The Congressional Research Service estimates that the current tax gap in the United States is $450 billion dollars. That amount is itemized as follows: $376 million is under-reported liability; $28 billion is non-filing of tax returns; and $46 billion is underpayment of tax liability.
The Congress and the IRS say this is a serious problem. It represents a “non-compliance” rate of about 16%.
The IRS has implemented six strategic actions by which to combat this “shortage”.
The IRS had attempted to regulate ALL return preparers in 2011 with new requirements that all preparers be registered. Registration hinged on passing an exam and taking continuing education courses during the year. But, the federal courts struck down that attempt by the IRS in 2014, thus requiring a change in the law by Congress.
I say all because currently ALL attorneys, CPA’s, and Enrolled Agents ARE registered and do take continuing education.
The thing that stood out when I read these recent reports was that return preparer regulation is a part of an effort to reduce the tax gap. You see, most people would think that return preparer regulation is needed to ensure that the taxpayer/filer gets good advice and submits an accurate tax return to the government.
And that is true…but…that’s not the MAIN reason the IRS wants to regulate ALL tax return preparers.
I find it interesting that with the government there is always a reason behind the reason. That is, whatever the stated reason is for advancing legislation, there is always a REAL reason. And you may think that regulating tax preparers is a good thing. (I would be a CPA with or without their regulatory process.)
But just remember-the real reason is they want more of your money!
We are here to help ensure that you get the best service possible to REDUCE your tax burden-not increase it. Don’t fall prey to the “Tax Gap”.
The Internal Revenue Service recently issued Fact Sheet 2015-21 which encourages employers to think about the classification of those workers they pay. Are those workers employees? Are those workers independent contractors?
The IRS is very interested in this issue as there are many taxes that are triggered by employment.
The most common is the Social Security and Medicare tax that the employer must pay. The overall tax is 15.3% of total wages (up to $118,500 for the social security portion) and the employer must pay half of that. It is the single biggest largest tax (in dollar terms) that most people pay. And, employers would sure love to escape that tax.
The IRS suggest that you to fill out form SS-8. Turn that form in and they will give you a determination within six months. Be advised that more than likely it will be in favor of the employee determination rather than the contractor determination.
There are actually some pretty simple common law rules that this “fact sheet” mentions.
1. Behavioral. Does the business owner control?
2. Financial. Are the business aspects of the worker’s job controlled by the business owner?
3. Type of relationship. Are there written contracts?
The first two are often called “means and methods”. If the worker controls the means (the financial responsibility) and the methods (the manner in which the job is carried out) then more than likely you do have a contractor relationship.
But, that needs to be followed up by a real CONTRACT! This is the document that many employers forget. In fact, if you have a contract spelling out the details of the work and the amount paid for the work, then you will probably win any employment vs. contractor dispute.
The financial/tax implications are huge. If you are determined to be an employer after many years of not withholding these social security and Medicare taxes, the penalties and fines can be enormous.
Be safe. Understand the law.
And as always, feel free to contact us for any help on this issue.