Common-law employer liable for employment taxes

An S corporation was the common-law employer of the workers at issue; therefore, the taxpayer was liable for the proposed employment taxes. The taxpayer operated a limousine transportation business and employed workers through a professional employer organization (PEO) to perform services in the various departments. Although the taxpayer referred to the workers as “co-employees,” the taxpayer did not dispute that at all times during the tax years at issue, it was the common-law employer of the workers and had the right to direct and control all aspects of the employment relationship between itself and the workers. Thus, the taxpayer was ultimately liable for the unpaid employment taxes even though the taxpayer alleged that it paid wages, the employer share of FICA and FUTA taxes to the PEO, which was obligated by statute to withhold employment taxes and pay the withheld taxes over to the government. Moreover, the contractual arrangement between the taxpayer and the PEO was predicated on the treatment of the taxpayer’s workers as employees for federal tax purposes. Further, the contractual obligations were solely between the PEO and the taxpayer and would have no effect upon the government’s ability to collect the taxes at issue from the taxpayer.

However, the taxpayer could be entitled to an interest-free adjustment of the FICA pursuant to Code Sec. 6205 if they executed a Form 2504-WC, and tendered payment to the IRS prior to the issuance of a Notice of Determination of Worker Classification (NDWC). Finally, since the present case did not involve an issue regarding the proper employment status of workers and since the taxpayer did not allege that it was entitled to relief pursuant to section 530, the taxes could properly be assessed without the issuance of a NDWC. (Field Attorney Advice 20171201F, March 24, 2017, 2017ARD 067-4.)

Visit our News Library to read more news stories.