1099 Contractors and the IRS: Why Misclassification Could Cost You

Episode Summary In this episode of Resilience and Resolve, tax attorney Lance Drury breaks down the costly risks of misclassifying employees as independent contractors. He explains the key legal differences between employees and contractors, why the IRS focuses heavily on worker classification, and the financial consequences of getting it wrong. From back payroll taxes and penalties to whistle blower-triggered audits, Lance reveals why businesses need to be proactive and correct worker classification mistakes before the IRS steps in. Key Timestamps 00:00:20 – The legal difference between an employee and an independent contractor 00:01:24 – Why calling someone a contractor doesn’t always protect a business 00:01:48 – Why the IRS aggressively targets worker misclassification 00:02:25 – How the IRS determines whether someone is truly a contractor 00:03:06 – Potential penalties and payroll tax liabilities for misclassification 00:04:22 – Why some businesses misclassify to avoid payroll tax headaches 00:04:32 – Can workers face problems for being misclassified? 00:05:00 – How businesses can fix past misclassification mistakes 00:05:32 – IRS limitations on how far back they review past payroll issues 00:06:41 – Why the IRS may not pursue older tax years due to staffing constraints 00:06:45 – Do voluntary corrections reduce penalties with the IRS? 00:07:09 – Why Lance rarely sees misclassification cases in his practice 00:07:50 – What triggers an IRS audit for worker misclassification 00:08:30 – When businesses should consult a tax attorney on contractor relationships About the Show: “Resilience and Resolve with Lance Drury” provides practical legal insights into IRS matters, tax law, and financial defense strategies. Each episode explores timely and complex tax issues with real-world examples and expert analysis from Lance Drury and his experienced legal team. Resources and Links Get legal guidance on worker classification: lancedrurylaw.com Subscribe to Resilience and Resolve for more tax law insights with Lance Drury