Should the Owner of the Business be Treated as an Employee of the Business?

Posted on December 11, 2014

The owner and sole shareholder of an automobile business treated himself and two other individuals as independent contractors of the business.

As a result, these individuals were paid directly by the business, no taxes were taken out of the money that was paid to them and no employment tax returns were filed by the business. The owner and the other two individuals provided more than minor services to the business and were paid for their services.

The IRS audited the business and made the determination that the business’ treatment of these individuals as independent contractors was improper. The IRS helps a business define whether an individual is an independent contractor or employee here.

Suit was subsequently filed in the United States Tax Court. After looking at the various factors, the Court held that all three individuals should have been treated as employees instead of as independent contractors.

Do you have a business and treat your employees as independent contractors? Are you properly handing out 1099s or W-2s?
You may be subject to an IRS employment tax audit.

Call us, we can help.