530 Limitation Language on Form 4666

Upon closing an examination, 530 limitation language must be inserted on all Form(s) 4666. This applies regardless of whether or not worker classification was an issue identified during the exam. The appropriate 530 limitation language to use will vary depending upon whether any worker issues were examined, and whether a worker classification examination resulted in a worker reclassification. The following scenarios capture the most common examination results.

Scenario #1: The results of the examination include an employment tax assessment, but the examination did not include either the identification of or the development of the worker classification issue, including requests for information or discussion regarding a reclassification issue. The following language will be inserted in the "other information" section of Form 4666. "The examination of your employment tax returns as reflected on this Agreement did not include an examination for employment tax purposes of whether any individuals should be treated as your employees for purposes of Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996."

Scenario #2: An examination assessment will be made, and includes identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue but there will be no change related to the worker classification issue. Language will be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined. For example, the following language is appropriate: "The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."

Scenario #3: An examination assessment will be made and the examination included identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue, and there will be a Notice of Determination of Worker Classification; specify classes of workers examined, limits of Section 530 exposure. Language will be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined and not reclassified. For example, the following language is appropriate: "The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] that did not result in a reclassification for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."

Scenario #4: Where the results of the examination includes reclassification of all workers examined. This language specifies the classes of workers examined and indicates that no worker classifications are covered under Section 530, because all workers audited were reclassified. For example, the following language is appropriate: "The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may not rely on any classes of workers for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530, because all workers audited were reclassified as employees."

Scenario #5: The examination results in no-change, and the examination did not include either the identification of or the development of the worker classification issue, including requests for information or discussion regarding a reclassification issue. The following language will be inserted in the "other information" section of Form 4666: "The examination of your employment tax returns did not include an examination for employment tax purposes of whether any individuals should be treated as your employees for purposes of Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996."

Scenario #6: The examination results in no-change, but the examination included identification of or the development of worker classification issues, including requests for information or discussion regarding a reclassification issue. Language should be inserted in the "other information" section of Form 4666 that specifies the classes of workers examined and limits Section 530 exposure to those classes of workers examined. For example, the following language is appropriate: "The examination of your employment tax returns included an examination for employment tax purposes of whether [CLASS OF WORKER(S)/LOCATION(S)] should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amended by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, for Section 530 purposes when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of [CLASS OF WORKER(S)/LOCATION(S)] for purposes of the prior audit safe haven for satisfying the reasonable basis requirement of Section 530."