independent contractor/employee

[k man]

i have a doctor group client. one of the dr. participants (employee non owner) wants to remain an employee but receive some income as an independent contractor (from the same company). the dr. wants to set up another plan to deal with that income. would the IRS frown upon this type of duel relationship ie. employee/indpendent contractor?

[Mike Preston]

No, they would welcome it. They have a country's budget to balance, you know. What better way than to have another plan to disqualify?

[jpod]

All kidding aside, it is possible for someone to be both an employee of and independent contractor for the same service reciepient. The devil is in the details (i.e., "facts and circumstances"). In the first instance it is up to the practice group and its legal counsel/tax advisors to determine whether this can work. They shouldn't be bullied into it just because the Dr. whines about it, threatens to quit, provides an indemnifcation, etc. Assuming the facts justify it, the practice group would report some compensation as wages on a W-2 subject to all required tax withholdings, and some compensation on a 1099-Misc., subject to no withholdings. Absent the 1099-Misc. income, the Dr. can forget about the idea of setting up a separate plan.

[Mike Preston]

jpod, the circumstance you describe is incredibly rare. Much more likely an episode from SNL starring a new Whiner. Dr Whiner!

[jpod]

It is rare, but not impossible. I think less rare in the so-called "learned professions." Regardless, I think it is a bit of a dis(service) to the poster to provide a response that is a thinly veiled put-down.

[Mike Preston]

Wasn't intended that way. It was intended to highlight just how difficult it would be to get the IRS to go along with it. His client may decide to go forward and may even win audit roulette, but he shouldn't even begin to suggest that the client play it without legal advice indicating the dual relationship is legit. And just based on the question, I find it beyond comprehension that ERISA counsel would go along with it.Call me cynical today.

[Guest mjb]

While the IRS opposes such arrangements, the courts have allowed an employee to perform duties as an independent contractor for the employer and maintain an HR-10 plan if there is a written contract specifiying the duties to be performed under the IC contract. Employee is usually a professional, e.g. an engineer.

[Mike Preston]

In one thread you bemoan the fact that the client isn't read the riot act regarding taking a position which is arguably supportable (or, conversely, arguably unsupportable) and now you come off indicating that the client (in this case a non-owner no less - which while not determinative is certainly an indicator that he really wouldn't relish taking on the IRS over this - especially in light of the fact that it is likely to be a relatively small amount of money) might consider this course of action? A little heavier on the warning, please, for nothing more than consistency.

[Guest mjb]

Yo Mike- Are you talking to me? In my previous post I only noted that there there is precedent in fed court decisions for the proposition that a common law employee can also be paid as an independent contractor and contribute to an HR-10 plan if there is a contractual agreement. In the other posts you referred to I questioned why a client would adopt a provision that was ambigiously defined under the applicable law when there were non risk alternatives available. In the case of an employee who is also paid as an independent contractor I dont see how noting that there is favorable fed ct precedent that is on point to the question presented is acting inconsistently since both positions drew on applicable laws that apply to facts presented. I assumed that everyone understood that the client would need to consult tax counsel before becoming an independent contractor but I will now state the obvious. Under C230 fed ct precedent is substantial authority for claiming a deduction. In both cases its the client's choice as to whether to pursue a course of action under the tax law based on the applicable precedents of the tax law.

[SMB]

Yo Mike- Are you talking to me? In my previous post I only noted that there there is precedent in fed court decisions for the proposition that a common law employee can also be paid as an independent contractor and contribute to an HR-10 plan if there is a contractual agreement. In the other posts you referred to I questioned why a client would adopt a provision that was ambigiously defined under the applicable law when there were non risk alternatives available. In the case of an employee who is also paid as an independent contractor I dont see how noting that there is favorable fed ct precedent that is on point to the question presented is acting inconsistently since both positions drew on applicable laws that apply to facts presented. I assumed that everyone understood that the client would need to consult tax counsel before becoming an independent contractor but I will now state the obvious. Under C230 fed ct precedent is substantial authority for claiming a deduction. In both cases its the client's choice as to whether to pursue a course of action under the tax law based on the applicable precedents of the tax law.

[SMB]

Sorry, prior post the result of being a computer dinosaur (and, perhaps, a tad too much post-Form 5558 celebratory "libation").

Just wanted to suggest to my fellow "vetrans" - for the benefit of all the EB "newbies" - that we discontinue using the now achronistic terms "Keogh" and "HR-10".

After all, they are so "20th Century"!

[Guest mjb]

SMB: While the IRS has discontuned the use of keogh and hr -10 plan many reputable organgizations have not. Last time I looked (1 yr ago) the CFP retirement program course uses the term HR-10 plan as a qualified plan for self employed persons.

[Belgarath]

Hard to change words once they creep into the common lexicon. My in-laws still refer to a record player as "the Victrola" - and EVERYONE here at work says they are going to "Xerox" something rather than copy something.

And 412(e)(3) plans will continue to be referred to as 412(i) plans forever. Unless, of course, they are being referred to in less complimentary terms.

[Guest mjb]

Or media use of an iconic term that everyone understands. Sundays NT Times business section had an article entitled "For Keogh plans a technicality could Crack a Nest Egg" which discussed the disqualfication risk for Keogh plans which have not been properly amended for tax law changes. The word Keogh was used more than 10 times. The article did not use the term "Qualified Plan for self employed persons " once.

[k man]

bottom line it is doable. granted the cpa and/or tax attorney for the participant would have to stick their necks out but if they are prepared to do it it is on them.

[jpod]

k man: No, it is not merely a question of the participant and his advisors taking a position. The practice group must first decide whether it can legitimately report some of the participant's comp. on a 1099, rather than a W-2. Only if the practice group reports some comp. on a 1099 can the participant then take the next step, which is to consider whether he should adopt and contribute to his own Keogh plan.

[k man]

k man: No, it is not merely a question of the participant and his advisors taking a position. The practice group must first decide whether it can legitimately report some of the participant's comp. on a 1099, rather than a W-2. Only if the practice group reports some comp. on a 1099 can the participant then take the next step, which is to consider whether he should adopt and contribute to his own Keogh plan.

i am aware of that. clearly the practice group has to make that decision first before anything can happen.