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  • 1.  IRS audit question

    Posted 07-13-2023 03:29 PM

    I have a carpenter that is getting his schedule C audited.  The IRS agent says that he should have received a W-2 from the general contractor and should have not prepared a Schedule C, because he is an employee of the general contractor.  The carpenter also paid other workers on behalf of the general contractor.  The IRS agent said they should have all been given a W2 from the general contractor.    He paid each of his 5 workers $30,000 and my client got paid $125,000.   If the IRS agent is correct, how would the W-2 to my client look like?.  I believe my client's W2 boxes 1,3 and 5 would be $125,000 and boxes 2,4, and 6 would be zero, is this right.  I tried running on this on the tax software but it is not generating the amount of Social security and medicare taxes that he would owe.   


    I have always been told to gross up the wages to reflect the net amount that the worker received but that may not be the case. If I grossed up my clients wages his gross wages would be $175.000 and net pay would be $125,000.



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    Herman Ortiz CPA
    Herman P. Ortiz CPA PC
    Melville NY
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  • 2.  RE: IRS audit question

    Silver Most Valuable Member
    Posted 07-14-2023 08:23 AM

    Herman,

    Do you agree with the auditor/RO? There may be significant taxes and penalties involved here.

    Please feel free to contact me.

    irene

    irene@iw-cpa.com

    781.883.3174



    ------------------------------
    Irene Wachsler, CPA
    Wachsler CPA LLC

    Contact:
    Irene Wachsler,
    Trusted Biz Advisor for small business & gig economy
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    Wachsler CPA , LLC
    Cell: 781.883.3174
    Email: irene@iw-cpa.com
    ------------------------------



  • 3.  RE: IRS audit question

    Silver Most Valuable Member
    Posted 07-15-2023 03:45 PM
    Herman,
    Does the carpenter only do work for this one contractor or is he in his own business as an independent carpenter?

    The IRS auditors can be very aggressive.  You should analyze all of the facts before you accept the auditor's position.

    Brian 





  • 4.  RE: IRS audit question

    Bronze Most Valuable Member
    Posted 07-16-2023 01:29 AM
    I'd also have concerns if the carpenter is paid on his social security number and not via a business entity with a TIN.  The IRS is becoming more aggressive and joint employment doctrine can also be implicated. A lot more factual detail is needed to respond.

    Ruth Bogatyrow Kraft, Esq.

    Falcon Rappaport & Berkman LLP 

    1185 Avenue of the Americas, Third Floor

    New York, New York 10036

    T: (212) 203-3255

    C: (516) 353-3306

    F: (212) 203-3215

    rkraft@frblaw.com


    265 Sunrise Highway, Suite 50 (MAIL)

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    T: (516) 599-0888

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  • 5.  RE: IRS audit question

    Bronze Most Valuable Member
    Posted 07-16-2023 07:38 AM
    Similarly
    The other subcontractors may also be subcontractors, since 25,000 each does not seem to be a living wage amount. They also may be specialists such as electrician, plumber, carpenter or landscaper, with their own insurance etc.

    Maybe the only problem is not issuing 10099NEC's
    --
    Gerald S. Cohen, CPA
    cell 516 455-0643





  • 6.  RE: IRS audit question

    Silver Most Valuable Member
    Posted 07-16-2023 03:27 PM

    Brian is on point.  This is a very aggressive audit position depending on the facts.  If the Contractor controls the work efforts then perhaps he is an employee – you must look at all the factors (does he work with other contractors over the years, set his schedule, use his tools and equipment, pay all his business expenses, etc. ). Is there a contract?  If they are all employees of the major contractor, then the computations get more complicated because the auditor must back out the payments your client received for the subs.  Also, your client should not be the one charged with SE tax – the contractor must pay the employment taxes.  You must consider open statutes of limitations and file for protective refunds – did your client pay employment taxes and file w-2's for the employees?  Much to unpack here. 

     

    Very truly yours,

     

    ROBERT S. BARNETT

     

     

    Long Island Office:

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  • 7.  RE: IRS audit question

    Bronze Most Valuable Member
    Posted 07-16-2023 05:33 PM
    We are seeing this type of inquiry with greater frequency in the construction industry above all others. From a regulatory perspective, it may well indicate joint employment, which is being litigated routinely now.  Control over the means and not simply the outcome could be problematic. All the items Robert mentions are significant. Additionally, in the absence of a B2B contract and if payments were made to individuals, not entities, those factors militate toward covered employment.
    The biggest problem these days is that each of the administrative agencies, state and federal, uses a slightly different standard to complicate things even further.

    Ruth Bogatyrow Kraft, Esq.

    Falcon Rappaport & Berkman LLP 

    1185 Avenue of the Americas, Third Floor

    New York, New York 10036

    T: (212) 203-3255

    C: (516) 353-3306

    F: (212) 203-3215

    rkraft@frblaw.com


    265 Sunrise Highway, Suite 50 (MAIL)

    Rockville Centre, New York 11570

    T: (516) 599-0888

    C: (516) 353-3306

    F: (516) 599-0889



     

    We have a Great Neck satellite office and access to several meeting locations on the North Shore.

     

    Please refer to our e-mail policies here if you are not already familiar with them.






  • 8.  RE: IRS audit question

    Silver Most Valuable Member
    Posted 07-16-2023 06:28 PM

    Thanks Ruth.  Your experience in these cases is invaluable. NCCPAP is fortunate to have your comments.

     

    Very truly yours,

     

    ROBERT S. BARNETT

     

     

    Long Island Office:

    487 Jericho Turnpike (NEW ADDRESS!)

    Syosset, New York 11791

    516-931-8100

    Fax: 516-931-8101

     

    New York City Office:

    1385 Broadway, 12th Floor

    New York, New York 10018

    212-661-1144

    Fax: 212-643-1330

     

    www.cbmslaw.com

    _______________________
    Confidentiality Notice: The information contained in this e-mail and any attachments may be legally privileged and confidential. If you are not an intended recipient, you are hereby notified that any dissemination, distribution or copying of this e-mail is strictly prohibited. If you have received this e-mail in error, please notify the sender and permanently delete the e-mail and any attachments immediately. You should not retain, copy or use this e-mail or any attachment for any purpose, nor disclose all or any part of the contents to any other person. Thank you.

     

     



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  • 9.  RE: IRS audit question

    Posted 07-16-2023 01:40 PM
    look at form ss-8 - the 13 questions are a good guide

    Marvin Gruza CPA
    Flushing NY 
    718-263-3025








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