Taxpayer wins federal employee misclassification case

The US Tax Court recently gave the taxpayer a win in a federal worker misclassification case. In Leticia C. Santos v. Commissioner the taxpayer, Santos, owned a cleaning service and engaged independent contractors to provide the cleaning services. The IRS claimed that the workers were employees and sought to hold Santos liable for employment taxes. Most of the workers also worked for other cleaning companies, used their own supplies and hired their own assistants. The Tax Court agreed with Santos that the workers were contractors, not employees. The case sets up an interesting dichotomy in California since the Employment Development Department (EDD) would no doubt side with the IRS on this issue, notwithstanding the Tax Court case, and the recently enacted AB-5 would classify the workers as employees for unemployment insurance and other provisions under the new ABC test. Nevertheless, Santos v. Commissioner is good authority for service recipients engaged in federal income tax worker classification disputes. 

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The case is at https://www.ustaxcourt.gov/UstcInOp2/OpinionViewer.aspx?ID=12259