IRS clarifies determination procedures for worker reclassification

 

The IRS recently released guidance (Rev. Proc. 2022-13) clarifying the procedures regarding when and how the IRS will issue a “Notice of Employment Tax Determination” under Section 7436 on worker reclassification, and how taxpayers can petition the Tax Court to review the determinations.

Section 7436 generally provides for Tax Court review of two types of employment tax determinations made by the IRS:

  1. (1) Worker reclassification
  2. (2) Relief determinations under Section 530 of the Revenue Act of 1978 (“Section 530 relief”).

The IRS typically makes a worker reclassification determination when it concludes that an individual who was treated by a taxpayer as a non-employee should be reclassified as an employee for employment tax purposes.

Conversely, the IRS makes a Section 530 relief determination if it concludes Section 530 is not applicable to an employment tax issue between a taxpayer and the IRS, or if the taxpayer does not meet the statutory requirements of Section 530 with respect to an individual whom the IRS is reclassifying as an employee as part of an employment tax exam.

Rev. Proc. 2022-13 modifies and supersedes IRS Notice 2002-5 and is effective Feb. 7, 2022.

 

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