January 2011
A Los Angeles attorney recently won an IRS appeal for his client, a medical transcription service, saving not only the $500,000+ in demand for immediate payment of withholding taxes, but winning attorney fees compensation as well. Read on…
One of the more common questions that arise for Medical Transcription Service Companies (or MTSOs) is that of whether to treat transcriptionists as employees or contractors. The IRS has some pretty indistinct terms regarding this -- Employees, who are subject to tax withholding, are defined by the IRS thus:
"Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed." (from IRS.gov)
Independent contractors, on the other hand, are defined as:
"People such as lawyers, contractors, subcontractors and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case.
The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result." (from IRS.gov)
As a former MTSO I had always held that yes, my transcriptionists must present work in a certain way, but so must a plumber or electrician… if it’s not right, there’s a potential for damage or injury, and they’re out of a job.
And as far as time control is concerned, we all have deadlines. If an attorney fails to submit papers by the time they are due, he has done a disservice to his client. A transcriptionist must meet a deadline, but I don’t care if the work is done at 2 in the morning or 2 in the afternoon, on a desktop pc or on a laptop on a plane.
…So back to the story: An audit of the medical transcription company’s tax return performed by the IRS in 2004 resulted in demand of over $500,000 in taxes, plus interest. Failing to settle the case through another attorney, the company hired L.A. tax attorney Mr. Dennis Brager. Over the ensuing years, Mr. Brager responded to all of the IRS’ requests for documentation and just as the case was about the be scheduled to appear before the US Tax Court, the IRS conceded that the evidence that had been submitted supported the MTSOs claim that no withholding was due.
Mr. Brager followed up by asking the US Tax Court to award attorney fees to his client, based on the redundant requests for information over the course of years, which resulted in high fees for his client. The court agreed, and in a rare decision, made the award based on the "unjustified" claims by the IRS.
Original Story on MarketWire.com
