All business owners at one time or another have had to make a choice between classifying a new worker as an employee or an independent contractor. For most part in the 20th century these choices were easy to make. But in the 21st century a unique worker has begun to emerge that is somewhere between an employee and an independent contractor, the “Gig Worker” or what some may call the Gigs. While Judge Edward Chen O’Conner v Uber 3:13-cv-03826 ruled against the existence of Gigs, the California Uber case is far from over. Whatever the ultimate outcome in Uber, in my view Gigs are here to stay. What or who are the Gigs and how will they be evaluated during an IRS audit of your business? Stay with us here on TaxView with Chris Moss CPA Tax Attorney to see where Gig law is trending in the 21st century and what you need to do now to protect yourself from an IRS Gig Worker Audit.
So what is Gig and who are the Gigs? It all started with Uber. Not only are there now Gig Uber Drivers but Uber like Medicine Gigs called “healers”. In the last few years we are being invaded and inundated by Gigs. Unfortunately US tax law has not caught up with the rapid rise of Gigs, who in my view are simply independent contractors being directed by cell phone apps by you all out there to fulfill an immediate need, either providing a service, product or both.
Just so you know, Gig was coined in the early 20th century as slang for a paying musical engagement. The Urban dictionary now defines Gig as a job that could now apply to contract work in the IT and computer field or any temporary or incidental employment. However, the Gig has traveled or “Ubered” way beyond even Urban Dictionary’s definition.
In order to best define a Gig and understand the tax law of Gigs or lack thereof, let’s take a look at the 20th century worker. These folks, our parents and grandparents all worked in a 9-5 job as their primary source of income. Taxes were withheld and their work was reviewed by the “boss” at a company office. Independents back in those days were according to the current IRS web site the tradesmen and professionals who earned income from many customers, clients, and patients, such as Doctors, Lawyers, and other self-employed contractors.
In my view Gigs are legally somewhere in the middle between Employees and Independent Contractors. Gigs come to life when you all click on an Uber app and electronically signal or page a Gig driver to come to your location and drive you from Point A to Point B. The Gig driver is star rated by the public and develops a “branding” based on those ratings. Over a few months, each Gig develops a unique brand or “good will” based on their star ratings from folks around the world who have used their services. The legal status of Gig drivers, could be compared to the legal status of Gig Nurses, Gig Landscapers, Gig Fitness Trainers, Gig Pilots, and Gig Dog sitters to name a few. The fact that Uber supplies the App to us to find us the Gig driver, or HEAL supplies the App to find us the Nurse healer, is not the point. The point is Uber, HEAL, and all the other service Apps simply put the buyer and seller of the service together electronically, kind of like EBay does. The world wide customer base of the individual Gig “controls” how successful the Gig will be, just like EBay sellers are controlled by their star world wide ratings.
Would anyone claim sellers on EBay are employees of EBay? The similar question was presented to Judge Chen inO’Conner v Uber 3:13-cv-03826, where the the the Court is grappling with whether Gig drivers found via the Uber app are employees. Unfortunately, because Congress and the Courts have been caught off guard by the rise of the Gigs, the Government during an IRS Gig Worker Audit may be unable to find that middle ground in existing tax law to allow you the business owner to have a no change audit. So listen up on TaxView with Chris Moss CPA Tax Attorney as you learn how whether or not you win comes down to one simple word: “control”.
The key issues in existing law is “control” over the worker, as in Jones v IRS US Tax Court 2014. Facts are simple enough. Jones an attorney hired Tarri’s Business Service (TBS) as an independent contractor owned by his wife Mrs. Jones. They filed separate tax returns. The IRS audited and claimed TBS was really a disguised employee of Jones and should be classified as an employee. Judge Goeke easily finds Jones for because Jones did not control the details of TBS work schedule, thereby making TBS an independent contractor. In other words, Jones did not “control” TBS. Jones wins, IRS loses.
The facts are just as simple in Central Motorplex v IRS US Tax Court (2014). Central Motorplex (CM) engaged in buying, repairing and selling used autos. Mr. Smith was contracted to pick up and deliver license plates and title certificate as an independent contactor. The IRS audited and claimed Smith was an employee. Judge Lauber easily found for the Government because CM assigned Smith tasks, supervised his performance and set his compensation. In other words, CM was in “control” of Smith. IRS wins, CM Loses.
So what does this all mean for all of us out there who might be paying for Gig services? While Judge Edward Chen opines in his Order of March 11, 2015 “…it is conceivable that the legislature would enact rules particular to the new so-called “sharing economy..,” the IRS, Congress and the Courts, have yet to recognize the legal significance of the 21st century Gig worker. So first, for now, our best practice perhaps is to have your tax attorney create standard “Gig Contracts” showing you have absolutely no control over the Gigs. The easiest way to do this is to allow your Gig to receive public ratings so the public controls the Gig not your business. Second, include the Gig Contract in a PDF file attached to your business tax return so that if you are audited years later you will have a document in the tax return supporting your Gig strategy. Finally have your tax attorney standing by with the contemporaneously created documentation, so that when the IRS Gig Worker Audit comes your way you can be confident you will win and save taxes.
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Chris Moss CPA Tax Attorney