Tax Administration:

Approaches for Improving Independent Contractor Compliance

GGD-92-108: Published: Jul 23, 1992. Publicly Released: Jul 23, 1992.

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Pursuant to a congressional request, GAO reviewed the tax administration effects of the Internal Revenue Service's (IRS) Employment Tax Examination Program, focusing on examining small business compliance using the common-law rules for classifying workers as either employees or independent contractors.

GAO found that: (1) common-law rules for differentiating an employee from an independent contractor are unclear; (2) withholding on payments to employees has been successful and may help to improve the low tax compliance of independent contractors; (3) improving information reporting on payments to contractors could improve compliance; and (4) implementation of options to increase compliance could be costly and burdensome for some employers.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Legislative proposals for clarifying the rules have been raised from time to time. The last time was summer 1997. Congress did not enact the proposal. Given the age of this recommendation and the lack of any congressional action on proposed legislation, GAO is closing this recommendation.

    Matter: Congress should establish clear rules for classifying workers, as GAO recommended in its 1977 report.

  2. Status: Closed - Not Implemented

    Comments: GAO has not seen any legislative proposals on this issue since 1996. Given the age of the recommendation and lack of congressional action, GAO is closing this recommendation.

    Matter: Congress should consider legislation to improve independent contractor compliance through withholding or improved information reporting.


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