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amount of the loan forgiven, and the amount of the loan. Remember that 60% of the PPP loan must be spent for payroll and related payroll expenses.
CHANGING ECONOMIES DON’T FIT THE MOLD The traditional factors used to assess worker classification do not translate easily in today’s economy given how businesses are changing their models to offer different services to customers. For example, do you still get into your car, drive to the grocery store, shop, check out and drive home? Or do you download your favorite grocery store’s app, add your items to your virtual shopping cart, press the “submit button,” and wait a few hours for those groceries to arrive on your doorstep? Is the worker who shopped and delivered the items to you an employee of your favorite grocery store? Or is he or she an independent contractor? Traditional classification criteria might not result in the perfect answer.
A NEW GIG FOR THE GIG ECONOMY The gig economy is expanding rapidly as internet platforms are used more to connect service providers to customers. The gig economy generally includes industries in which workers complete tasks on an on-demand or client-by-client basis, such as Uber and Lyft drivers or restaurant home-delivery services. The emerging gig economy has raised questions about how to classify workers for tax purposes. An important side note here — make sure you are appropriately inquiring of your individual clients if they are involved in the gig economy before you prepare their returns, perhaps asking if they “occasionally” drive for Uber or Lyft. If the answer is yes, make sure that receipts and other documentation are available for support. For the business clients, inquire if they have filed the appropriate Forms 1099.
LEGISLATION AT PLAY Many states use some form of an “ABC test” to aid businesses in the classification of a worker. This is an ever-changing environment. California has a notable adoption of an ABC test that garnered mainstream attention in the state’s Supreme Court ruling in April 2018 in the case of Dynamex Operations West, Inc., v. Superior Court. The ruling established that companies must use a three-pronged test to determine how to classify workers. This test assumes
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that workers are employees unless the company that hires them can prove otherwise. In September 2019, California legislatively followed up on the decision with the passage of Assembly Bill 5 (AB-5), popularly known as the “gig worker bill.” Effective Jan. 1, 2020, the law requires companies that hire independent contractors to reclassify those workers as employees, with a few exceptions. Many states have started to pattern themselves after California, and we may see in the upcoming year many state legislatures engaged in renewed or new discussions regarding the gig economy. In its spring term, the U.S. Supreme Court refused to hear the case of New Hampshire v. Massachusetts, a squabble between those states over nonresident income tax — effectively leaving nexus up to the individual states. In related federal news, on Jan. 9, 2020, the IRS released IR-2020-04 and announced the launch of a new GIG Economy Tax Center at irs.gov/businesses/ gig-economy-tax-center to help people involved in the gig economy area meet their tax obligations.
YOUR RESPONSIBILITIES AS THE ADVISER As if the classification topic wasn’t complex enough, another very big aspect for CPAs to consider involves the ethics of advising clients about classifying workers. Keep in mind that the potential for unauthorized practice of law (UPL) if you are advising clients on worker classification and have not been licensed or admitted to practice law in a given jurisdiction. Check your state rules to find out where all these situations occur and what you can or cannot do regarding giving any advice. n
Arthur Auerbach, CPA, CGMA, is an independent tax consultant located in Atlanta, Ga., specializing in tax consulting and estate and financial planning for individuals and closely held businesses. He is affiliated with the Asbury Law Firm as a consultant. Arthur is a member of the VSCPA Tax Committee and a former member of the AICPA’s Tax Executive Committee. He is currently chair of the Georgia Society Federal/State Task Force and a member of AICPA’s Tax Practice and Procedure Committee. auerbacharthur@gmail.com
