Question : I am a CPA and working with a client who was treating tree trimmers as contract labor. The amount of contract labor exceed 814K for tax year 2016. He has been audited. The first assessment came in as over 85K. At the time the 1099’s were prepared many of the tree trimmers paperwork was missing and the owner did not know what had happened to the information.<br/>When the request came from IRS for all documentation….the missing folders came wrapped in one package with send to attorney. It was later determined that due to a law suit for the same year all of these folders had been sent to his attorney and returned sometime after the closed of 2017.We went ahead and prepared 1099s for all of these people and mailed them before the filing deadline for amending the 2016 return. The agent accepted the 1099s. We then discuss a lower rate. He verbally indicated not the lowest rate but a rate that would be under Section 530 which I calculated to be about $25K…..I discussed that with him and he had he would discuss with his supervisor.He called me after that time and said that lower rate would not apply because he had treated individuals differently. I disagreed all employees were either considered grounds-man, chippers, drivers, sales people and in house administration….only tree trimmers were classified as 1099.I have the ability to meet with his supervisor and need guidance.
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Answer : p.s. You know that if he can prove that all the Form 1099 independent contractors have filed income tax return for this income, he only owes failure to file and failure to issue Form 1099 penalties.No matter what the meeting with the manager result is, this direction he needs to consider.Section 530 is for the taxpayer to agree with the adjustment. The taxpayer has to know that they can fight and not necessarily to agree with the adjustment to win. Industry practice is always a good one to go, provided that you have sufficient evidence.
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