          Because  of  the  controversy  surrounding  the classification of
          workers as independent contractors or  employees,  my  accountant
          put   together   the   20  factors  the  IRS  uses  to  make  the
          determination.

          What's at stake? If a worker is an  independent  contractor,  the
          employer  need  not withhold income or payroll taxes, nor pay the
          employer's portion of FICA  taxes.  Also,  health  insurance  and
          other employee benefits generally need not be provided.

          In recent years greater numbers of businesses, feeling the crunch
          of   the   recession,   began  treating  workers  as  independent
          contractors. The IRS has come down  hard  on  the  classification
          issue,  targeting  the  health  care,  trucking, and construction
          industries; messenger services; and those companies that tend  to
          use professional consultants.

          In light of the IRS's crackdown on independent contractors, it is
          vital   that   companies   considering   classifying  workers  as
          independent contractors first seek professional advise.

           Here are the IRS's 20 factors. These factors are used by the IRS
          to determine whether a recipient of services has  enough  control
          over  a  worker  to  be  an employer. They are intended only as a
          guide to help determine whether there is  sufficient  control  to
          show  an  employer-employee  relationship. Answering "Yes" to the
          first 16 factors tends to indicate control and  employee  status.
          Answering   "Yes"   to   17-20   tends  to  indicate  independent
          contractor status. The IRS  says  that  the  importance  of  each
          factor  depends  on  the  facts and circumstances of a particular
          case, and on the industry and type of services being provided.

     1. Instructions:

          Do you have the right (whether or  not  exercised)  to  make  the
          worker  comply  with your instructions on when, where, and how he
          or she must work?

     2. Training:

          Do you train a worker (on  your  premises  or  the  worker's)  by
          requiring  him  or  her  to  work with someone experienced, or by
          having him or her attend meetings, or via correspondence?

     3. Integration:

          Are the worker's duties an integral part of  your  operation?  Is
          the worker's function necessary to your business?

     4. Services rendered in person:

          Do  you require the worker to provide the services personally, or
          can he or she delegate them to someone else?

     5. Hiring/Firing:

          Do you hire, fire, and  pay  the  worker's  assistants?  (If  the
          worker  contracts  to  provide  both  labor and materials, and is
          responsible only for the ultimate product,  this  tends  to  show
          independent contractor status).

     6. Relationship:

          Is  there  a  continuing  relationship  between  the  worker  and
          yourself?   Are   services   performed    frequently    (although
          irregularly)?

     7. Hours:

          Do  you  set  hours  during which the individual must perform the
          work?

     8. Full Time:

          Must the worker devote all of  his  or  her  time  to  your  job?
          (Independent contractors can work when and where they please.)

     9. On Premises:

          Must  the  worker  work  on your premises, especially if the work
          could be performed elsewhere?  (Or  do  you  have  the  right  to
          designate  travel  routes  or times or otherwise control the time
          and place of performance?) The IRS says that the absence of  this
          factor does not necessarily negate an employee relationship.

     10. Ordering:

          Do  you  have  the  right  to set the order in which services are
          performed, whether or not you exercise that right?

     11. Reports:

          Do you require the worker to give you written or oral reports?

     12. Hourly, Weekly, or Monthly Pay:

          Do you pay the person by the hour, week or month? (A worker might
          still be an independent contractor and be  paid  on  this  basis.
          Contractors tend to be paid by the job or on straight commission,
          but  could be paid monthly or weekly so as to spread out contract
          payments.)

     13. Expenses:

          Do you pay the worker's business or travel expenses?

     14. Tools and Materials:

          Do you provide the worker with tools or materials?

     15. Right to Fire:

          Do you have the right to fire the worker? There can be  a  tricky
          distinction  between  controlling workers by the threat of firing
          if they do not follow your instructions -  which  would  indicate
          employee  status  -  and having the right to terminate a contract
          because  the  contractor   has   not   performed   according   to
          specifications.

     16. Worker's Right to Terminate:

          Can the worker quit at any time?

          Remember:  Answering  "Yes" to the rest of the questions tends to
          show independent contractor status!

     17. Investment:

          Does the worker have a significant  investment  in  equipment  or
          facilities that are not typically maintained by employees?

     18. Profit or Loss:

          Can  the  worker incur a profit or loss as a result of his or her
          work (in addition to the profit  of  payment  for  the  work)?  A
          contractor  should  bear an economic risk over and above the risk
          of not being paid.

     19. More than One Job:

          Does the worker work for more than one business at a time? (Note:
          The IRS says that a worker  could  be  an  employee  of  numerous
          service recipients.)

     20. Service Available to the General Public:

          Does the worker offer services to the general public on a regular
          basis.

                  What Does The IRS Look For In
                     Employment Tax Audits?

          The  IRS  might  ask  for  copies of all Forms 1099 issued by the
          business. The Forms 1099 would give the IRS an idea of the number
          and identity of workers treated as independent contractors by the
          business. Generally a Form 1099 is required when $600 or more  is
          paid   during  a  year  by  a  business  to  certain  independent
          contractors providing services.

          The IRS will also want to see cash disbursement journals, payroll
          records, and vouchers for accounts payable. Again, the purpose of
          such a request would be to gather information on the identity  of
          independent  contractors,  the  amounts paid them and the type of
          services rendered.

          The IRS might also ask to see any written contracts dealing  with
          services. This would enable them to determine whether the workers
          are  independent  contractors  under  the 20-factor test. Written
          contracts relating to services, which are not usually used by the
          business, may be  useful  in  validating  independent  contractor
          classification.

          The  consequences to a business of an employment tax audit can be
          financially  burdensome.  If  the  IRS  wins  a  reclassification
          dispute, then the workers will have to be classified as employees
          from that date forward. That's not the end of it, though. The IRS
          might  also  assess  back taxes. Generally, the IRS cannot access
          further back than  three  years.  This  three  year  deadline  is
          generally counted back from the date the employment tax return is
          filed.  But,  if the employer didn't file such a return, then tax
          year  going  back  more  than  three  years  are  also  open   to
          assessment.  Note,  however, that the IRS has a general policy of
          not going back further than six years to assess, even though  the
          years are "open"

          The IRS might also assert penalties.

          What  can  you  as  a  business  person  do?  Businesses can help
          themselves by being prepared for an employment tax audit  by  the
          IRS.  It  is  recommended  that  records  be  kept to back up the
          position  taken.  The  importance  of  recordkeeping  cannot   be
          emphasized enough.
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