Late information returns do not preclude employee classification relief.

• Author: O'Driscoll, David

P incorporated in 1990 to provide emergency medical services to hospitals. During and after 1990, it entered into contracts entitled "Emergency Department Services Agreements" (EDS Agreements) with several area hospitals to furnish professional emergency medical services and full-time physician staffing. To fulfill its obligations under the EDS Agreements, P hired physicians to staff the hospital's emergency rooms. P entered into "Independent Contractor Agreements" with such physicians. The IRS reclassified 25 of the physicians as employees rather than independent contractors (reclassified physicians).

Relying on a longstanding, recognized practice of a significant segment of the emergency medicine industry, P treated each of the reclassified physicians as an independent contractor. During 1996, it paid each one more than $600. P did not treat any of the reclassified physicians, or any other worker in a substantially similar position, as an employee for any period beginning after 1977.

Issues and Contentions

Section 530 of the Revenue Act of 1978 operates to afford relief from employment tax liability, notwithstanding the actual relationship between the taxpayer and the individual performing services. Section 530(a), as amended, provides that an individual will not be deemed an employee for employment tax purposes if:

* The taxpayer had a reasonable basis for not treating the individual as an employee;

* The taxpayer did not treat an individual as an employee for purposes of employment taxes for any period; and

* For periods after 1978, all Federal returns (including information returns) required to...