Walls & Ceilingsmagazine has published a few stories about the “Underground Economy” and “Misclassification” in recently. The IRS has been made painfully aware that the Federal and State governments are losing millions in tax revenue and they want something done. As one U.S. Senator said, “The extreme competitive nature of the construction industry has made it the hot bed for cheating.” Every contractor needs an advantage, since the winner is always the ‘low bidder.’ There is a built-in incentive to cheat-some contractors feel it is the only way to survive. This kills the honest contractor and forces him to quit. What will be left? Unfortunately, it will be even poorer supervision/site management and less tax revenues.

The IRS is getting the message and doing something about it. As part of a National Research Project, the IRS will conduct 6,000 planned audits over the next three years. The audits will focus on backup withholding for 1099s, fringe benefits and employee independent status. You should know that the distinction between employee and independent contractor is not established by the employer and the individual, it is determined by the IRS.W&Creaders, be careful out there.