IRS Issues Procedures for Employee Status Determinations
The IRS recently issued Rev. Proc. 2022-13 regarding employee status determinations under Sec. 7436.
The procedure modifies and supersedes Notice 2002-5, which stated that the issuance of a Sec. 7436 notice was a jurisdictional prerequisite for seeking Tax Court review under Sec. 7436. Notice 2002-5 also stated that the IRS would issue a Sec. 7436 notice only after the IRS determines that (1) one or more individuals performing services for the taxpayer are employees, and (2) the taxpayer is not entitled to Section 530 relief.
The Tax Court then expanded its jurisdiction to review worker classifications in SECC Corp., 142 T.C. 225 (2014), and American Airlines, Inc., 144 T.C. 24 (2015). The court held that a Sec. 7436 notice is not a jurisdictional requirement and that a taxpayer may petition the Tax Court on an IRS worker reclassification or Section 530 relief determination to the extent that the determination meets the requirements in the Tax Court opinions.
Rev. Proc. 2022-13 provides that the Tax Court has jurisdiction under Sec. 7436 if:
1. the IRS conducts an examination in connection with an audit.
2. as part of the audit, the IRS determines that (a) one or more individuals performing services for the person are employees of the person for purposes of worker reclassification, or (b) the person is not entitled to relief under Section 530(a);
3. there is an "actual controversy" involving the determination as part of an examination; and
4. the person for whom the services at issue were performed files an appropriate pleading in the Tax Court.
Rev. Proc. 2022-13 is effective Feb. 7, 2022.