Two Initiatives to Determine Whether
Workers Should be Treated as Employees or
Independent Contractors

WASHINGTON - Commissioner of Internal Revenue Margaret Milner Richardson today announced two initiatives designed to smooth the process of determining whether workers should be treated as employees or independent contractors.

"I've spent a lot of time talking to owners of small businesses who believe this is a big problem," said Commissioner Richardson. "And I was not surprised that it was designated the number one issue by the recent White House Conference on Small Business. That echoes what I heard at the small business town meetings earlier this year."

"We can do better, and we will do better in handling worker classification issues," said Commissioner Richardson, who stressed that the issues could not be fully resolved without legislative changes.

The initiatives announced today, which are designed to assure that standards are applied uniformly in all regions of the country, will:

• require IRS national office approval for any local project involving worker classification issues, and

• provide additional training for all examiners dealing with worker classification issues. Interested parties will be invited to comment on the new training materials, which will be used in a program that will be completed by the end of the year.

The materials will emphasize the IRS policy that using independent contractors can be a legitimate business practice.

IRS enforcement efforts will focus on serious deficiencies, such as situations where employers classify workers as independent contractors and fail to issue required information reports such as Form 1099.

These latest steps are part of a continuing effort by the IRS to improve the administration of a complex law.

The IRS has a market segment understanding (MSU) initiative designed to resolve issues at the national level by working with industry groups to agree upon guidelines that can be used by both taxpayers and tax examiners. For example, one early MSU involves television producers.

The IRS is working on guidelines with physical therapists, limousine drivers, home delivery services and drywall contractors.

IRS is also working with the Treasury Department to find alternatives to current rules in an effort to simplify tax administration.

"The small business community encouraged us to fix the way we handle classification questions," said Commissioner Richardson. "And we have responded with changes that should make life a little easier for everyone involved."

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