ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Wednesday, March 6, 1996               TAG: 9603060067
SECTION: BUSINESS                 PAGE: B6   EDITION: METRO 
DATELINE: WASHINGTON 
SOURCE: ASSOCIATED PRESS

IRS TRIES REVISED TAX PLAN RECLASSIFICATION OF WORKERS IS GOAL

The IRS is experimenting with a new program aimed at easing one of its most contentious areas of dispute with small businesses: the classification of workers as either employees or independent contractors.

In a dispute, typically a taxpayer will contend a worker is an independent contractor while the Internal Revenue Service will contend the worker is an employee.

For independent contractors, businesses don't have to withhold income tax or pay the employer's share of Social Security and Medicare taxes. The workers are responsible for paying the taxes on their own.

Court rulings have made the classification rules complex. Without action from Congress, there's not much the IRS can do about that. But it is aiming at making it cheaper and easier for businesses that agree to reclassify independent contractors as employees.

Under a two-year experimental program announced Tuesday by IRS Commissioner Margaret Milner Richardson, IRS auditors will make settlement offers early in the examination process.

Depending on the offer, businesses will be able to settle their disputes by reclassifying their workers in the future and by paying between three-month and one-year's worth of the employer's share of back Social Security and Medicare taxes.

Until now, the IRS would typically seek repayment of two or more years' worth of back payroll taxes. And often classification disputes couldn't be settled until a business' entire audit was resolved.

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