Treasury Department "scrutinize"
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independent contracting tax status with an eye at withholding firm revenue for taxes as one upshot. Another would be to force employee benefits and culture on contractors. Lovely.
It's on the cover of Investment News today, I've seen the panic before on the topic but it didn't read well.
It really seems the large firms are scoring big in the game of late, so much for the entrepreneurial society. It seems like every facet of the regulation culture wants the top-down, 1930's employment culture mandated to "reps".
essentially, if you're an IC this would be of great concern. You would no longer be in your own business but back to full employment status.
About 120000 people in your industry could be impacted.
Large firms would be delighted, a major source of competition and distraction would be eliminated to a great degree. The industry would get smaller as well.
Yikes, that's a big black hole!
Thanks to farmboy for bringing it to my attention. And thanks to TexasRep for the link.
I just registered for free to take a look...and it's not very pretty. Basically, treasury is looking at making us indies employees of our broker/dealers...meaning withholding, unemployment taxes, etc...even potentially forcing B/Ds to pay rent for our office space, etc.
All I can say is, it would really suck if it happens, but I think there are a lot of strong arguments for maintaining us as independent contractors, so I'll worry wen it's time to worry, I guess...
I didn’t really see an explanation, but my guess is eliminating many of the tax benefits of being self-employed…more tax revenue is generally treasury’s motivation…
[quote=Indyone]
I just registered for free to take a look…and it’s not very pretty. Basically, treasury is looking at making us indies employees of our broker/dealers…meaning withholding, unemployment taxes, etc…even potentially forcing B/Ds to pay rent for our office space, etc.
All I can say is, it would really suck if it happens, but I think there are a lot of strong arguments for maintaining us as independent contractors, so I'll worry wen it's time to worry, I guess...
[/quote]THat would seriously suck. Clearly motivated by $$....it's a hidden tax increase on our industry and plenty of others.
Is the article short enough that you could paste it here?
The indy's will find a way around it I bet.
I read the article and I think that the IRS is going to try to challenge the status of independent brokers as not being contractors to be reclassified as employees to force withholding of taxes and in general be able to collect more revenue and reduce the deductions that we now enjoy. $$$$$$
The below is a list of the common law factors that determine whether we are in fact contractors or not.
The IRS has developed twenty common law factors which are used on a case by case basis to determine whether a worker is an independent contractor or an employee for IRS tax purposes. Independent contractors do not have to satisfy all of the twenty common law factors. It is best to think of the factors as weights on a balance scale.
The twenty common law factors of a perfect independent contractor relationship are read the rest of this.
http://www.wwwebtax.com/general/independent_contractor.htm
I think/hope that the industry can make a case that we true independents are in fact contractors and not employed by the broker dealer. I don't know what the status of the relationship is in the independent side of Ray James or others like that. Maybe someone can enlighten me? The IRS wants to try to make the case that we are controlled and therefore not truly independent.
No Instructions. Independent contractors are not required to follow, nor are they furnished with, instructions to accomplish a job.
No Training. Independent contractors typically do not receive training by the hiring firm. They use their own methods to accomplish the work
BUT that control or the training that we are required to get on an annual basis is not decided directly by our affiliated B/D but is mandated by entities that we do not contract with as employees or work for in a daily basis as representatives or IARs. The rules are not under the discretionary control of our broker dealers.
We need to fight this!!
Another thought on this topic.
If the rules and regulations that control us are mandated by the SEC and the Government, does that me/us employees of the Government? After all they are the ones not the broker dealer who are determining the rules of our jobs.
That would be nice, I would like to have all the perks of a goverment job. Health care, pension, paid vacation time, job security. Maybe we shouldn't fight it after all.
If the main issue is just subjecting I/Cs to withholding that's not a big issue since we're paying quarterly estimates anyway. But, if the Treasury is trying to re-visit categorizing I/Cs as employees, then it is a big deal.
However, I can't believe they'd be trying to revisit the overall employee issue again. That was successfully fought and defeated a number of years ago when the IRS attacked the I/C status of reps. For those of you not around back then, as I recall the IRS was saying there were elements of the relationship between I/C reps and their b/ds that were attributes of being an employee -- things like training/ continuing ed, supervision, etc. While these are elements included in the IRS test to differentiate between I/Cs & employees, the industry was able to show the IRS that these things were required of the b/ds by State & Federal regulations simply as a consequence of being in our industry. As such, they shouldn't be considered in determing employee status.
This will be interesting to follow as it develops. But, at least based on how they reacted with the IRS in the past, rest assured that the indy b/d community will be very aggressive in defending the I/C status, assuming that's the Treasury's objective.
Over the past 15 years, the financial planning and independent-contractor-brokerage industries have beaten back various state and federal efforts to change rules that keep broker-dealers from paying a variety of taxes, including federal withholding taxes, for their independent reps, industry observers said.
OAS_RICH("Middle"); - Advertisement - And since the Treasury Department announced on Feb. 6 that it will look more closely at the standards between employees and
independent contractors, some observers said they could not comment because of the lack of specific details.
But any discussion of undermining the distinction between a broker who is an employee and one who is an independent contractor touches the industry's central nervous system.
"That's religion here," said Joel Marks, chief operating officer with Advanced Equities Financial Corp. of Chicago. "You don't screw with that."
Others said that the government's forcing independent-contractor firms to treat reps like employees, in a worst-case scenario, could irreparably alter the industry and drive many firms from the business.
Requiring firms to deduct withholding taxes, as well as other taxes, such as that on unemployment insurance, would be "a nightmare," said Terry Lister, chief regulatory officer at Waddell & Reed Financial Inc. of Overland Park, Kan. "It's going to make it much more expensive to operate."
When the fiscal 2007 budget proposal was released in Washington earlier this month, Treasury Department officials said they wanted to study the standards used to distinguish between employees and independent contractors, in connection to withholding and paying federal employment taxes. That study was first reported last week at InvestmentNews' website, investmentnews.com.
The study is part of an effort by the government to reduce the tax gap, or the difference between what taxpayers should pay and actually do pay, said Eric Solomon, deputy assistant Treasury secretary for regulatory affairs.
About 120,000 registered brokers with NASD of Washington are independent contractors, and in the past, the industry vehemently has opposed any changes in their status as taxpayers.
The potential implications of independent-contractor reps' losing this tax status have dogged the industry since the early 1990s, industry executives and observers said.
Two years ago, Nina E. Olson, national taxpayer advocate for the Internal Revenue Service, recommended that taxes be withheld for non-wage workers, causing an uproar among independent-contractor firms.
Two issues
Advanced Equities' Mr. Marks said that the industry potentially faces two big tax issues if the standards for an independent contractor are to change.
One is the idea of paying a broker's withholding taxes, which is less of a concern than a broad overhauling of whether a rep is an employee. "Any discussion of that makes me a little bit nervous," Mr. Marks said.
He and others said that that issue dramatically could alter the business landscape, causing such changes as making firms, and not reps, pay for expenses such as a lease on office space.
And industry observers expressed wonder at the issue, as independent brokers run their own businesses and pay taxes accordingly.
If the federal government looks beyond the issue of withholding taxes, "that becomes a slippery slope," Mr. Marks said. That would require an examination of the "entire relationship" between an individual and a firm, he said.
"Some firms may be able to adjust; others may not," Mr. Marks said.
This could be scary. Seems to me like one of the biggest issues has to be social security funding. No doubt the treasury is looking for every penny they can add to the soc sec program. The target here seems to be contractors who incorporate to avoid paying a big chunk of self emplyoment taxes hence underfunding social security.
I saw and article in business week a few weeks ago about the contracted FEDEX Ground (formerly RPS) drivers wanting to be employees and FEDEX wanting to keep them as contractors. According to the criteria listed in the link above:
http://www.wwwebtax.com/general/independent_contractor.htm
It seems like independant reps fit the mold of a contractor better than those guys. Especially with respect to:
Independent contractor's work not essential. A company's success or continuation should not depend on the service of outside independent contractors. An example violating this would be a law firm which called their lawyers independent contractors.
LPL doesnt have to have an office in my town to operate successfuly but Fedex cant have a package delivery bus w/o drivers everywhere.
Multiple Firms. Independent contractors often work for more than one firm at a time.
I can have a separate RIA and insurance business, but I doubt the Fedex guy is doing deliveries on the side or delivering pizza too.
Services available to the public. Independent contractors make their services available to the general public by one or more of the following:
1) having an office and assistants;
2) having business signs;
3) having a business license;
4) listing their services in a business directory; or
5) advertising their services
I've never seen and Fedex guy running his own ads.
Anyway, it seems like the treasury is going to have more than just the independant B/D's fighting them on this, but it still scares me that they are even looking at this. I love being self employed and I ditto BL by saying that's a huge reason I left Jones.
Sorry to bring bad news to the independents. Of course I could spit at Duke#1 who is so quick to surrender his self-employment rights and cave on RJF annuity price fixing for "the public interest" but thinks he could still argue he's in an I/C business to the Treasury. Pure hypocrisy. If you shill and cave like a plow hand to RJF/RJFS you shouldn't be surprised that the world doesn't take your "self-employment" seriously either.
Sure, it's about the withholding here but I don't get it. You still have to file and settle the tax every year. As usual it's a little deeper than the headline.
I just think the trend against the small interest vs. the favor for the large has really picked up since the "scandals" have triggered a regulatory tidal wave. It seems that events such as Enron, market timing and firm corruption means the little guy can't file a schedule "c" or decide which off the shelf financial product he wishes to sell. How any of this makes logical sense I guess is irrelevant. It's the worst of both worlds; 1930's captivity to the Joe Kennedy mafia structure of broker dealers while Suze, Spitzer and John Boggle want ever lower costs mandated and supported at every level of the system. Duke#1 should take note about what a useful idiot RJF and himself have been in this evil power grab against the very I/C structure that feathered their nests for so long.
I would not be surprised that RJFS is fully supportive of making their contractors employees based on their recent actions which have been a disgrace to the mission statement of RJFS. I would argue that many of the steps taken in the recent year are exactly in line to morf into full employment culture. We have whole new line of clowns in St. Pete who will do cartwheels. It also looks think some major packaging for the eventual sale of either the entire RJF channel or the contractor section may be in the works. Admittedly it might be years away but reshaping into a more controlled wirehouse look is clearly part of that process.