New Form 8919 Is Out In Draft Form

[TAXBILLY]

http://www.irs.gov/pub/irs-dft/f8919--dft.pdf

To deal with the employee/subcontractor problem.

taxbilly

[Lion EA]

Thank you. B)

[MAMalody]

To bad there is not an H for other.

I thoght that I had read that the IRS was no longer processing SS-8s.

[jainen]

>>there is not an H for other<<

This form should not be used casually. It could have important consequences for the client's employment. I see it as another step in the IRS shifting enforcement responsibilities onto tax preparers.

But does anyone have any insight as to why the IRS is so concerned about the independent contractor problem? If a 1099 is issued the IRS will still get its tax, and has easy pickings for finding other undeclared income.

The situation is even stranger because the employers are NOT bothered about the withholding--they have a completely different motive than the one the IRS is looking at. What do they care about 7.65% FICA, when wages haven't gone up in a decade? They are afraid of Workers Compensation Insurance.

[kcjenkins]

I find that the thing that many small businesses are really concerned with is simply the amount of paperwork that having 'payroll' requires. They simply want to write the workers a check, then at year end, they don't mind totaling those checks and telling the IRS who they paid, and how much. But they don't want to be 'free labor' for the government in doing all the withholding, reporting, and paying in, all for the government's benefit. And then hit with penalties if they goof up on any of those reports.

Plus, it's not like it's just a few reports. It's often monthly payments, to both federal and state, plus unemployment reports, plus, as you say, Workers Comp, maybe other insurance, required vacation pay and sick pay, in some states, etc, etc, and so forth! They just don't want to have to do all that extra work that does nothing for their bottom line. That, in my experience, is the real issue for many clients. Big companies have 'payroll departments' and no choice but to spend that money. But for the little guy, it's usually time taken out of HIS time. He's not even worried about the money, usually. He'd happily pay the worker a larger amount, if he could, by doing that, not have to do anything else except file a 1099. He'd pay more to the worker, then let the worker take care of his own estimated tax, insurance, etc.

[kcjenkins]

I think the reason the IRS is doing this is that they do not like the fact that filing a Sch C gives the worker the ability to deduct expenses that, if put on a Sch A as 'employee business expenses' would not be deductible, or would be reduced significantly. Plus it slows down the 'cash flow' since even if the worker pays the same exact total tax, if it's through a Sch C he only pays in quarterly, instead of the money coming in every month or sooner. When dealing with large amounts, that 'timing difference' becomes a big issue. And even though the individual amounts may be small, there are a lot of small businesses, so the accumulated total each month is significant.

This form is clearly designed to be a 'heads up' form to direct Compliance Officers to the businesses that pay workers as IC's.

[Don in Upstate NY]

This form is clearly designed to be a 'heads up' form to direct Compliance Officers to the businesses that pay workers as IC's.

Or maybe it's simply because the old instructions (Use Form 4137, cross out the word TIPS and write in WAGES) weren't compatible with e-file.

[jainen]

>>simply because the old instructions... weren't compatible with e-file<<

Oh, no. This goes WAY beyond that. Besides asking for the employer EIN, it requires either filing Form SS-8 or comparing to how other workers were treated--two main paths to formal determination. No, this is a major upgrade to the IC audits, using tax preparers to pre-screen each case. We will have to think carefully about how and when to use this form, because people are going to get hurt by it.

[Julie]

Interesting that it says you must file this form if (among other things), "Your pay from the firm was not for services as an independent contractor..." Seems like that's the issue being disputed, isn't it?

I agree with jainen, though....I wouldn't use this lightly. I've always told clients that challenging their employer's treatment of them will most likely lose them their jobs. This is no exception.

>>simply because the old instructions... weren't compatible with e-file<<

Oh, no. This goes WAY beyond that. Besides asking for the employer EIN, it requires either filing Form SS-8 or comparing to how other workers were treated--two main paths to formal determination. No, this is a major upgrade to the IC audits, using tax preparers to pre-screen each case. We will have to think carefully about how and when to use this form, because people are going to get hurt by it.

[kcjenkins]

What IS clear is that we will NOT be able to continue using the 4137 in such cases, where the employee disputes that he is subject to both halves of the payroll taxes. And yes, this does ask a lot more information than doing that called for. Clearly, they want to get all that info 'up front', so to speak, rather than having to contact the t/p about the situation later.

But frankly, using the 4137 was only done, in my practice, when the client had either already left the job, or did not care if he got fired over doing it. Because I always warned him about that, and then let HIM make the decision whether he wanted to file the 4137 or to file a Sch C and pay the extra taxes and keep the job.

[joanmcq]

TurboTax automatically prepared a 4137 if the taxpayer checked a box saying, 'this should really have been wages'. I've seen a lot of 4137s filed, and just won two cases in audit, filing the required SS-8, ect. This merely provides a form to do what the 4137 was being used for but wasn't designed for. As well as definitely putting a heads up to anyone that was using the 4137 lightly because they didn't want to pay the SE tax.

[JohnH]

Whenever I've used the 4137/SS-8 combination I've always given the SS-8 to the taxpayer to fill out after I entered the boilerplate info. I wanted to be sure they knew they took full responsiblity for what was being alleged and there was no question about who provided the info. I've suggested a few tweaks in the wording, but the claims made on the SS-8 were all theirs.

And as you have all pointed out, it's important to warn the T/P of the potential consequences. I've always asked them to tell me they understand that it could result in their being fired if still working there, or never having a chance to work there again if not currently working there.

But back to the form itself, since there are only a few carefully worded possible reasons for filing the 8919 and no provision for an "Other", could it be the opposite situation? Is it possible that IRS is providing a form which most people really can't use once they find that they don't fit one of the reason codes? Maybe it's a form whose real purpose is to discourage the practice of trying to shift the responsiblity for the matching FICA/Med back to the employer.

[OldJack]

I have never prepared a form 4137 or SS-8 as the client/worker has usually worked all year and accepted a vendor type check clearly with no payroll withholding. That client/worker has known (or should have) all year that he was not being treated as an employee and if he was not willing to work as an IC he should have quit the job. The client/worker created his IC status and as his tax preparer I will only prepare his taxes according to his tax status. In other words its up to the client/worker to solve his tax status with his customer/employer. Its not my job.