Disputes

Many companies throughout the United States (and in many foreign countries) use independent contractors as well as employees in conducting their business operations. Exactly when and how you should use independent contractors can be vexing, and involves the interrelationship between various factual and legal criteria. Indeed, the applicable legal standards used in determining who is or is not an independent contractor can be dizzying. Businesses quite legitimately make use of independent contractors all the time. On the other hand, one’s ability to safely contract with independent contractors must run the gauntlet of a variety of state, federal and local laws.

Brown, PC has represented clients in virtually all phases of these endeavors. We are often called upon to assist a company in evaluating, writing or revising independent contractor agreements, and/or in implementing contractor relationships into a client’s workforce. Generally, such tasks involve a comprehensive review of the nature of the business and the tasks to be performed by both contractors and employees. A properly crafted independent contractor agreement, and a properly implemented relationship between company and contractor, must serve a plethora of goals.

First, it must secure independent contractor treatment for employment tax purposes, employee benefit plan purposes, and even for purposes of applicable labor and employment laws. There is no tax liability for income and employment taxes paid to an independent contractor. However, if the Internal Revenue Service or state taxing agencies recharacterize the worker from independent contractor to employee, the employer’s liability can be draconian.

A properly crafted and implemented independent contractor arrangement must also preclude the respondeat superior liability for tort and contract liabilities that employers face with respect to the conduct of their employees. On the surface, by using independent contractors, an employing individual or company has no liability under the doctrine of respondeat superior. However, this liability can be imposed if the independent contractor is recharacterized as an employee.

In addition to such objectives, the company’s relationship with the worker must satisfy the company’s need for the goods or services which the contractor will provide. Meeting such a multiplicity of high-stakes goals is no mean feat.

Indeed, virtually no independent contractor agreement is free from liability or immune from attack. Although the same can be said for employment agreements, independent contractor agreements face a fundamental characterization question that can make their status particularly emotionally charged. These disputes are enormously hard on companies too, since they often involve an apparent setting aside of agreed-upon legal and contractual relationships, either at the behest of the workers themselves or at the insistence of governmental agencies. In either case, such recharacterization can have enormous financial consequences.

Independent Contractor or Employee: Which Have You Hired?

Before you face the IRS in connection with tax challenges regarding your legal relationship with the workers who call you their employer, you need to determine whether you have hired an independent contractor or an employee. Your tax liability and the worker’s tax filing requirements will differ depending on the answers to these questions:

• Does the company direct when, where and how work is done?
• Are workers requested to undergo company-provided training?
• Are the workers’ services integrated into business operations?
• Does the company insist that particular people do particular jobs, or is the worker allowed to assign work to anyone?
• Does the company hire, supervise and pay a worker’s assistants?
• Is the worker-company relationship continuous?
• Is the worker’s schedule rigid or flexible?
• Does the company require full-time work?
• Is the worker required to work on the company premises?
• Does the company require work to be done in a certain order?
• Is the worker required to provide written or oral reports on the status of a project?
• Is pay given to the worker on an hourly, weekly or monthly basis?
• Does the company reimburse travel expenses?
• Is most of the work done using company-owned tools?
• Does the employer provide work facilities?
• Do the workers receive predetermined earnings?
• Do the workers work exclusively for one company, or simultaneously for different companies?
• Does the worker provide services to the general public, or only to the particular employer?
• Does the company have the right to discharge a worker?
• Can the worker terminate their work without liability?

To sum up the issues that are reflected in answers to these questions, the IRS considers a worker to be your employee if you have the right to control not only what work will be done, but also how the worker will do it. If you treat a worker as an independent contractor, but the IRS decides you have sufficient control over the worker to create an employment relationship, the IRS can hit you with a costly bill for the employment taxes you should have been withholding and paying.

If Your Independent Contractor Is Actually Considered an Employee of Your Company, What Can You Do About the Worker Classification?

Your company may have been targeted in an employment tax audit. You may have hired independent contractors who the IRS says should have been classified as employees. You need qualified legal counsel to prevent a small problem from gaining steam and getting big.

Attorney Lawrence Brown brings knowledge gained as a former trial lawyer for the Department of Justice Tax Division to the task of representing employer clients with tax problems. He brings more than 20 years of experience to bear on every case as well as testimony from necessary tax experts such as CPAs, auditors and former IRS agents. We can defend you before the IRS while working to resolve your case.

Defending Your Business when the IRS Scrutinizes Officer and Executive Compensation

Is your business being questioned regarding officer and executive compensation? Or are you an officer or executive whose income is under investigation by the IRS? The IRS scrutinizes officer and executive compensation closely, particularly forms of compensation such as the following:

• Stock
• Deferred compensation
• Valuation of stock options for tax purposes
• Fringe benefits

Taxpayers in high-end fields such as the technology, and energy are often frustrated by disputes or potential conflicts involving the IRS’s valuation of this portion of their compensation. Managers might have the opportunity for partial ownership of the business, but must refrain from accepting this type of compensation for reasons associated with taxation.

For assistance unraveling and resolving tax conflicts such as stock option valuations as part of officer and executive compensation, contact Brown, PC. Tax law attorney Lawrence Brown, a former Department of Justice Tax Division Trial Attorney, devotes his law practice to the representation of individuals and businesses facing tax controversies and litigation. As part of our practice, we handle IRS audits that probe into potentially improperly taxed officer and executive compensation.

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