rp-25-10.pdf

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[26 CFR 601.401] Employment Taxes
(Also: Sections 3102, 3111, 3301, 3403, 31.3102-1, 31.3111-4, 31.3301-1, 31.3403-
1)

Rev. Proc. 2025-10

SECTION 1. PURPOSE
.01 The purpose of this revenue procedure is to provide updated guidance
regarding the implementation of section 530 of the Revenue Act of 1978, Pub. L. No.
95-600, 92 Stat. 2763, as amended (section 530) (addressing controversies involving
whether individuals are employees for purposes of employment taxes).
1
This revenue
procedure modifies and supersedes Revenue Procedure 85-18, 1985-1 CB 518.
.02 This revenue procedure clarifies the provisions of Rev. Proc. 85-18 with
respect to the definition of employee, the section 530 requirement for the filing of
required returns, and the reasonable basis safe harbor rules. This revenue procedure
also amplifies the guidelines set forth in section 3.03 of Rev. Proc. 85-18 (interpreting
the word “treat” for purposes of determining whether a taxpayer did not treat an
individual as an employee for purposes of section 530(a)).
.03 This revenue procedure includes new provisions that reflect statutory
changes made to section 530 since 1986 that added sections 530(d), (e), and (f).
2

1
The uncodified statutory language of section 530 is included as Attachment 1 of this revenue procedure.
The statutory language of section 530 can also usually be found in the publisher’s notes following
§ 3401(a).
2
Section 530(d) was added by the Tax Reform Act of 1986, Pub. L. No. 99-514, Title XVII, § 1706(a), 100

Section 530(d) is discussed in section 3.09. Section 530(f) is discussed in section 3.10.
Section 530(e) is discussed throughout this revenue procedure.
.04 The provisions in Rev. Proc. 85-18 that explained how refunds, credits,
abatements, and handling of claims applied to taxpayers who were under audit or
otherwise involved in administrative or judicial processes with the Internal Revenue
Service (IRS) at the time of enactment of section 530 are no longer applicable and have
been omitted from this revenue procedure.
.05 Section 530 relief remains available at any stage in the administrative or
judicial process if the requirements for relief are met.
SECTION 2. BACKGROUND
.01 Section 530 (entitled “Controversies Involving Whether Individuals are
Employees for Purposes of Employment Taxes”) was originally enacted as a temporary
measure
3
to provide relief for taxpayers who were involved in employment status
(worker classification) disputes with the IRS, and who faced large employment tax
assessments as a result of the IRS’s proposed reclassifications of workers. Section 530
was extended indefinitely by the Tax Equity and Fiscal Responsibility Act of 1982.
4

Section 530 is not part of the Internal Revenue Code (Code).
.02 Section 530 provides that a taxpayer will not be liable for federal employment

Stat. 2085. Section 530(e) was added by the Small Business Job Protection Act of 1996, Pub. L. No.
104-188, Title I, § 1122(a), 110 Stat. 1755, 1766. Section 530(f) was added by the Pension Protection
Act of 2006, Pub. L. No. 109-280, Title VIII, § 864(a), 120 Stat. 780, 1024.
3
H.R. Rep. No. 95-1748, 95th Cong., 2nd Sess. 4 (1978), 1978-3 C.B. (Vol. 1) 629 at 632, notes that, in
general, the bill was intended to provide an interim solution for controversies between the Internal
Revenue Service and taxpayers.
4
Pub. L. No. 97-248, Title II, § 269(c)(1), (2), 96 Stat. 324, 552.

taxes, with respect to an individual or class of workers if certain statutory requirements
are met. Under section 530, the taxpayer, not the individual worker
5
, is eligible for relief
from the employment tax liability that would otherwise apply under subtitle C of the
Code, and any related interest or penalties attributable to that employment tax liability.
The taxes imposed by subtitle C include the Federal Insurance Contributions Act (FICA)
taxes, the Railroad Retirement Tax Act (RRTA) taxes,
6
the Federal Unemployment Tax
Act (FUTA) taxes, and the collection of income tax at source on wages (income tax
withholding).
.03 Section 530(a) generally provides that if, for purposes of the employment
taxes under subtitle C of the Code, a taxpayer did not treat an individual as an
employee for any period, then the individual will be deemed not to be an employee for
that period, unless the taxpayer had no reasonable basis for not treating the individual
as an employee. For any period after December 31, 1978, the relief applies only if,
pursuant to section 530(a)(1)(B), all federal tax returns (including information returns)
required to be filed by the taxpayer with respect to the individual for the period are filed
on a basis consistent with the taxpayer's treatment of the individual as not being an
employee, and, pursuant to section 530(a)(3), the taxpayer has not treated any
individual holding a substantially similar position as an employee for purposes of
employment taxes for any period beginning after December 31, 1977.

5
Section 530 relief does not extend to individual workers who remain liable for their personal employment
taxes.
6
For purposes of simplicity, discussion of the RRTA is not included in this revenue procedure. However,
the same rules discussed in this revenue procedure apply for purposes of the RRTA.

.04 Section 530(a)(1)(A) provides that a taxpayer is entitled to relief if the
taxpayer “did not treat an individual as an employee” for purposes of employment taxes
(emphasis added). The legislative history demonstrates that section 530 applies
exclusively to taxpayers involved in employment status controversies with the IRS.
Specifically, the legislative history explains that the relief measure was for taxpayers
that were “involved in employment tax status controversies” and explains that the
legislation prevents the IRS from reclassifying certain individuals as employees whom
the taxpayer has treated as independent contractors. S. Rep. No. 95-1263, at 210
(1978). Likewise, the Joint Committee on Taxation report on section 530 explains that
“the Act provides relief from employment tax liability to certain taxpayers involved in
employment tax status controversies with the Internal Revenue Service as a result of
the Service’s proposed reclassification of workers, whom taxpayers have considered as
having independent contractor status.” Staff of Joint Committee on Taxation, 95th
Cong., General Explanation of the Revenue Act of 1978, at 301 (Comm. Print 1979)
(emphasis added).
.05 Section 530 relief applies only if the taxpayer did not treat the individual as an
employee for federal employment tax purposes for the period at issue and meets each
of the following requirements for such period:
(1) The taxpayer filed all required federal tax returns, including information
returns, on a basis that is consistent with the taxpayer’s treatment of the
individual as not being an employee (reporting consistency requirement);
(2) The taxpayer did not treat the individual or any individual holding a

substantially similar position as an employee (substantive consistency
requirement); and
(3) The taxpayer had a reasonable basis for not treating the individual as
an employee (reasonable basis requirement). A taxpayer shall be treated as
having a reasonable basis if the taxpayer's treatment was in reasonable reliance
on any of the following:
(a) judicial precedent, published rulings, technical advice with
respect to the taxpayer, or a letter ruling to the taxpayer (judicial
precedent);
(b) a past IRS audit of the taxpayer in which there was no
assessment attributable to the treatment (for employment tax purposes) of
the individuals holding substantially similar positions (prior audit);
(c) long-standing recognized practice of a significant segment of the
industry in which that individual was engaged (industry practice); or
(d) If the taxpayer had some other reasonable basis for not treating
the individual as an employee.
.06 Section 530(b) prohibits the Department of the Treasury from publishing
regulations or revenue rulings “with respect to the employment status of any individual
for purposes of the employment taxes.” This revenue procedure, like Rev. Proc. 85-18,
does not violate that prohibition because it only provides guidance clarifying the
application of section 530. Furthermore, this guidance is neither a regulation nor a
revenue ruling that addresses the classification of any individual or category of worker.

SECTION 3. APPLICATION AND SCOPE OF SECTION 530
.01 Worker Classification Controversies. Section 530 applies only when a
taxpayer did not treat an individual as an employee for employment tax purposes, and
the IRS is proposing to reclassify the individual from a non-employee to an employee.
Thus, section 530 relates solely to worker classification controversies involving the
employment status of an individual as an employee or as an independent contractor (or
other non-employee).
.02 Employee. For purposes of section 530, the term “employee”
7
includes:
(1) an officer of a corporation under §§ 3121(d)(1), 3306(i), or 3401(c)
8
of
the Code;
(2) an individual, who under the common law rules, has the status of an
employee under §§ 3121(d)(2) or 3306(i);
(3) agent-drivers, commission-drivers, full-time life insurance
salespersons, home workers or traveling or city salespersons under
§§ 3121(d)(3) (statutory employees) or 3306(i);
(4) an individual who performs services that are included under an

7
Although the definition of “employment status” in section 530(c)(2) and the legislative history to section
530 suggests that the provision was meant to address controversies involving the status of individuals
under the usual common law rules applicable in determining the employer-employee relationship as an
employee or independent contractor, the IRS has long taken a broader view of the definition of employee
with respect to whom the relief may potentially apply, both in published guidance and in litigation.
Compare S. Rep. No. 95-1263, at 210 (1978), and Staff of Joint Committee on Taxation, 95th Cong.,
General Explanation of the Revenue Act of 1978, at 301 (Comm. Print 1979), with Rev. Rul. 82-83, 1982-
1 CB 151.
8
Contrary to the decision in Joseph M. Grey Public Accountant, P.C. v. Commissioner, 119 T.C. 121
(2002), it is the IRS’s longstanding position that relief under section 530 with respect to corporate officers
may be available if the requirements of section 530 are met.

agreement pursuant to Section 218 or Section 218A
9
of the Social Security Act
(218 Agreement) under § 3121(d)(4) of the Code;

and
(5) an officer, employee or elected official of a State, or any political
subdivision thereof, or the District of Columbia, or any agency or instrumentality
of the foregoing under § 3401(c).
10

.03 Treatment of an Individual as an Employee
11
. The IRS applies the following
guidelines when determining whether there was “treatment” of an individual as an
employee for a period within the meaning of section 530(a)(1):
(1) The withholding of income tax or FICA taxes from any payments made
to an individual, whether or not the tax is paid to the IRS, indicates “treatment” of
the individual as an employee.
(2) Except as provided in paragraphs (6) and (7) below, the filing of an
original or amended employment tax return (including a Form 940 “Employer’s
Annual Federal Unemployment Tax Return,” 941 “Employer’s Quarterly Federal
Tax Return,” 943 “Employer’s Annual Tax Return for Agricultural Employees,” or
944 “Employer's ANNUAL Federal Tax Return”), with respect to an individual,
whether or not tax was withheld from the payments made to the individual,

9
Pursuant to the Tribal Social Security Fairness Act of 2018, Pub. L. No. 115-243, 132 Stat. 2894,
federally recognized Indian Tribes may enter into 218A agreements extending voluntary Social Security
coverage to Indian Tribal Council members, and § 3121(d)(4) of the Code includes within the definition of
“employee” any individual who performs services that are included under a 218A agreement.
10
The IRS interprets section 530(a) as allowing a state or local government to obtain section 530 relief for
both FICA and federal income tax withholding purposes, provided that the requirements of section 530
are met. See Chief Counsel Memorandum 20203810.

11
See section 3.08 for a discussion on the treatment of dual status workers.

indicates “treatment” of the individual as an employee.
(3) The filing of Schedule H (Form 1040), Household Employment Taxes,
with respect to an individual, whether or not tax was withheld from the payments
made to the individual, indicates “treatment” of the individual as an employee.
(4) The filing of a Form W-2 “Wage and Tax Statement” with respect to an
individual, or the furnishing of a Form W-2 to an individual, whether or not tax
was withheld from the payments made to the individual, indicates “treatment” of
the individual as an employee.
(5) Contracting with a third party to perform acts required of employers
with respect to an individual, whether or not tax is withheld or paid to the IRS or
the third party otherwise satisfies the terms of the contract, indicates “treatment”
of the individual as an employee.
(6) The filing of a delinquent or amended employment tax return for a
particular tax period with respect to an individual as a result of IRS collection or
examination activities or other compliance procedures, does not indicate
“treatment” of the individual as an employee for that period. IRS correspondence
that merely advises the taxpayer that no return has been filed and requests
information from the taxpayer is not a compliance procedure. However, if the
taxpayer takes any of the actions identified in section 3.03 with respect to those
individuals in a later period (for example, the taxpayer withholds employment
taxes or files employment tax returns with respect to those individuals for the
periods following the period audited), those actions indicate “treatment” of the

individuals as employees for those later periods.
(7) A return prepared by the IRS under § 6020(b) for a period is not
“treatment” of an individual as an employee for that period.
.04 Notice of Section 530 Relief. In accordance with section 530(e)(1), the IRS
will provide written notice of the availability of section 530 treatment before or at the
start of any employment tax audit inquiry relating to the employment status of one or
more individuals who perform services for the taxpayer or when it appears that a
determination concerning worker classification will be made.
.05 Consideration of Section 530 Relief. In accordance with section 530(e)(3), in
any employment tax audit of a taxpayer relating to the employment status of any
individual who performs services for the taxpayer, the IRS will first consider whether the
taxpayer has satisfied the requirements of section 530 before analyzing whether the
individuals are employees.
12

.06 Payment Characterizations do not Qualify for Section 530 Relief. Based on
the language of section 530(a)(1) and the legislative history of section 530, the IRS
considers the relief to apply only to matters involving the status of an individual as an
employee or non-employee and not to matters involving the proper characterization of
payments to that individual. Specifically, section 530 does not apply to controversies

12
Section 530(e)(3) provides that for purposes of the availability of the safe harbors in section 530(a)
“[n]othing in this section shall be construed to provide that subsection (a) only applies where the individual
involved is otherwise an employee of the taxpayer.” The legislative history explains that section 530(e)(3)
was added solely to reverse the IRS’s prior position that a worker classification determination must be
performed prior to consideration of whether a taxpayer is entitled to section 530 relief. H.R. Rep. No.
104-737, at 199-204 (1996) (Conf. Rep.). Thus, section 530(e)(3) does not act to extend relief to disputes
involving whether a payment is wages or whether performance of services is employment.

concerning whether a particular type of payment made to an employee constitutes
“wages” as defined under the FICA, FUTA, or income tax withholding provisions. Nor
does section 530 apply to the issue of whether services performed by an employee
constitute “employment” as defined under the FICA, FUTA, or income tax withholding
provisions. Matters involving exceptions from “wages” and “employment” involve the
proper characterization of payments made to employees, or services provided by
employees, as defined under the FICA, FUTA, or income tax withholding provisions.
Section 530 is not applicable to these matters because they do not involve an issue
concerning whether the individual is an employee or non-employee. These matters
involve the issue of whether the payment made to an employee is exempt from
employment taxes under a particular provision of the Code (because the payment is not
wages or the services are not employment).

Accordingly, in determining if section 530 applies, the IRS will first determine
whether the matter involves the proper classification of an individual as an employee, or
the proper characterization of a payment as “wages,” or of services as “employment.”
.07 Dual Status Workers. In unusual cases, an individual may perform services
for a taxpayer that are completely separate and distinct from the services giving rise to
the employment relationship, and the individual may be separately compensated for
those services. For the services performed outside of the employment relationship to
be completely separate and distinct from the services performed within the employment
relationship, there must be no interrelation as to duties or remuneration in each

capacity.
13
In circumstances where an individual performs services for a taxpayer in
separate and distinct capacities, the status of the individual as an employee or non-
employee, and the application of section 530, will be considered separately with respect
to each distinct relationship under which the separate services are provided.
.08 Treatment of Dual Status Workers. In the circumstances described in section
3.07, a taxpayer may have treated an individual as an employee in one distinct
relationship but may assert that section 530 applies to another distinct relationship
(referred to here as the “second relationship”) because the individual was being
compensated for performing other services separate from the services the individual
performed as an employee. As in all cases, with respect to the second relationship, the
IRS will first determine whether the matter involves the issue of the proper classification
of an individual as an employee, or the proper characterization of a payment as
“wages,” or of services as “employment” (consistent with section 3.06) before analyzing
whether the taxpayer is entitled to relief under section 530.
.09 Treatment of Certain Technical Personnel. Section 530(d) provides that
section 530 does not apply in the case of an individual who, through an arrangement
between the taxpayer and another person, provides services for the other person as an
engineer, designer, drafter, computer programmer, systems analyst, or other similarly

13
See Rev. Rul. 58-505, 1958-2 CB 728 (finding that officers, President and Secretary, of a company
were dual status workers because the services they performed as officers and as salesmen were not
interrelated and that they were performing services in two separate and unrelated capacities; holding that
these individuals were employees for federal employment tax purposes with respect to duties performed
by them as officers of the company, but were not employees for such purposes with respect to their
selling activities).

skilled worker engaged in a similar line of work. Thus, whether an individual retained by
a taxpayer to provide technical services to a client is an employee of the taxpayer for
purposes of liability for employment taxes will be determined under the usual common
law rules without applying section 530.
.10 Treatment of Test Room Supervisors and Proctors. Section 530(f) provides
that, for periods after December 31, 2006, section 530 relief may apply to services
performed by an individual as a test proctor or room supervisor who assists in the
administration of college entrance or placement examinations for a § 501(c)
organization, exempt from tax under § 501(a) of the Code, regardless of whether the
§ 501(c) organization previously treated the individual, or an individual holding a
substantially similar position, as an employee.
.11 Federal Agencies. Section 530 relief is not available to taxpayers that are
federal agencies.
.12 Abatement and Refund. If a taxpayer is relieved of liability for employment
taxes under section 530, the IRS will abate any assessed liability and refund any
payment of the assessed tax related to the worker reclassification issue, including
applicable penalties and interest for any tax periods for which the period of limitations
has not expired.
SECTION 4. REPORTING CONSISTENCY REQUIREMENT
.01 To obtain section 530 relief, a taxpayer must satisfy the reporting consistency
requirement in section 530(a)(1)(B). The reporting consistency requirement is intended
to ensure that the taxpayer acted in good faith in treating the individuals as non-

employees. S. Rep. No. 95-1263, at 210 (1978).
.02 Reporting consistency requires a taxpayer to file all required federal tax
returns with respect to an individual for the period, on a basis consistent with the good
faith treatment of the individual by the taxpayer as a non-employee. Section
530(a)(1)(B). See also Rev. Rul. 81-224, 1981-2 CB 197. For example, if a taxpayer’s
position is that an individual was an independent contractor for a taxable period, the
taxpayer must have filed all required Forms 1099 consistent with its position that the
individual was an independent contractor for the period, reporting the payments for
services for which the taxpayer is treated as a non-employee. All relevant returns will
be considered in determining whether the taxpayer satisfies the requirement that all
required returns be filed on a basis consistent with good faith treatment by the taxpayer
of an individual as a non-employee.
14

.03 Reporting consistency must be satisfied on a period-by-period basis. A
taxpayer that filed information returns for one period but that did not file information
returns for a prior or subsequent period may satisfy the reporting consistency
requirement only for the period for which it filed information returns. For example, if a
taxpayer whose position is that an individual was an independent contractor did not file
Forms 1099-NEC “Nonemployee Compensation”, in year 1, but did file Forms 1099-

14
In no event will a return filed after the date on which the IRS first contacts the taxpayer concerning an
examination of the period to which the return relates be considered as filed on a basis consistent with
good faith treatment by the taxpayer of an individual as a non-employee. Additionally, section 530 relief is
not available for any year and for any worker for whom the taxpayer did not file the required returns. See,
e.g., Bruecher Foundation Services, Inc. v. US 383 Fed.Appx. 381 (5th Cir. 2010), holding that a taxpayer
filing returns after assessment is not entitled to use Section 530 as a defense in a subsequent judicial
proceeding.

NEC in year 2, the taxpayer is not entitled to section 530 relief in year 1 but may be
entitled to section 530 relief for year 2 if it otherwise meets the requirements for section
530 relief for that year.
.04 Reporting consistency must be satisfied on an individual-by-individual basis.
A taxpayer that filed information returns for some individuals but that did not file
information returns for other individuals may satisfy the reporting consistency
requirement only for the individuals for whom it filed information returns. For example, if
a taxpayer whose position is that an individual was an independent contractor filed
Forms 1099-NEC for individual workers A, B, and C in year 1, but did not file Forms
1099-NEC for individual workers D, E, and F in year 1, the taxpayer is not entitled to
section 530 relief for individuals D, E, and F for year 1. The taxpayer may be entitled to
section 530 relief for individual workers A, B, and C in year 1 if it otherwise meets the
requirements for section 530 relief for that year. If the taxpayer files Forms 1099-NEC
for all the individuals in year 2, the taxpayer may be entitled to section 530 relief for all
the individuals in year 2 if it otherwise meets the requirements for section 530 relief for
that year.
.05 A taxpayer will not fail the reporting consistency requirement if the taxpayer,
in good faith, mistakenly files the wrong type of information return or, as long as the
return demonstrates a good faith attempt to accurately report the amount paid, reports
an inaccurate amount paid. Moreover, a taxpayer will not fail the reporting consistency
requirement if the taxpayer was not required to file an information return because, for
example, the taxpayer paid the individual less than the threshold amount required to file

a Form 1099.
SECTION 5. SUBSTANTIVE CONSISTENCY REQUIREMENT
.01 To obtain section 530 relief, a taxpayer must satisfy the substantive
consistency requirement in section 530(a)(3). The substantive consistency requirement
is intended to ensure that section 530 relief applies only to a taxpayer that has
consistently treated all individuals holding substantially similar positions as non-
employees. It prevents a taxpayer from changing its treatment of employees to non-
employees to qualify for section 530 relief, including through reincorporation,
reorganization, name change, or otherwise. H.R. Rept. 95-1748 (1978), reprinted in
1978-3 (Vol. 1) C.B. 629.
.02 Substantive consistency requires that a taxpayer or a predecessor not have
treated an individual, or any individual holding a substantially similar position, as an
employee for any period beginning after December 31, 1977. Pursuant to section
530(e)(6), the determination of whether an individual holds a position substantially
similar to a position held by another individual includes consideration of the relationship
between the taxpayer and the individual. Accordingly, a substantially similar position
exists if the job functions, duties, and responsibilities are substantially similar and the
control and supervision of those duties and responsibilities are substantially similar.
.03 In determining if a taxpayer has treated an individual, or any individual
holding a substantially similar position, as an employee for purposes of the substantive
consistency requirement, the IRS will apply the same guidelines as described in section
3.03.

.04 Treatment of an individual, or an individual holding a substantially similar
position, as an employee in a period subsequent to the period under audit will not cause
a taxpayer to fail the substantive consistency requirement for the period under audit or
prior periods under audit.
.05 Entering into a Classification Settlement Program (CSP) or Voluntary
Classification Settlement Program (VCSP) agreement with the IRS with respect to an
individual will be considered treatment of the individual as an employee for substantive
consistency purposes from the effective date of the agreement.
SECTION 6. REASONABLE BASIS REQUIREMENT
.01 To obtain section 530 relief with respect to an individual, a taxpayer must
satisfy the reasonable basis requirement provided in sections 530(a)(1)(B) and (e). The
reasonable basis requirement is intended to ensure that the taxpayer reasonably
considered the worker classification status of the individual as an employee or non-
employee prior to making the classification decision.
.02 Reasonable basis requires a taxpayer to demonstrate that it reasonably
relied on one of the safe harbors in section 530(a)(2), or it had another reasonable basis
for treating the individual as a non-employee, before it treated the individual as a non-
employee for the period under audit.
.03 Section 530(a)(2) provides that for purposes of satisfying section 530(a)(1), a
taxpayer shall in any case be treated as having a reasonable basis for not treating an
individual as an employee for a period if the taxpayer's treatment of such individual for
such period was in reasonable reliance on any of the safe harbors listed in section

2.05(3)(a), (b), and (c). The IRS considers the following when determining whether
there was reasonable reliance on a safe harbor:
(1) Judicial precedent or published rulings, whether or not relating to the
particular industry or business in which the taxpayer is engaged, or technical
advice, a letter ruling, or a determination letter issued to the taxpayer under audit.
(a) Reliance on judicial precedent or published rulings requires that
the taxpayer reasonably relied upon the judicial precedent or published
rulings at the time it began treating the individual as a non-employee for
the tax period under audit.
(b) Thus, a taxpayer does not meet this safe harbor if the judicial
precedent that the taxpayer relied on was issued after the tax period for
which the taxpayer treated the individual as a non-employee.
(2) A past IRS audit that resulted in no assessment of employment taxes
attributable to the employment status reclassification of individuals holding
positions substantially similar to the position held by the individual.
(a) If a taxpayer is relying on the results of an audit that began
before 1997, the audit does not have to have been an audit of whether the
same individuals, or individuals holding substantially similar positions,
should have been treated as employees of the taxpayer, so long as the
prior audit did not result in an assessment of employment taxes
attributable to the IRS’s reclassification of the same individuals, or
individuals holding substantially similar positions.

(b) If a taxpayer is relying on the results of an audit that began
after 1996, the audit must have been an employment tax examination of
the same individuals, or individuals holding substantially similar positions,
that did not result in a reclassification of the same individuals or individuals
holding substantially similar positions.
(c) A taxpayer does not meet this safe harbor if, in the conduct of
the prior audit, a proposed assessment attributable to the IRS’s
reclassification of the individual was offset by other claims asserted by the
taxpayer.
(d) A taxpayer does not meet this safe harbor if the relationship
between the taxpayer and the individuals during the period under audit is
different from that which existed at the time of the prior audit.
(e) A taxpayer does not meet this safe harbor if the prior audit
began after 1996 and was only for purposes of determining a taxpayer’s
liability for failure to subject a reportable payment to backup withholding,
as required by § 3406 of the Code and accompanying regulations, if the
workers’ underlying worker classification was not examined, since the
imposition of backup withholding liabilities does not involve the
reclassification of workers by the IRS.
(3) A long-standing recognized practice of a significant segment of the
industry in which the individual was engaged.
(a) Reliance on industry practice requires that the taxpayer

reasonably relied upon the industry practice at the time it began treating
the individual as a non-employee for the tax period under audit.
(b) An industry generally consists of businesses located in the
same geographic or metropolitan area that compete for the same
customers. However, if the area includes only one or a few businesses in
the same industry, or if the business competes in regional or national
markets, the geographic area may be expanded.
(c) 25 percent of the taxpayer’s industry (determined by not taking
into account the taxpayer) is deemed to be a significant segment of the
industry. A lower percentage may be a significant segment, depending on
the facts and circumstances.
(d) A practice that has exist ed for 10 years is deemed to be long-
standing. A shorter period may be long-standing, depending on the
facts and circu mstances.
.04 A taxpayer that does not meet any of the three safe harbors enumerated in
section 2.05(3)(a), (b), or (c), may still satisfy the reasonable basis requirement in
section 2.05(3)(d) if the taxpayer can demonstrate by facts and circumstances that it
relied on another reasonable basis for treating the individual as a non-employee.
.05 The legislative history of section 530 states that the reasonable basis
requirement should be construed liberally in favor of the taxpayer. H.R. Rept. 95-1748
(1978), reprinted in 1978-3 (Vol. 1) C.B. 629, 633. Liberal construction of the
reasonable basis requirement does not mean that the reporting consistency and

substantive consistency requirements for obtaining section 530 relief should be liberally
construed. Rather, the Congressional direction to liberally construe the reasonable
basis requirement means the facts that indicate whether the taxpayer reasonably relied
on one of the safe harbors in section 530(a)(2) are to be viewed liberally in favor of the
taxpayer. Failure to satisfy the reporting consistency or substantive consistency
requirements for section 530 relief is not cured by the application of liberal construction
of the reasonable basis requirement.
.06 Consistent with the legislative history of section 530, a taxpayer is not
considered to have a reasonable basis for its treatment of individuals as non-employees
if the facts and circumstances indicate negligence, intentional disregard of rules and
regulations, or fraud. S. Rep. No. 95-1263, at 211 (1978).
.07 When considering whether a taxpayer had a reasonable basis to treat an
individual as a non-employee for employment tax purposes, if the taxpayer cannot
demonstrate reasonable reliance on any of the safe harbors listed in 2.05(3)(a), (b), and
(c), then, if factually relevant, the IRS may consider and the taxpayer may raise facts
demonstrating whether the taxpayer considered the individual as an employee for other
purposes, including whether the taxpayer during the years under audit:
(1) claimed income tax deductions, or treated payments made to or on
behalf of the individual as excludable from income, under provisions of the Code
that are applicable only to employees, including under §§ 62(a)(2)(A), 105, 106,
117(d), 119, 127, 129, 132 (portions thereof), or 137 of the Code;
(2) claimed employer credits such as credits for paid sick and/or family

leave under sections 7001 and/or 7003 of the Families First Coronavirus
Response Act or §§ 3131 through 3133 of the Code, the Employee Retention
Credit under either § 2301 of the Coronavirus Aid, Relief, and Economic Security
Act or § 3134 of the Code, or any other credits specified in future guidance that
are calculated with respect to wages or compensation paid to an employee;
(3) complied with federal or state labor law including minimum wage and
overtime pay rules with respect to the individual that are applicable to employees
or treated workers as employees for purposes of state or non-tax federal laws;
(4) treated the individual as an employee for purposes of collectively
bargained agreements entered into by the taxpayer;
(5) permitted participation of the individual in any qualified pension, profit-
sharing, or stock bonus plan;
(6) permitted participation of the individual in any nonqualified deferred
compensation plan if such participation is limited to employees of the taxpayer;
(7) provided state unemployment insurance or worker’s compensation
insurance coverage for such individual if the requirements for obtaining such
state unemployment or worker’s compensation insurance is that coverage is
limited to individuals performing services for the taxpayer as common law
employees under the common law rules or persons that would qualify as
employees for federal employment tax purposes.
SECTION 7. BURDEN OF PROOF
.01 In accordance with section 530(e)(4), if a taxpayer establishes a prima facie

case that it had a reasonable basis for not treating an individual as an employee for 530
purposes -- in other words, it meets the reporting consistency requirement, the
substantive consistency requirement, and one of the reasonable basis safe harbors
enumerated in section 530(a)(2)(A), (B), and (C) -- and the taxpayer has fully
cooperated with reasonable requests from the IRS, then the burden of proof with
respect to that treatment will shift to the IRS.
.02 The shift in the burden of proof does not apply with respect to the reasonable
basis requirement if the taxpayer relied on some other reasonable basis for treating the
individual as a non-employee. See section 530(e)(4)(B); H.R. Rep. No. 104-737, at
203-04 (1996) (Conf. Rep.).
SECTION 8. STATUS OF INDIVIDUALS
.01 Section 530 does not change the status, liabilities, and rights of the individual
whose classification is at issue. It does not convert individuals from employees to self-
employed individuals.
.02 If a taxpayer receives section 530 relief for a class of workers, that taxpayer
is relieved from having to withhold income tax and withhold and pay FICA taxes from
payments made to members of that class of workers. However, if any individual
member or members of that class of workers is otherwise determined to be an
employee of the taxpayer, each such employee remains liable for their employee share
of FICA tax pursuant to § 31.3102-1(d) of the Employment Tax regulations.
15

15
A worker or a firm can file a Form SS-8 to request a worker status determination under the common law

Employees who incorrectly paid the self-employment tax may file a claim for refund if
the period of limitations has not expired; however, the amount of any refund may be
offset by the amount of the employee’s share of FICA tax as a result of the application
of § 31.3102-1(d). If the period of limitations to claim a refund of self-employment tax
has expired, § 6521 of the Code may authorize a credit against the employee share of
FICA tax owed in the amount of self-employment tax that was erroneously paid.
SECTION 9. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 85-18, 1985-1 CB 518, is modified and superseded.

SECTION 10. EFFECTIVE DATE
This revenue procedure is effective when published in the Internal Revenue Bulletin.
SECTION 11. DRAFTING INFORMATION
The principal author of this revenue procedure is Kelli Cacciotti of the Office of
Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment
Taxes). For further information regarding this revenue procedure, contact Ms. Cacciotti
at (202) 317-6798 (not a toll-free call).

rules for purposes of federal employment taxes and income tax withholding. For additional information on
the Form SS-8, see www.irs.gov/forms-pubs/about-form-ss-8.

Attachment 1
16

Section 530. Controversies Involving Whether Individuals are Employees for
Purposes of Employment Taxes.

(a) Termination of certain employment tax liability.--

(1) In general.--If--

(A) for purposes of employment taxes, the taxpayer did not treat an individual as an
employee for any period, and

(B) in the case of periods after December 31, 1978, all Federal tax returns (including
information returns) required to be filed by the taxpayer with respect to such individual
for such period are filed on a basis consistent with the taxpayer's treatment of such
individual as not being an employee, then, for purposes of applying such taxes for such
period with respect to the taxpayer, the individual shall be deemed not to be an
employee unless the taxpayer had no reasonable basis for not treating such individual
as an employee.

(2) Statutory standards providing one method of satisfying the requirements of
paragraph (1).--For purposes of paragraph (1), a taxpayer shall in any case be treated
as having a reasonable basis for not treating an individual as an employee for a period if
the taxpayer's treatment of such individual for such period was in reasonable reliance
on any of the following:

(A) judicial precedent, published rulings, technical advice with respect to the taxpayer,
or a letter ruling to the taxpayer;

(B) a past Internal Revenue Service audit of the taxpayer in which there was no
assessment attributable to the treatment (for employment tax purposes) of the
individuals holding positions substantially similar to the position held by this individual;
or

(3) Consistency required in the case of prior tax treatment.--Paragraph (1) shall not
apply with respect to the treatment of any individual for employment tax purposes for

16
Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. 2763, as amended by P.L. 96-167, P.L. 96-541, P.L.
97-248, P.L. 99-514, P.L. 104-188, and P.L. 109-280.

any period ending after December 31, 1978, if the taxpayer (or a predecessor) has
treated any individual holding a substantially similar position as an employee for
purposes of the employment taxes for any period beginning after December 31, 1977.

(4) Refund or credit of overpayment.--If refund or credit of any overpayment of an
employment tax resulting from the application of paragraph (1) is not barred on the date
of the enactment of this Act by any law or rule of law, the period for filing a claim for
refund or credit of such overpayment (to the extent attributable to the application of
paragraph (1)) shall not expire before the date 1 year after the date of the enactment of
this Act [Nov. 6, 1978].

(b) Prohibition against regulations and rulings on employment status.--No regulation or
Revenue Ruling shall be published on or after the date of the enactment of this Act and
before the effective date of any law hereafter enacted clarifying the employment status
of individuals for purposes of the employment taxes by the Department of the Treasury
(including the Internal Revenue Service) with respect to the employment status of any
individual for purposes of the employment taxes.

(1) Employment tax.--The term “employment tax” means any tax imposed by subtitle C
of the Internal Revenue Code of 1954.

(2) Employment status.--The term “employment status” means the status of an
individual, under the usual common law rules applicable in determining the employer-
employee relationship, as an employee or as an independent contractor (or other
individual who is not an employee).

(d) Exception.--This section shall not apply in the case of an individual who, pursuant to
an arrangement between the taxpayer and another person, provides services for such
other person as an engineer, designer, drafter, computer programmer, systems analyst,
or other similarly skilled worker engaged in a similar line of work.

(e) Special rules for application of section.--

(1) Notice of availability of section.--An officer or employee of the Internal Revenue
Service shall, before or at the commencement of any audit inquiry relating to the
employment status of one or more individuals who perform services for the taxpayer,
provide the taxpayer with a written notice of the provisions of this section.

(2) Rules relating to statutory standards.--For purposes of subsection (a)(2)--

(A) a taxpayer may not rely on an audit commenced after December 31, 1996, for

purposes of subparagraph (B) thereof unless such audit included an examination for
employment tax purposes of whether the individual involved (or any individual holding a
position substantially similar to the position held by the individual involved) should be
treated as an employee of the taxpayer,

(B) in no event shall the significant segment requirement of subparagraph (C) thereof be
construed to require a reasonable showing of the practice of more than 25 percent of
the industry (determined by not taking into account the taxpayer), and

(i) such requirement shall not be construed as requiring the practice to have continued
for more than 10 years, and

(ii) a practice shall not fail to be treated as long standing merely because such practice
began after 1978.

(3) Availability of safe harbors.--Nothing in this section shall be construed to provide that
subsection (a) only applies where the individual involved is otherwise an employee of
the taxpayer.

(4) Burden of proof.--

(A) In general.--If--

(i) a taxpayer establishes a prima facie case that it was reasonable not to treat an
individual as an employee for purposes of this section, and

(ii) the taxpayer has fully cooperated with reasonable requests from the Secretary of the
Treasury or his delegate,

then the burden of proof with respect to such treatment shall be on the Secretary.

(B) Exception for other reasonable basis.--In the case of any issue involving whether the
taxpayer had a reasonable basis not to treat an individual as an employee for purposes
of this section, subparagraph (A) shall only apply for purposes of determining whether
the taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection
(a)(2).

(5) Preservation of prior period safe harbor.--If--

(A) an individual would (but for the treatment referred to in subparagraph (B)) be

deemed not to be an employee of the taxpayer under subsection (a) for any prior
period, and

(B) such individual is treated by the taxpayer as an employee for employment tax
purposes for any subsequent period,

then, for purposes of applying such taxes for such prior period with respect to the
taxpayer, the individual shall be deemed not to be an employee.

(6) Substantially similar position.--For purposes of this section, the determination as to
whether an individual holds a position substantially similar to a position held by another
individual shall include consideration of the relationship between the taxpayer and such
individuals.

(f) Treatment of test room supervisors and proctors who assist in the administration of
college entrance and placement exams.--

(1) In general.--In the case of an individual described in paragraph (2) who is providing
services as a test proctor or room supervisor by assisting in the administration of
college entrance or placement examinations, this section shall be applied to such
services performed after December 31, 2006 (and remuneration paid for such services)
without regard to subsection (a)(3) thereof.

(2) Applicability.--An individual is described in this paragraph if the individual--

(A) is providing the services described in subsection (a) to an organization described in
section 501(c), and exempt from tax under section 501(a), of the Internal Revenue
Code of 1986, and

(B) is not otherwise treated as an employee of such organization for purposes of subtitle
C of such Code (relating to employment taxes).

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