Publication 963 (Rev. October 1997) - Uncle Fed's Tax*Board

Determining Worker Status
NOTES
Section 530 Considered First
The IRS will consider section 530 (relief provision) as the first step in any case involving
worker classification. A government entity will also want to consider this aspect. Additionally,
the government entity need not concede or agree to the determination that the workers
are employees in order for section 530 relief to be available.
Other Tax Consequences For Workers
A government entity may be entitled to relief under section 530 but workers may find,
through a determination letter or by some other means, that they have been misclassified and
are employees. However, section 530 relief does not extend to the worker. It does not
convert a worker from the status of employee to the status of independent contractor.
Misclassified employees are liable for the employee share of FICA rather than for tax under
the Self Employment Tax Contributions Act (SECA).
SECTION 530 TESTS
A) Consistency Tests
1. Reporting Consistency
Filing Information Returns
The first requirement a government entity must meet to obtain relief under section 530 is
timely filing of all required Forms 1099 with respect to the worker for the period, on a
basis consistent with the government entity’s treatment of the worker as not being an
employee. This provision applies only “for the period.” Revenue Procedure 85-18,
section 3.03(B). That is, if a government entity in a subsequent year files all required
returns on a basis consistent with the treatment of the worker as not being an employee,
then the government entity may qualify for section 530 relief for the subsequent period.
If a government entity is not “required to file,” relief will not be denied on the basis that
the return was not filed.
Revenue Ruling 81-224, 1981-2 C.B. 197, addresses specific questions about timely filing
of Forms 1099. It provides that:
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taxpayers that do not file timely Forms 1099 consistent with their treatment of the
worker as an independent contractor, may not obtain relief under the provisions of
section 530 for that worker in that year
taxpayers that mistakenly, in good faith, file the wrong type of Form 1099 do not lose
section 530 eligibility.
2. Substantive Consistency
Substantially similar position
A substantially similar position exists if the job functions, duties, and responsibilities are
substantially similar and the control and supervision of those duties and responsibilities
are substantially similar. In addition, section 530(e)(6), added by the Small Business Job
Protection Act, states that the determination of whether workers hold substantially similar
positions requires consideration of the relationship between the taxpayers and those
individuals. This includes, but is not limited to, the degree of supervision and control. It
is also apparent that the contractual relationship and the provision of employee benefits
are also to be considered.
3-6 Federal-State Reference Guide (1997 Edition)