Section 530 Relief

Section 530 is a safe harbor provision that prevents the IRS from retroactively and prospectively reclassifying a taxpayer’s workers from "non-employee" (e.g. independent contractor) to "employee" subject to federal employment taxes. Where there are controversies involving whether individuals are employees for purposes of employment taxes, Section 530 of the Revenue Act of 1978 [P.L. No. 95-600, 92 Stat. 2885, (1978)] provides employers (and not the workers) with relief from federal employment tax obligations if certain requirements are met. This relief provision applies to employment tax liabilities under Internal Revenue Code Subtitle C:

Chapter 21 - Federal Insurance Contributions Act [FICA]

Chapter 22 - Railroad Retirement Tax Act [RRTA]

Chapter 23 - Federal Unemployment Tax Act [FUTA]

Chapter 24 - Collection of Income Tax at Source for wages [Federal Income Tax Withholding (FITW)]

Chapter 25 - General Provisions Relating to Employment Taxes and Collection of Income Taxes at Source

If for purposes of employment taxes, the taxpayer did not treat an individual as an employee for the period(s) in question and if all federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer’s treatment of such individual as not being an employee, then for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be "deemed not to be an employee" unless the taxpayer had no reasonable basis for not treating such individual as an employee. A method for satisfying the "reasonable basis" requirement for not treating an individual as an employee for a period will be met if the taxpayer’s treatment for such period was in reasonable reliance on any of the following "safe harbors" :

Judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;

A past IRS audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions "substantially similar" to the position held by this individual; or

Long-standing recognized practice of a significant segment of the industry in which such individual was engaged.