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

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Determining Worker Status Audits conducted by agencies other than IRS will not qualify a government entity for relief based upon the prior audit safe haven. NOTES For examinations that began before January 1, 1997, the government entity can establish a prima facie case that a prior audit was conducted by furnishing a copy of correspondence connected with the audit. Industry Practice Safe Haven A safe haven may be established based on reasonable reliance on a long-standing recognized practice of a significant segment of the industry in which the government entity is engaged. The practice need not be uniform throughout the entire industry. The safe haven most commonly argued, and the one which causes the most controversy, is industry practice. Whether a practice is long-standing depends on the facts and circumstances. However, as confirmed by section 530(c)(2)(C), a practice that has existed for 10 years or more should always be considered as long-standing. Furthermore, a shorter period may be long-standing, depending on the facts and circumstances. Additionally, section 530(e)(2)(B) provides that 25 percent of the taxpayer’s industry is deemed to constitute a significant segment of the industry. The legislative history notes that a lower percentage may be a significant segment, depending on the facts and circumstances. Other Reasonable Basis A government entity which fails to meet any of the three safe havens may nevertheless be entitled to relief if it can demonstrate in some other manner any reasonable basis for not treating the worker as an employee. Reliance on the advice of an attorney or accountant may constitute a reasonable basis. The government entity need not independently investigate the credentials of the attorney or accountant. However, the government entity should establish at a minimum that it reasonably believed the attorney or accountant to be familiar with the issues. Prior state administrative action (e.g., workers compensation decisions) and other federal determinations (e.g., determinations under the Fair Labor Standards Act) may or may not constitute a reasonable basis. This will depend on whether they use the same common law rules that apply for federal employment tax purposes. While a number of types of evidence may support a showing of other reasonable basis, more than a mere good faith belief is required. Good faith, although not a sufficient basis for section 530 relief, may be a basis for the IRS not assessing penalties. Lack of worker social security numbers is not a reasonable basis for not treating workers as employees. Nor is a demand by a worker not to have amounts withheld from wages. WORKERS COVERED BY SECTION 530 If a government entity meets the requirements of section 530 with respect to a group of workers, it is generally not necessary to determine whether the workers are independent contractors or employees. However it is important to understand the categories of workers to which section 530 applies, and the category to which it does not. Federal-State Reference Guide (1997 Edition) 3-9
Determining Worker Status NOTES Common Law Employees (IRC section 3121(d)(2)). Any worker who is an employee under the common law standard would be an employee for purposes of section 530 relief. WORKERS NOT COVERED BY SECTION 530 Section 1706 of the Tax Reform Act of 1986 (1986-3, Vol. 1, C.B. 698) (TRA ‘86), amended section 530 of the Revenue Act of 1978 by adding subsection (d) to that section. Section 530(d) provides that relief under section 530(a) is not available in the case of a worker who, pursuant to an arrangement between the business (or government entity) and a client, provides services for that client as any of the following: ♦ ♦ ♦ ♦ ♦ ♦ engineer designer drafter computer programmer systems analyst other similarly skilled worker engaged in a similar line of work EFFECT OF SECTION 530 RELIEF ON AN EMPLOYEE Section 530 relief does not convert a worker from the status of employee to the status of independent contractor. If it has been determined that the worker is an employee, the worker remains an employee for income tax purposes, such as deductions for business expenses and participation in retirement plans. If the government entity’s liability is terminated by section 530(a)(1), the worker remains liable for employee FICA tax with respect to all wages received. See Revenue Procedure 85-18, section 3.08; Treasury Regulations Section 31.3102(c) and Revenue Ruling 86-111, 1986-2 C.B. 176. The worker remains fully liable for the unwithheld employee FICA tax after the government entity’s liability has been determined under section 3509. The employee’s share of FICA tax is reported on Form 4137 by substituting the word “wages” for “tips.” If the services to be provided by the worker are not identified under a covered position per a Section 218 Agreement/Modification, and section 530 relief is not applicable, determine if the worker falls under any of the categories described in IRC section 3121(d). Refer to IRS Publication 1976 (Independent Contractor or Employee?) on page 3-24 for additional information on Section 530 relief. 3-10 Federal-State Reference Guide (1997 Edition)
Page 1 and 2: FEDERAL-STATE REFERENCE GUIDE Socia
Page 3 and 4: 4. Social Security Coverage Social
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Page 8 and 9: Preface Objectives of this book Th
Page 10 and 11: Introduction Introduction Social Se
Page 12 and 13: Introduction Who Is Responsible for
Page 14 and 15: 2 Frequently Asked Questions
Page 16 and 17: Commonly Asked Questions Questions
Page 18 and 19: Commonly Asked Questions 10. Where
Page 20 and 21: Commonly Asked Questions SSA 21. My
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Page 24 and 25: Determining Worker Status Introduct
Page 26 and 27: Determining Worker Status The gover
Page 28 and 29: Determining Worker Status The deter
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Page 34 and 35: Determining Worker Status Presence
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Page 50 and 51: Social Security Coverage Note NOTES
Page 52 and 53: Social Security Coverage Chronology
Page 54 and 55: Social Security Coverage The Social
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Page 58 and 59: Social Security Coverage Positions
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Public Retirement Systems IRS 3. Wh
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7 The Role of the State Social Secu
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The Role Of The State Social Securi
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The Social Security Administration
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The Internal Revenue Service (IRS)
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The Internal Revenue Service Overvi
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The Internal Revenue Service Region
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The Internal Revenue Service 2. Wha
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Public Employers NOTES Local govern
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Public Employers NOTES Local Govern
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Public Employers NOTES Example: A
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Public Employers NOTES group-term l
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Public Employers NOTES 2. the emplo
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Public Employers NOTES Advance Earn
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Public Employers NOTES Electronic D
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Public Employers NOTES Wage Reporti
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Public Employers NOTES How SSA Proc
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Public Employers NOTES Paper Form W
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Public Employers NOTES Questions 1.
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Social Security and Medicare Benefi
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Publications, Forms and Other Resou
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Publications, Forms and Other Resou
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Glossary 13
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Glossary of Terms Absolute Coverage
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Government Pension Offset The gover
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Social Security Administration (SSA
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Appendix Internal Revenue Service R
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Appendix United States Circuit Cour
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Appendix Internal Revenue Service D
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Appendix (5) Such agreement shall,
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Appendix (C) For the purposes of th
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Appendix (B) such retirement system
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Revenue Ruling 86-88 Revenue Ruling
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Revenue Ruling 86-88 Q7. An employe
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Revenue Ruling 86-88 Q16. Will all
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Appendix Q5. In November 1982, an i
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Appendix (2) Periods of more than 3
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Appendix (4) Credited service for p
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Publication 963 (Rev. October 1997) - Uncle Fed's Tax*Board

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