Discussion:Did He Have a Business?

Also, if being treated as an IC is industry standard then the state has more of a chance fighting it than the Fed's - 20 factor test or not.

Treat the t/p as an IC and hopefully they can take full advantage (legally of course) of it - expenses, SEP and the whole deal.

So as Michaelstar says, it's all in the eyes of the beholder.

Sandysea, that is incorrect.

The IRS' 20 common law factors test, or the newer 3-factor test, based on the 20 common law factors, is what determines his employment status.

"Also, if being treated as an IC is industry standard then the state has more of a chance fighting it than the Fed's - 20 factor test or not."

Michaelstar, that is possibly correct if the section 530 requirements are met by the employer (they usually aren't).

Under the Section 530 safe harbor rules, one of the most common traps is previously treating the worker as employees and then switching them to independent contractors with no reasonable basis for doing so and even worse, with no change in work conditions, training, etc. other than not taking out employment taxes from their pay.

In this case, if the employer has previously treated this worker or similarly-situated workers as an employee, then the employer will lose on the employment status issue of the worker if the IRS makes a determination that the worker is an employee.

"So as Michaelstar says, it's all in the eyes of the beholder."

1040man, in taxes, it is usually the IRS' eyes that count and that is who the employer should be worried about.

"He informed me that in talking to others at the FedEx terminal who owned additional routes that they all issued their people a 1099-Misc."

Just because they issue 1099s does not mean the IRS will agree with that. The IRS will use the 20 common law factors test, or the newer 3-factor test, based on the 20 common law factors, to make the employment status determination.

IRS has consistently held that drivers are employees, not independent contractors. IN 2006, two FedEx drivers were ruled by the IRS to be employees, overturning a prior IRS decision, based soley on FedEx's word, that FedEx drivers were independent contractors.

Many states are also ruling against FedEx.

In Indiana, 35 class-action lawsuits have been consolidated and are pending against FedEx on driver's employment status that involve about 15,000 drivers from several states.

In June 2006, a California Employment Development Department audit found that FedEx Ground owes the state at least $7.8 million in back employment taxes because contracted drivers were misclassified.

In February 2006, the National Labor Relations Board ruled that 23 FedEx drivers in Worcester, Massachusetts could join a union because they were employees of the company, and not independent contractors as previously classified.

Recently, a California labor board ruled that FedEx driver Jerry Ferguson had been misclassified as an independent contractor and should receive the full benefits of an employee. According to Ferguson, FedEx told him when to work, how to work, had to wear a mandatory company uniform and placed restrictions on his days off when driving his own trucks that had required FedEx logos.

Here is one worker's lawsuit against FedEx, [1].

However, here is one case where FedEx won (though it may be appealed), [2].

1040man, your grandson is very likely an employee, not an independent contractor of FedEx.

No, I'm not.

I based the first part of my answer on Hdoverby's own statement in his original posst, "...the description he gives me resembles "employed.""

That is, Hdoverby probably asked the client some questions about his expenses for advertising, gas, materials, inventory, etc., his business license, his truck or car mileage and depreciation, etc. and the client probably couldn't answer the questions because he didn't have any such expenses, as most employees don't but most self-employed people do.

If he looks, quacks and smells like an employee, then he probably is. The IRS tests would determine if he is actually an employee or self-employed but from what Hdoverby already stated, I'd say that in all likelihood the client is an employee.

The second part of my answer dealt strictly with 1040man's post about his grandson the FedEx driver.

"We're presuming that it's tax season, he got a 1099, and therefore he IS for all our practical definitional purposes, and until further notice, a Sch. C."

JR1, I don't understand why would you want/force your clients to pay more in taxes than they are legally required to pay?

Making the determination that he is an employee rather than self-employed is not that difficult or time-consuming, and preparing his tax return as an employee is much easier than as a self-employed person.

Making the preparer the judge and jury can result in audit fees when the inevitable letters come in, and they will no matter what is attached to the return, and perhaps the position will prevail, but the client should know this is a possibility and that unless the case is taken to court and fees awarded, those fees are not refundable. I have at least 5 clients I have termed employees who receive 1099s, but for each one I have explained this to them fully.

As I recall the 530 rules were put into effect because Congress grew upset at the effect of the turmoil in the business world caused by the Service.

btw: I love the 20 Factors and the 9 steps to determine if a activity is subject to Section 183....reminds me of why we say the writers of regulations must be Buddhists for that is the religion of lists.

I agree that some workers will abuse and take advantage of the situation as you described. However, in most cases the worker is actually an employee and the employer knows it. Also, in most cases it is the employers/vendors that initiate that kind of deal with their workers, not the other way around, so they are abusing the system, not the worker.

Everyone knows employers/vendors do this because they know what a good deal it is for themselves. They get to keep more money in their pockets and gain a competitive advantage over their competitors who operate by the rules.

For me, if a worker in this situation comes to me, he is my client, not the employer/vendor, so I will do what is in my client's best interests. The employer/vendor is not my client so what may or may not happen to them is not my concern.

"The question was CAN he be treated as a business? YES INDEED HE CAN!!! that is mho of course :)"

Sandysea, I'm curious why would you treat him as self-employed? Just on the basis of the 1099?

Why not treat him as an employee based on Hdoverby's own statement in his original post, "...the description he gives me resembles "employed.""?