Employer files wrong return - SOL not triggered.

• Author: Friedman, Steven M.
• Position: Statute of limitations

One of the Service's favorite issues to raise in the course of an examination is that of worker classification (i.e., employee versus independent contractor status). Companies found to have misclassified workers can be held liable for the employment taxes that should have been withheld. It is therefore critical that taxpayers file the appropriate returns to start the three-year statute of limitations (SOL) period of Sec. 6501(a) for assessing employment taxes. Filing Forms 1099-MISC to report payments to workers classified as independent contractors was recently held insufficient to begin this three-year period (Ginter, DC Mo., 1993). According to the court, the three-year SOL began only when the taxpayer filed Form 941, Employer's Quarterly Federal Tax Return, which was not done in this case.

In Ginter, the taxpayer operated a sole proprietorship and classified his workers as independent contractors. He did not pay or withhold employment taxes on these workers, and did not file Forms W-2 or Forms 941. He did, however, file Forms 1099-MISC reflecting the payments made as nonemployee compensation. On audit, the IRS found t e workers to be employees, an taxes and penalties.

The taxpayer asserted that filing Forms 1099-MISC triggered the running of the three-year SOL and, thus, the Service was barred from making an assessment...