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United States. Tax Court

IRS Clarifies Worker-Classification Procedures Under Section 7436

Strategic Insights

— 2 min read

The Internal Revenue Service's (IRS) Office of Chief Counsel has issued a notice (CC-2014-011) clarifying worker-classification procedures under tax code Section 7436. The notice aims to advise the IRS on when to issue a Notice of Determination of Worker Classification (NDWC) and how to handle employment tax and collection due process cases. This clarification comes in response to a U.S. Tax Court opinion in April 2014, which said the court has jurisdiction in a worker-classification case, a ruling the IRS claimed was incorrect.

Key Takeaways:

  • The IRS should follow worker-classification procedures under Section 7436 only when an employer did not treat a worker as providing services as an employee during the period under examination.
  • The IRS's Office of Chief Counsel issued a notice (CC-2014-011) on December 8, 2014, to advise the IRS on when to issue an NDWC and how to handle employment tax and collection due process cases.
  • The IRS's assessment of equipment lease payments as additional wages that had not been paid under an accountable plan is subject to judicial review under Section 7436.
  • The U.S. Tax Court opinion in April 2014 determined that Section 7436(a) provides the court jurisdiction over an employment classification controversy regardless of whether the IRS had provided formal notice or certified mailing.
  • The parties argued that the Tax Court lacked jurisdiction under Section 7436 unless the IRS issued an NDWC, but the Tax Court denied both motions, finding no basis to grant the commissioner unilateral discretion.
  • The IRS advises its attorneys to file a motion to dismiss for lack of jurisdiction when a petitioner seeks Tax Court review of its employment tax liability and no NDWC was issued.

Statistics:

  • December 8, 2014: The date the IRS's Office of Chief Counsel issued the notice (CC-2014-011).
  • Section 7436(a): The provision of the tax code that gives the U.S. Tax Court jurisdiction over an employment classification controversy.
  • Form 1099-MISC: The form on which the taxpayer reported equipment lease payments as "miscellaneous income" rather than wages.
  • 62(c): The section of the tax code that governs the treatment of equipment lease payments under an accountable plan.
  • 142 T.C. No. 12 (4/3/14): The date and number of the U.S. Tax Court opinion in SECC Corp. v. Commissioner.

Sources:

  • IRS Office of Chief Counsel (2014, Dec. 8). CC-2014-011.
  • SECC Corp. v. Commissioner (142 T.C. No. 12, 4/3/14).
  • Section 7436 of the tax code.
  • Form 1099-MISC.
  • Section 62(c) of the tax code.

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