Businesses and tax-exempt organizations have three lines of defense. Be prepared to use any one of the following against the IRS challenge if you hire an independent contractor:
- Show that you don't have the authority to control how the work is done;
- Show that you don't furnish the worker's equipment or supplies; that you don't set the worker's hours nor pay by the time spent; that the worker stands to make a profit or loss; and that there is no continuing relationship with the worker;
- Show that you have not treated this type of worker as an employee on tax reports; have filed the IRS form 1099 annually, when required, for payments to the worker; and have a reasonable basis considering the worker as an independent contractor.
Finally, for additional documentation on this issue, contact the IRS at (800) 829-3676 to order Publication 15, Employer's Tax Guide, which includes detailed information on this topic.