Ron Culberson Writing Sample – Vern Hoven

This following are excerpts from a tax law training seminar by professional speaker Vern Hoven. It has been humorized by Ron Culberson and his added lines are in red.

O/H#15: FICA Tax for Misclassified Workers

Want to cut a worker/independent-contractor’s SE tax in half? IRS blesses a new option! The IRS allows the worker to file Form 8919, Uncollected Social Security and Medicare Tax on Wages, instead of filing the Schedule SE, if they meet at least one of seven magnificent criteria (called “reason codes”) as enumerated on the next slide. Previously, misclassified workers were required to file Form 4137, the Social Security and Medicare Tax on Unreported Tip Income Form, for this purpose.

**The self-employed’s maximum SE tax is $16,340 in 2009 whereas the employee’s maximum FICA tax is half that, resulting in an annual $8,170 savings! FICAlogically, that’s a big relief. That’s a big deal for the qualified worker who often doesn’t owe any income tax anyway, just lots of social security. And don’t worry, by filing Form 8919, the worker’s social security and Medicare taxes will be fully credited to the worker’s Social Security record. In other words, the worker will get the same credit as if filing as self-employed … at half the cost.

O/H#16: FICA Tax for Misclassified Workers

The worker may file Form 8919 if all of the following apply: (1) The worker performs services for a firm, (2) The firm did not withhold the worker’s share of social security and Medicare taxes from the worker’s pay; (3) The worker’s pay from the firm is not for services as an independent contractor; and (4) The worker reasons that it’s reasonable to assume that one or more of the reasons listed next under reason codes reasonably apply to the worker. There’s no reason that shouldn’t work.

O/H#17: FICA Tax for Misclassified Workers

When treated by the employer as an independent contractor, the worker should indicate on Form 8919 one of seven reasons why they determine they should have been treated as an employee, they being,

A. The worker filed Form SS-8 and received a determination letter from the IRS stating that the worker was an employee of the firm.

A. The worker was designated as a “§530 employee” by the employer (in at 9:00 out at 5:30) or by the IRS prior to January 1, 1997 (That means all the Peno truckers qualify, right?).
B. The worker received other correspondence from the IRS stating the worker was an employee. In other words, if he looked like an employee, if he smelled like an employee, and if he worked less than he was paid for, he must be an employee.
C. The worker was previously treated as an employee by the firm and was performing services in a substantially similar capacity and under substantially similar direction and control.

O/H#18: FICA Tax for Misclassified Workers

D. Any co-workers, performing substantially similar services under substantially similar direction and control, were treated as employees. Also known as the “Billy Gets to Be an Employee, Why Can’t I?” reason.

E. Any co-workers, performing substantially similar services under substantially similar direction and control, filed Form SS-8 for the firm and received a determination that they were employees.

F. And the fallback position, the worker filed Form SS-8 with the IRS and has not received a reply similar to the note you passed Sally Johnson in Chemistry class.

(Smile] One warning, submitting this form may cause the business to be audited by the IRS, usually not a healthy thing to do if the employee wishes to retain his or her job!

**Do you remember the Tony Hough case we just discussed? The plumber? This option would have been perfect for him and he wouldn’t have had to go to court!

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0/H#25: 100% Trust Fund Penalty

Now to something more serious…since clearly up until this point, this movie has been rated as comedy. Responsible persons are personally liable for corporate payroll tax! Under §6672, the IRS can hold “responsible persons” personally liable for taxes withheld from employees but not deposited with the government. What a concept. People who are in positions of responsibility and therefore responsible for other people are responsible for the people that are responsible for. People in charge need to act that way. The liability equals 100% of the undeposited trust fund taxes (withheld FICA and federal income taxes). And the 100% trust fund recovery penalty is not forgiven in bankruptcy! It passes through, to haunt the “responsible person” until paid! I guess, just another reason why irresponsible people have more fun! So let’s review the “responsible” and the “willful” requirements. Liability under §6672 requires: (1) a responsible person – that’s one who has a duty to collect and pay over the taxes. Also, one who cleans up after him or herself! The following have been held to be responsible: board members, corporate officers, managers, payroll check signers, payroll report signers, and anyone who made their bed…because they must lay in it. In addition, the responsible person must have acted willfully in failing to pay and collect the taxes. “Willful” can be nothing more than knowing the liability exists and paying another creditor.

0/H#26: 100% Trust Fund Penalty Cases

In most cases, the IRS wins when assessing the §6672 100% penalty.

**In the Bean case we find the taxpayer fined $1 million even though he was a passive investor. Dr. Bean invested in his niece’s business, a company that used students to make deliveries for restaurants. Even though he had no day-to-day involvement in the business, just a benevolent family moneybags, he was the President and sole shareholder, he weekly contacted his niece on business matters, and most importantly, he had the right to hire, fire and write checks. So when the students ate all the food instead of delivering it, he was responsible.

**In the Cheattle case, we find a non-owner secretary/treasurer fined $106,000. Of course a secretary/treasurer is a responsible party and it was impossible for him to disapprove willful as he had power to write checks.

**In the Haslett case, we find a CEO fined $439,000, basically for the same reason. And by the way, “I forgot,” “what payroll taxes?” and “I was saving them up so I’d only have to write one check” are not considered valid reasons to avoid liability.

**In the Verret case, we had an unpaid board chairman of a non-profit receiving a fine of $409,000. Now that is unusual as most non-profit board members should be exempt from this penalty … but Stephen knew about the failure to pay over the payroll tax. There’s actually a proverb that says, He who non-profits by irresponsibility will inherit a fine reward.

**In the Kavanaugh case, we find the president and major shareholder fined $1.3 million. Ouch!

**And in the Milchling case, we find the former CFO still being fined $325,000 because he didn’t resign fast enough. The second a responsible party finds the IRS is getting stiffed, run for the door and do not pass go!