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From 1099 to Employee to Broker (?) - Federal

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  • From 1099 to Employee to Broker (?) - Federal

    And the silliness continues. It started here with one employee, now it continues to another employee.

    My second worker, currently classified as a 1099 contractor, claims that his accountant is telling him that he can work in real estate services with that classification because he has a broker's license. I am searching for something specific on the IRS site and not finding it.

    This person currently works as our Sales Manager for loan modifications. He claims the "20 factor" test doesn't apply because he has a broker license.

    Argh. I just know this is wrong, but I need to document why before I have it out with him.

    Thanks again, folks. I really appreciate this resource.

  • #2
    I'd use the SS-8. It's not the fact that he HAS his broker's license that is the key. If the preponderance of the evidence is that he doesn't meet the requirements with the duties he is actually performing, then so be it.
    http://www.irs.gov/pub/irs-pdf/fss8.pdf

    I would think that, as a Sales Manager, he would not exercise very much "behavioral control" or "financial control". He is probably told when to be at work, how to do his job, and it's likely he cannot make a profit or incur a loss as a result of his work, other than his salary or commissions.
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    • #3
      Also, we need to be careful just what we are talking about. It is not just that IRS and DOL (two very different federal agencies) have somewhat different classification tests for purposes of determining worker classification. It is that these two different agencies have different end games in mind. IRS is interested in wages and taxes. DOL is (mostly) interested in minimum wage and overtime.

      For example, IRS supports something they call a "statutory nonemployee" which can be very directly related to real estate agents. Some one who falls under this catagory is legally treated a lot like an IC for IRS purposes because an IRS regulation says so. When most payroll people hear "real estate agent", this is what pops to mind (hey, it is on the CPP exam).

      DOL is fine with this but it does not effect them. DOL has no interest in tax collection in the first place so an IRS regulation specific to how IRS looks at the taxation of real estate agents is literally of no interest to federal DOL. And likely as not, of no interest to state DOL.

      I am not sure just what the OP is looking for, but one needs to be clear that IRS thinking that someone is pretty does not necessarily cut any ice with federal or state DOL. Each group has their own separate worker classification rules and each group really has no interest in what the other groups think. I can say that federal and state DOL are more likely to see things the same way. Alternative IRS and state revenue agencies associated with taxation are more likely to see the world similarly.
      "Reality is that which, when you stop believing in it, doesn't go away".
      Philip K. **** (1928-1982)

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      • #4
        Originally posted by Pattymd View Post
        I'd use the SS-8. It's not the fact that he HAS his broker's license that is the key. If the preponderance of the evidence is that he doesn't meet the requirements with the duties he is actually performing, then so be it.
        http://www.irs.gov/pub/irs-pdf/fss8.pdf

        I would think that, as a Sales Manager, he would not exercise very much "behavioral control" or "financial control". He is probably told when to be at work, how to do his job, and it's likely he cannot make a profit or incur a loss as a result of his work, other than his salary or commissions.
        You are correct, Patty, that he does not exercise the degree of control that would support contract employment. He isn't an electrician swinging by to install a breaker panel, for pity sake.

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        • #5
          Originally posted by DAW View Post
          I am not sure just what the OP is looking for...
          I am focused primarily on protecting my new company from the IRS hit for failure to properly report employee wages and to pay the correct taxes.

          But, yours is a good reminder for me to not be myopic in my approach. There are other areas of concern I need to be mindful of.


          (And seriously, where has this site been and how am I just now finding it? Wow. )

          Comment

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