During today’s Internal Revenue Service (IRS) Advisory Council (IRSAC) meeting, the IRSAC reviewed its 2024 report and recommendations to the IRS’s leadership on measures to improve tax administration.
Among other proposals, the IRSAC’s Information Reporting Subgroup made recommendations (on page 105 of the report) regarding the classification of workers as employees vs. independent contractors in light of the DOL Wage & Hour Division’s (WHD) SWACCA-supported final rule on worker classification under the Fair Labor Standards Act. Noting that the IRS and WHD deal with laws that use different tests to distinguish between employees and independent contractors, and that the IRS is prohibited from issuing guidance on worker classification, the Subgroup recommended that the IRS: (1) work with the Department of Labor (DOL) to define employee vs. independent contractor and produce a guide to explain the differences; (2) work within the definitions established by DOL to eliminate gaps and create clarity to prevent misclassification and the risk of employer penalties; and (3) seek legislative changes that permit the IRS to require prospective reclassification of currently misclassified workers, issue generally applicable guidance on the proper classification of workers, require service recipients to give notice to independent contractors that explains how workers will be classified and the tax and other consequences of the classification, and disclose information to DOL about service recipients whose workers are reclassified.
In addition, the IRSAC’s Large Business & International (LB&I) Subgroup provided recommendations (on page 147 of the report) with respect to corporate taxpayers and the CARES Act provision allowing for carryback of Net Operating Losses (NOL) to offset prior years’ income. Noting that the IRS encountered significant backlogs and delays in processing refund claims, the Subgroup called on the IRS to: (1) issue a revenue procedure for resolving NOL carryback claims that were erroneously rejected; (2) create a dedicated group within the LB&I Division to handle these disputes efficiently; and (3) focus on enhancing digital processing capabilities, implementing contingency plans to handle future surges in claims, and improve internal coordination and transparency.