Business Tax Relief Tips: Correctly Classify Your Employees to Avoid IRS Tax Problems and Penalties

Businesses and employers must be very cautious when it comes to classifying workers as employees or independent contractors – misclassification can get you in deep IRS trouble. Employers must be aware of these IRS audits and employee classification assessments because if the IRS finds a misclassification that has deprived employees of their tax benefits (such as classifying employees an independent contractors) they can demand the employer provide for these missed benefits. reports the IRS estimates U.S. companies underpay employer taxes by over $14 billion a year. Whether companies deliberately mis-classify their workers hoping to avoid providing health insurance and 401K plans for their employees or are just confused and unsure how to correctly classify their employees – it is important to get it right to ensure you are staying clear of IRS audits and tax problems.

Take for example the case of a residential foundation repair corporation. In recent tax news, the corporation did not pick up on errors in IRS employment tax assessments – let’s be honest, not many small corporations would, unless they had a team of tax experts backing them up. The corporation filed its necessary 1099 forms (showing payments to its workers) once the IRS assessed the taxes. However, as the IRS assessment was wrong and the corporation filed the necessary forms after the assessment, and not before, the corporation was disallowed in raising section 530 safe harbor as a defense before a federal district court. This failure to file the correct tax forms on time, in effect constitutes the IRS assessment as correct when made.

The CCH ( reports:

The IRS’s failure to comply with the section 530(e)(1) notice procedures did not warrant a reversal of the burden of proof. The corporation was informed at the conclusion of the audit that the IRS had determined that the section 530 safe harbor did not apply. The corporation had sufficient opportunity to seek administrative relief with respect to that determination. The district court also properly found that the corporation’s workers were its employees, not independent contractors, for federal employment tax purposes. The corporation retained a significant level of control over its workers’ schedules and ability to perform foundation repair jobs, the workers had no risk of loss, did not invest in facilities and were not in business for themselves.

There is no clear line when it comes to classifying employees and while this makes it more confusing for business owners, it is all the more reason for employers to be well read on the issue. If you are a business owner and are unsure about classifying your employees on your payroll, make sure you read up on employee classification tax help. There are several precautionary steps you can take now, such as early tax planning and making use of electronic payment methods to avoid IRS problems.

Do not become the next example of a corporation failing to file timely and accurate employee classification forms. Find out more about how employers can prevent IRS tax problems.

If you are an employer and are finding yourself in IRS trouble for misclassifying your employees and need business tax relief, you are entitled to getting professional tax help from a tax attorney, CPA, or Certified Tax Resolution Specialist. Call the Tax Resolution Services office today at 1-866-477-7762 for a free tax resolution consultation or visit

More Tax Help, IRS News and Tax Relief Tips:

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  4. Tax Help: Nation’s Leading Tax Relief Expert Shares Tips on How Small Businesses Can Avoid IRS Audits
  5. Last Minute Tax Help Tips For Taxpayers As April 15th Deadline Nears

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One Response to “Business Tax Relief Tips: Correctly Classify Your Employees to Avoid IRS Tax Problems and Penalties”

  1. Top Tax Help Resources for Business Owners Facing Employment Tax Audits–The IRS Is Ready, Are You? | Tax Attorney and Tax Resolution Services: IRS Help Blog Says:

    [...] Correctly Classify Your Employees to Avoid IRS Problems This may seem an obvious fact but it’s a good place to start. If you can avoid the IRS audit on your business for unpaid employment taxes, you will be saving yourself a whole lot of trouble. So start by learning how to correctly classify your employees. The last thing you want is to wind up in serious IRS trouble because you didn’t know how to classify your workers. Learn the details here. [...]

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