Misclassification of intermodal driver

Misclassification of what?

 

Employee vs i/c

 

*GASP*

What?!?! Surely you jest!

Never heard of such a thing!

*tongue firmly in cheek*

 

we got ourselves a 1099 thread starting up again

 

I did an internet search and found some cases. This one is from 2010, and really sums up the issue quite well. There are cases every year....I just have not read through all the searches to find one more current. I liked this case summary. The IRS will continue to pursue these cases.....it is only a matter of time before the IRS finds those companies misclassifying employees.

Tax Court Case 2: The Case of the Trucking Company

The company (we will call it "P Trucking") owned the trucks, which were leased to another company. P Trucking was required to provide the drivers, and to direct, supervise, pay, discipline, and discharge them. P Trucking determined the days and hours per day the drivers worked, and the order of pickup and delivery. The company also had to monitor the drivers' commercial driver's licenses.

P Trucking's agreement with each driver expressly stated that the driver was an independent contractor, not an employee, and that P Trucking "shall not direct [the driver] in any manner." P Trucking paid the drivers a percentage of the gross pay per load. They were not obligated to work on any day or route, and the agreement could be terminated by either party at any time. The drivers paid for their own gloves, hand tools, meals, and tolls. P Trucking paid for the trucks and for all associated truck operating and maintenance costs. P Trucking did not direct the exact routes the drivers took, as long as the deliveries were made . The drivers agreed to be responsible for the payment of income taxes, social security/Medicare, and unemployment compensation; they received a Form 1099 from P Trucking.

Here are the factors the Tax Court reviewed in making its determination:

• Control. P Trucking was in control of the drivers' work. The only choices made by the drivers were choice of routes and their payment of tolls. The Tax Court said P Trucking had the right to control driver work, even if it didn't exercise that right in some cases. The Court said this factor indicated employee status.
• Ownership of work tools and equipment. The drivers did not own the trucks or any other equipment needed for their work. The drivers only owned their tools, which the Court said was "insignificant" compared to the cost of the trucks. This factor also indicated employee status.
• Risk of Loss (Investment or Debt). The drivers had no indebtedness, since they had no ownership. Nor did they have any investment in the business which they would be at risk of losing. This is a major factor in favor of employee status.
• Right to terminate. P Trucking had the right to terminate the relationship at any time, as did the truckers. The Court said this factor showed that the truckers were employees.
• Work Integral to Business. The work of independent contractors is often peripheral to the business; for example, a computer company would hire a cleaning service (independent contractor). Since the work of the drivers was integral to the business, the Court stated this indicated an employer-employee relationship.
• Nature of Relationship (permanent or transitory). Independent contractors have a transitory relationship to a company, working only occasionally, not on a regular schedule. The drivers were permanent workers, working all the time, even though they had the right to refuse jobs. The Court stated this as another factor indicating they were employees.
• Existence of agreement. The Tax Court noted the written "independent contractor" agreement between P Trucking and the drivers, but it said the agreement was overridden by the other factors.

Determination of the Court
As you can guess by their statements on each point, the Tax Court found that the drivers were "common law employees" and that the payments made to them were wages and subject to federal employment taxes. Note that the existence of a contract is not enough. The IRS and the Tax Court look at many factors in making a determination of employee or independent contractor status.

Disclaimer: The information in this article and on this site is for general purposes, and is not intended to be tax advice. The IRS and the Tax Court consider each case on its own, and every case is different. If you are wondering if your workers have been misclassified, you can request an IRS determination by filing Form SS-8.

References: T.C. Memo 2010-239, T.C. Memo 2007-66

 

Your paid on a 1099?