Question

Xavier, a resident of California, has been a driver for Red Delivery Service for the past six years. For this purpose, he leases a truck from Red, and his compensation is based on a percentage of the income resulting from his pickup and delivery services. Red allows its drivers to choose their 10-hour shifts and does not exercise any control on how these services are carried out (e.g., the route to be taken or the order in which parcels are delivered or picked up). Under Red’s operating agreement with its drivers, Red can terminate the arrangement after 30 days’ notice. In practice, however, Red allows its truckers to quit immediately without giving advance notice. The agreement also identifies the drivers as independent contractors. Red maintains no health or retirement plans for its drivers, and each year it reports their income by issuing Forms 1099–MISC (and not Forms W–2). Red requires its drivers to maintain a commercial driver’s license and be in good standing with the state highway law enforcement division.

An IRS agent contends that Xavier is an independent contractor and, therefore, is subject to the self-employment tax. Xavier disagrees and contends that he is an employee (i.e., not self-employed). Who is correct? Why?

Answer 1

Answer:

Determination of employer - employee relationship:

L.R.C Sec 31.3121 (d)- 1 defines the status of a representative or employee under the government law.The IRS looks to the provisions of the code to figure out who is a worker dependent upon federal employement taxes.

Code Sec 3121(d)(2) defines a worker as any individual who,under custom-based law rules relevant in deciding the employer - representative relationship ,has the status of a representative .To decide if an individual is a representative under the custom-based law rules is an issue of reality in the wake of thinking about the realities and conditions in a specific case.

Sec 31.3121 (d)- 1(c)(2) gives that the relationship of employer and worker exists when the individual for whom the services are performed has the privilege to direct and control the person who plays out the services not just regarding the outcome to be a achieved by the work,but additionally with respect to the details and means by which that outcome is achieved .The employer doesn't need to direct or control the way where services are performed.

An assessment or examination must happen encompassing the relationship of the representative and the business conduct and monetary or fiscal controls must be analyzed .If a employer - representative relationship exists ,the employee or representative is dependent upon FICA taxes and income tax withholding or retaining.