(1) An individual
or entity will not be allowed a deduction for wages or payments to individuals
for personal services rendered if:
(a) The
individual or entity fails to file information returns, such as 1099's or
W-2's, as required by ORS
314.360 or
316.202 or by administrative
rule; or
(b) The individual or
entity files information returns for payments made to an individual as if the
individual was an independent contractor and upon examination the individual is
determined to have actually been an employee.
Example 1: Brian owns a convenience store. Brian
hired Elmer to help stock shelves in the evenings. Brian did not issue W-2's
for Elmer. Brian's expense for payments made to Elmer for services rendered are
not deductible.
Example 2: Assume the same facts in Example 1,
except that Brian issued a Form 1099 to Elmer. Upon examination of Brian's
return it was determined that Elmer was actually an employee, subject to
withholding. Brian's expense for the payments made to Elmer for services
rendered are not deductible.
(2) In the case of a failure to file as
described in subsection (1)(a) of this rule, the expense will be allowed if the
individual or entity can show there was a circumstance beyond the individual or
entity's control that caused the failure to file returns as required by law.
Refer to OAR
150-305-0068 for examples of situations that are accepted by the
department as a circumstance beyond the individual or entity's control.
(3) In the case of a
misclassification as described under subsection (1)(b) of this rule, the
expense will be allowed if the individual or entity can show reasonable cause
as to why the appropriate returns were not filed. Reasonable cause will be
considered if the individual or entity had relied on information from:
(a) Judicial precedents;
(b) Published rulings;
(c) Technical advice memorandums or letter
rulings;
(d) Past Internal Revenue
Service audits in which there were no assessments of employment tax for amounts
paid to other individuals who held a similar position;
(e) A recognized practice of the industry;
(f) Advice from someone who would
be considered knowledgeable in tax matters; or
(g) Written advice from an employee of the
Department of Revenue.
(4) The preceding are factors that would
influence the department's decision regarding the existence of reasonable
cause. It is not intended to be an exclusive list.
Example 3: Martha owns a hair salon employing Sam
as an independent contractor. She issues Sam a Form 1099 at the end of each
year showing the amount paid to Sam that year for services rendered. The
Internal Revenue Service had examined Martha's payroll in a prior year and no
changes or assessments were made to Martha's return regarding her wage expense.
Martha produces the audit reports that show the Internal Revenue Service
accepted her characterization of Sam as an independent contractor. Therefore,
Martha had reasonable cause to classify Sam as an independent
contractor.
(5) For the
purposes of section (3) of this rule, the evidence of reasonable cause must be
clear and convincing.
Notes
Or. Admin. Code §
150-305-0130
RD 9-1992, f.
12-29-92, cert. ef. 12-31-92; REV 6-2007, f. 7-30-07, cert. ef. 7-31-07;
Renumbered from 150-305.217,
REV
47-2016, f. 8-13-16, cert. ef.
9/1/2016;
REV
86-2016, f. 12-28-16, cert. ef.
1/1/2017
Stat. Auth.: ORS
305.100
Stats. Implemented: ORS
305.217
