IRS audit 20 rules - Consultants?
Q.I am interested from those who have devised solid "systems" of compliance with the IRS audit 20 rules defining legal consulting. I wish to use you as a reference to the nincampoops who say that consulting as a partnership or sole proprietor company is illegal, and demand that you incorporate. Any success stories out there ? Does it help if you get a ruling from the IRS on your setup ? The law says it can, but in actual practice... ?
A.I am an Enrolled Agent (a tax preparer authorized to represent taxpayers before the IRS) and a consultant. A major stumbling block to "Consultants" as sole proprietor is the percent of income earned from one client. If it is too high, then the consultant must be treated as an employee, otherwise, I don't think the IRS is trying to put independent consultants out of business or make them incorporate. The implicit message in the IRS treatment then is that, if you are contracting yourself out, and the contracts run to six month/year terms or more, you had better incorporate to keep our own hired goons off your back.
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