IRS and DOL Implement Joint Initiative

A Memorandum of Understanding (MOU) was issued between the Internal Revenue Service (IRS) and the United States Department of Labor (DOL) to implement a joint initiative to improve compliance with laws and regulations administered by the IRS and DOL. The sharing of information and collaboration between the parties allowed by the MOU will help reduce the incidence of misclassification of employees as independent contractors, reduce abusive employment/unemployment tax schemes, and improve compliance with federal labor and tax laws.

Increased collaboration will also strengthen the relationship between the IRS and DOL, enabling both agencies to leverage existing resources and send a consistent message to employers about their duties to properly pay their employees and to pay employment taxes.

Specific objectives of this initiative include the following:

•     Expand the IRS-DOL partnership launched in the Questionable Employment Tax Practices program
•     Reduce the employment tax portion of the tax gap
•     Increase compliance with federal employment and unemployment tax requirements
•     Increase compliance with federal labor laws enforced by the DOL
•     Reduce fraudulent filings
•     Reduce abusive employment/unemployment tax schemes
•     Reduce worker misclassification
•     Reduce questionable employment tax practices
•     Work together to create educational and outreach materials and guidance for employers and workers.

The collaboration of the IRS and DOL will also allow both agencies to share information on Independent Contractors. The new program will permit taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes.  The program applies to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other non employees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as non employees, and must have filed all required Forms 1099 for the workers for the previous three years. The taxpayer cannot currently be under audit by the IRS. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency. A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

Click here to download a PDF of the IRS/DOL MOU.