INTRODUCTION

Employment tax issues were raised and adjustments made in a significant number of the auto body and repair cases examined. The areas of adjustment generally included:

1. Reclassification of worker status from that of independent contractor to employee.

2. Inclusion of employee bonuses and other payments made outside of payroll in the wage base.

3. Inclusion of corporate shareholder salaries in the payroll.

4. Other adjustments, including omission of part of the payroll from the employment tax returns and the deduction of penalties as employment tax expense.

Not all of these employment tax issues are unique to auto body and repair shops and might occur in many other types of moderately sized businesses, but reclassification of workers from contractor status appeared to be far more prevalent on these returns than would normally be anticipated, though the sample taken could not be classed as random.

Our findings were reinforced by those of California's EDD after their sweep of small businesses in the San

Jose area made to test compliance with State reporting requirements. A total of 471 businesses with an average of 2.3 employees each were visited in May 1992 and showed the highest rate of nonregistration among the classes of establishments surveyed in San Jose, though agriculture and garment contractors appear to be the worst offenders overall.

The question of whether an individual is an independent contractor or an employee is one of fact to be determined upon consideration of the facts and application of the law and regulations in a particular case. See Professional & Executive Leasing v. Commissioner, 89 T.C. 225, 232 (1987), aff'd 862 F.2d 751 (9th Cir. 1988); and Simpson v. Commissioner, 64 T.C. 974, 984 (1975). Guides for determining the existence of that status are found in three substantially similar

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