Contractors have heard and read
much lately about the current Internal
Revenue Service (IRS) crackdown
on relationships between
independent contractors and their
subcontractors. The IRS is examining
these relationships closely to
make sure that contractors' subs
really are independent subcontractors,
rather than employees who
look primarily to the contractor for
their livelihoods, and for whom the
contractors should be paying income
and social security taxes.
Often such questions are clearcut.
But sometimes the distinction
between sub and employee is fuzzy.
As a result, the IRS might declare
someone you honestly consider a
sub to be an employee. Suddenly
you owe the IRS a lot of money for
back taxes and penalties.
The IRS rulings in this area so
far don't provide much comfort.