IRS provides guidance on corporate officer's work status classification.

• Author: Fiore, Nicholas J.
• Position: Corporate officers as independent contractors

Are corporate officers entitled to treatment under Section 530 of the Revenue Act of 1978 and, if so, is submission of a Form 1099 sufficient to establish the corporation's treatment of that worker as an independent contractor? Further, is the Classification Settlement Program (CSP) available when compensation to a corporate officer is mischaracterized, rather than when the officer's worker classification is incorrect?

Section 530 Relief for Corporate Officers and Submission of a Form 1099 as Sufficient Treatment for Independent Contractor Status

Under Section 530(a)(1) of the Revenue Act of 1978, termination of certain employment tax liability is appropriate if a taxpayer (1) did not treat an individual as an employee for any period, (2) consistently treated the individual as a nonemployee on all required Federal tax returns and (3) had a reasonable basis for not treating the individual as an employee. Additionally, under Section 530(a)(3), a taxpayer cannot have treated any individual in a substantially similar position as an employee for any period. However, Section 530(d) contains specific exceptions from employment tax liability relief under Section 530(a). Specifically, in the context of a three-party service arrangement in which a business provides workers to a client, Section 530 relief is unavailable if a worker provides services "as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work."

The language of Section 530 contains no specific exclusion that would prevent a taxpayer from obtaining relief if the Service determined that its corporate officers were employees. Indeed, when Congress was considering exceptions to Section 530 relief, its intent was to except workers under the common-law rules retained by businesses that provide technical services. Accordingly, the Tax Reform Act of 1986 amended Section 530 by adding the specific exclusions under Section 530(d). Corporate officers are not included in this exclusion. Further, Rev. Proc. 85-18 specifically stated that "[f]or purposes of Section 530(a) of the Act, the term employee means employees under Sections 3121(d), 3306(i) and 3401(c) of the Code" Corporate officers are defined as employees under Secs. 3121(d)(1), 3306(i) and 3401(c).

Although Rev. Proc. 85-18 explained that, for Section 530 relief, the term "employee" means those individuals defined as employees under Secs. 3121(d), 3306(i)...