Tax Administration:

Improving Independent Contractor Compliance

T-GGD-92-63: Published: Jul 23, 1992. Publicly Released: Jul 23, 1992.

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GAO discussed its report on improving independent contractor tax compliance, focusing on the Internal Revenue Service's (IRS) Employment Tax Examination Program (ETEP). GAO noted that: (1) the classification rules for determining if a worker is an employee or an independent contractor need to be clarified; (2) since fiscal year 1989, IRS has found that 90 percent of the businesses audited under ETEP misclassified one or more workers; (3) IRS studies have shown a lower tax compliance level for independent contractors than for employees; (4) requiring businesses to withhold taxes from contractor payments and improving business compliance with the requirement to file information returns on contractor payments would improve compliance; (5) requiring withholding on contractor payments would present some administrative problems; and (6) information returns significantly improved voluntary compliance.

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