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Tax Court decision opens up way for employers to challenge payroll tax obligations

Previously, we began looking at the issue of worker classification and the costs employers can face when they make mistakes in this area. As we noted, employers who misclassify workers may end up having to pay taxes twice if they are unable to provide proof that an employee paid the required taxes.

In many cases where an employer is faced with additional costs due to worker misclassification, the employer chooses to settle with the IRS for reduced tax rate. Challenging the IRS is possible, but it is often too costly and time-consuming. That being said, a recent tax case may make it a bit easier for employees to pursue a case in court if they are willing to foot those costs. 

Under a recent decision from the U.S. Tax Court, federal tax privacy laws do not prohibit the IRS from disclosing the income tax compliance of workers. This decision could potentially be used to allow employers to request records from the IRS to determine whether misclassified works paid the necessary taxes. Experts say it isn’t likely the case will have a far reach since settling is usually going to be a more cost-effective option, but it does open up a potential avenue for employers to go up against the IRS.

As with any tax issue, careful planning and attention to detail can go a long way in complying with employment and payroll tax obligations. When issues do arise, especially involving disputed areas of law or the decision between settling with the IRS or pursuing a court challenge, businesses can and should work with an experienced attorney to ensure their legal rights are well-represented.

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Located in Atlanta, The Peck Group, LC, represents clients nationwide. Regionally, we are committed to serving clients in Fulton County and throughout the state of Georgia.