Employment Tax

The Firm’s Employment Tax attorneys understand the unique challenges facing our multi-state transportation clients in state and federal income tax, payroll tax, and unemployment tax. Scopelitis attorneys handle various state and federal Employment Tax related matters, including but not limited to the alleged misclassification of owner-operators of trucks or smaller vehicles as independent contractors (ICs).

Federal Employment Tax Matters

IRS Worker Classification Investigations.

Several special IRS programs are designed to focus on worker classification as a stand-alone issue. However, an IRS worker classification audit may stem from other IRS proceedings, including as a spinoff of a general corporate income tax audit, via routine examinations of quarterly Form 940 and 941 tax returns and/or an IC-initiated SS-8 determination request.

A timely and thorough initial response to IRS inquiries involving a transportation company’s use of ICs may substantially reduce the likelihood of misclassification liability exposure. Often, these responses rely on a safe harbor available through a legislative relief mechanism born out of the overly aggressive IRS independent contractor reclassification efforts in the 1970s. Further, in the event of a misclassification determination, a putative employer may still limit its federal employment tax liability through strategic participation in various programs providing for reduced tax rates.

Accountable (or “Per Diem”) Expense Reimbursement Plan Implementation and Audits.

The IRS has created special rules that allow interstate transportation companies to reimburse employee drivers for certain reasonable and properly substantiated driver business expenses on a nontaxable basis. While per diem programs can be of great value to motor carriers and their drivers, it is important to ensure the program is properly implemented, administered, and maintained. This is especially true in light of the IRS’s recently stated audit objective of focusing on accountable plans. Scopelitis attorneys commonly assist motor carriers with the implementation and administration of per diem plans. We also actively defend efforts by the IRS to recharacterize per diem expense reimbursements as taxable wages.

State Employment Tax Matters

 State Unemployment Tax Benefit Claims and Audits.

In addition to routine unemployment tax audits by state agencies, state unemployment tax investigations often arise due to “obstructed” unemployment benefit claims filed by ICs.  Because just one obstructed benefit claim can prompt a broader unemployment tax audit, which may result in a costly assessment for several years in arrears (plus interest and potential penalties), such claims should be aggressively challenged.

State unemployment laws vary in their classification of owner-operators as independent contractors in the transportation industry. With experience defending the interests of transportation companies before unemployment agencies in all states, we utilize a variety of legal arguments supporting independent contractor status, including statutory IC exemptions, favorable case law, and a lack of state agency jurisdiction over the services performed by the unemployment benefits claimant or group of ICs. In states generally pre-disposed to deem ICs employees, we work to reach a settlement with the agency, often based on a more accurate total of alleged “wages” than the full amount of settlement earnings. It can be beneficial to involve counsel early in the process of communicating with a state unemployment agency regarding an audit or benefit claim, even if it is simply for behind-the-scenes consultation.

Successor Employer Determinations and State Unemployment Tax Act (SUTA) Dumping. Another frequent friction point between employers and state unemployment tax agencies is the so-called successor employer and SUTA dumping liability. Such unemployment tax liability arises most often in the context of a business acquisition (or partial acquisition), business reorganizations involving transfers of employees between related entities, or an employee leasing or Professional Employer Organization (PEO) arrangement wherein the state agency deems an entity liable for unemployment tax liability already owed by the predecessor entity or resulting from an increased unemployment tax rate.

Scopelitis attorneys understand that state and federal Employment Tax inquiries typically provide short response deadlines. We are available anytime to advise on and prepare responses to such inquiries, including those with a short fuse.

State and Local Income Tax Issues.

Scopelitis Employment Tax attorneys regularly assist our clients with State and Local Tax (SALT) issues.  Among those, federal law generally provides that state and local income tax withholding for interstate drivers operating in two or more states is confined to the eligible driver’s state of residence.

Scopelitis Employment Tax attorneys regularly assist our motor carrier clients in challenging state and local jurisdictions seeking to improperly impose withholding tax obligations on such drivers in jurisdictions where they may perform service that would otherwise mandate withholding but where the driver does not reside, making such withholding improper.

Employment Tax

The Firm’s Employment Tax attorneys understand the unique challenges facing our multi-state transportation clients in state and federal income tax, payroll tax, and unemployment tax. Scopelitis attorneys handle various state and federal Employment Tax related matters, including but not limited to the alleged misclassification of owner-operators of trucks or smaller vehicles as independent contractors (ICs).

Federal Employment Tax Matters

IRS Worker Classification Investigations.

Several special IRS programs are designed to focus on worker classification as a stand-alone issue. However, an IRS worker classification audit may stem from other IRS proceedings, including as a spinoff of a general corporate income tax audit, via routine examinations of quarterly Form 940 and 941 tax returns and/or an IC-initiated SS-8 determination request.

A timely and thorough initial response to IRS inquiries involving a transportation company’s use of ICs may substantially reduce the likelihood of misclassification liability exposure. Often, these responses rely on a safe harbor available through a legislative relief mechanism born out of the overly aggressive IRS independent contractor reclassification efforts in the 1970s. Further, in the event of a misclassification determination, a putative employer may still limit its federal employment tax liability through strategic participation in various programs providing for reduced tax rates.

Accountable (or “Per Diem”) Expense Reimbursement Plan Implementation and Audits.

The IRS has created special rules that allow interstate transportation companies to reimburse employee drivers for certain reasonable and properly substantiated driver business expenses on a nontaxable basis. While per diem programs can be of great value to motor carriers and their drivers, it is important to ensure the program is properly implemented, administered, and maintained. This is especially true in light of the IRS’s recently stated audit objective of focusing on accountable plans. Scopelitis attorneys commonly assist motor carriers with the implementation and administration of per diem plans. We also actively defend efforts by the IRS to recharacterize per diem expense reimbursements as taxable wages.

State Employment Tax Matters

 State Unemployment Tax Benefit Claims and Audits.

In addition to routine unemployment tax audits by state agencies, state unemployment tax investigations often arise due to “obstructed” unemployment benefit claims filed by ICs.  Because just one obstructed benefit claim can prompt a broader unemployment tax audit, which may result in a costly assessment for several years in arrears (plus interest and potential penalties), such claims should be aggressively challenged.

State unemployment laws vary in their classification of owner-operators as independent contractors in the transportation industry. With experience defending the interests of transportation companies before unemployment agencies in all states, we utilize a variety of legal arguments supporting independent contractor status, including statutory IC exemptions, favorable case law, and a lack of state agency jurisdiction over the services performed by the unemployment benefits claimant or group of ICs. In states generally pre-disposed to deem ICs employees, we work to reach a settlement with the agency, often based on a more accurate total of alleged “wages” than the full amount of settlement earnings. It can be beneficial to involve counsel early in the process of communicating with a state unemployment agency regarding an audit or benefit claim, even if it is simply for behind-the-scenes consultation.

Successor Employer Determinations and State Unemployment Tax Act (SUTA) Dumping. Another frequent friction point between employers and state unemployment tax agencies is the so-called successor employer and SUTA dumping liability. Such unemployment tax liability arises most often in the context of a business acquisition (or partial acquisition), business reorganizations involving transfers of employees between related entities, or an employee leasing or Professional Employer Organization (PEO) arrangement wherein the state agency deems an entity liable for unemployment tax liability already owed by the predecessor entity or resulting from an increased unemployment tax rate.

Scopelitis attorneys understand that state and federal Employment Tax inquiries typically provide short response deadlines. We are available anytime to advise on and prepare responses to such inquiries, including those with a short fuse.

State and Local Income Tax Issues.

Scopelitis Employment Tax attorneys regularly assist our clients with State and Local Tax (SALT) issues.  Among those, federal law generally provides that state and local income tax withholding for interstate drivers operating in two or more states is confined to the eligible driver’s state of residence.

Scopelitis Employment Tax attorneys regularly assist our motor carrier clients in challenging state and local jurisdictions seeking to improperly impose withholding tax obligations on such drivers in jurisdictions where they may perform service that would otherwise mandate withholding but where the driver does not reside, making such withholding improper.

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