DEPARTMENT OF THE TREASURY • INTERNAL REVENUE SERVICE
INDEPENDENT CONTRACTOR
OR EMPLOYEE?
TRAINING MATERIALS
THIS MATERIAL WAS
DESIGNED SPECIFICALLY
FOR TRAINING PURPOSES
ONLY. UNDER NO
CIRCUMSTANCES
SHOULD THE CONTENTS
BE USED OR CITED
AS AUTHORITY FOR
SETTING OR SUSTAINING
A TECHNICAL POSITION.
Training 3320-102(10-96)
TPDS 84238I
October 30, 1996
F O R E W O R D
Examiners and other Internal Revenue Service (IRS) representatives are sometimes faced with
the difficult task of making a determination of the classification of workers who provide
products and services for others. The status of a worker as either an independent contractor
or employee must be determined accurately to ensure that workers and businesses can
anticipate and meet their tax responsibilities timely and accurately. Businesses decide
whether to hire employees or independent contractors depending on individual needs,
customer expectations, and worker availability. Either worker classification -- independent
contractor or employee -- can be a valid and appropriate business choice.
The majority of classifications of workers are not challenged by the IRS. When they are,
there is usually agreement between the IRS and the business after the facts and circumstances
are jointly reviewed. Nonetheless, when the IRS determines there may be a need for
reclassification to accurately reflect the relationship of the worker and the business, the legal
standard for distinguishing between independent contractor and employee can be difficult to
apply. Also, the importance of indicators that might help in applying the legal standard can
change and should be reviewed from time to time.
This training addresses the application of section 530 of the Revenue Act of 1978. Section
530 can in certain circumstances relieve businesses of employment tax liability resulting from
worker classification. This training provides you with the tools to make legally correct
determinations of worker classifications. It also discusses facts that may indicate the
existence of an indepe