TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

IMPROVEMENTS TO THE SS-8 PROGRAM ARE NEEDED TO HELP WORKERS
AND IMPROVE EMPLOYMENT TAX COMPLIANCE

Final Report issued on September 19, 2018

Highlights of Reference Number:† 2018-30-077 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The determination of whether a worker is an employee or an independent contractor has significant tax implications for the worker, the business, and the IRS.† The emergence of the gig economy has made worker classification more complex. †The IRS addresses worker classification issues through the Small Business/ Self-Employed Divisionís SS‑8 Program and the Examination functions.† In an April 2017 report, the Government Accountability Office determined that worker classification issues yielded the highest wage adjustments in employment tax examinations conducted by the Small Business/Self-Employed Division for Tax Years 2008 through 2010, with $44.3 billion in wage adjustments associated with worker classification issues. †Misclassification can cause harm to workers and create an unfair competitive business advantage for businesses that misclassify workers.

WHY TIGTA DID THE AUDIT

This audit was initiated to assess the efficiency and effectiveness of the IRSís SS-8 Program, including the effectiveness of referrals of businesses to the IRSís Employment Tax Examination function, and to determine whether the program has adopted a strategic approach for worker classification issues related to the gig economy.

WHAT TIGTA FOUND

While there are a large number of workers participating in the gig economy, the SS-8 Program does not track Form SS-8 submissions from gig economy workers.† The SS-8 Program has guidance for other types of workers but lacks guidance about workers in the gig economy.† TIGTA identified 15 gig economy cases that were mishandled due to the lack of guidance. †The cases were held without action for an average of 524 days, and then the SS-8 Program mistakenly determined no decision could be made on the cases because the gig economy businesses were given Section 530 relief, which prevents the IRS from addressing past and future worker misclassification. †In addition, TIGTA found that the Employment Tax Examination function did not receive any referrals from the SS-8 Program for potential examination from October 2014 through April 2018.† Furthermore, the SS-8 Program does not process SS-8 requests timely enough for the determinations to be useful to workers who file requests for assistance.† TIGTA also found that the SS-8 Program did not render timely decisions for the worker in 129 of the 189 determinations reviewed and 26 of the 66 opinions reviewed.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS: †create guidance and training for gig economy Form SS-8 requests; evaluate which function would be best to identify cases for referrals; evaluate whether businesses are complying with determinations and consider program changes and referrals to increase business compliance with worker classification determinations; evaluate the process used in making worker classification determinations and opinions and make necessary changes to improve the process; and work with the Department of the Treasury on legislation to amend Section 530 so that the IRS can address noncompliance with the law prospectively.

The IRS agreed with all of our recommendations and plans to create guidance and training for gig economy SS-8 requests.† The IRS also plans to evaluate the proper function for referrals, whether businesses are complying with determinations, and the process used in making worker classification determinations.† The IRS also agreed to work with the Treasury Office of Tax Policy to pursue a legislative change to Section 530.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2018reports/201830077fr.pdf.

 

Phone Number ††/† 202-622-6500

E-mail Address †/TIGTACommunications@tigta.treas.gov

Website†††††† ††††††/http://www.treasury.gov/tigta