While folks in Washington have seemingly come to terms with the idea that Blackwater might have killed some folks when they shouldn’t have, they are drawing the line where it hits Americans the hardest: cheating on taxes.
Rep. Henry Waxman (D-CA) has made public a letter from IRS to Blackwater from March (yes, March) regarding a potential misclassification of employees as independent contractors. The Service has indicated that the classification was “without merit.”
So, here’s the thing. The line between independent contractors and employees can be fuzzy. But in this instance, I don’t see how it possibly could be.
The employees in question are security guards. My grandfather and my brother have both been security guards – not in Iraq, mind you – but nonetheless. They did not set their own hours. They did not use their own tools. They wore uniforms. They were told where to be and how long to be there. They were clearly employees.
Why do those things matter? As a general rule, the IRS claims that you are an employer if you “have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.” The more control that the company exerts over the worker, the more likely it is that the worker is an employer.
I have a difficult time believing that Blackwater told its security guards to just show up “whenever” without specific guidance – especially in Iraq. Further, I suspect that Blackwater trained the guards (another key that the IRS uses to determine an employer/employer relationship) and that the guards do not advance their own expenses (yet another piece of evidence that the IRS considers) or make an investment in their work in Iraq. I am also willing to bet that the security guards are not allowed to contract with other companies while in Iraq. Housing and other perks? I’ll bet that Blackwater controls those, too.
Why does any of this matter? Withholding. A company is required to pay matching funds for employees and withhold taxes. Not so for independent contractors. It is possible, according to reports, that Blackwater could have evaded millions of dollars in taxes. And yet, we’re still giving the company government money…
Amazing how the government has turned its head away from the facts on this matter. Blackwater just didn’t appear on the horizon, but was the scheme of pretty smart guys, ready to “steal” some of the US Treasury that has been shipped to IRAQ courtsey of Bush / Cheney.
It took an act of Congress to bring this to the surface. Wonder how far the smoke is from the source of the scheme?
And you know what should scare the GOP? That comment was written by a lifelong Republican… 😉
The government’s apparent softness on Blackwater’s wake of dead bodies may be related to the fact that Blackwater has lost several of its own people in Iraq without losing a single one of the diplomats it was hired to protect. State is too busy being thankful they are alive to judge too harshly. The Beloved IRS, on the other hand, fears not the insurgents!
As the sister of military personnel, I know our soldiers receive fewer perks, far less money and not the sort of *gratitude* that you imply the State feels for Blackwater employees. I find it hard to muster up much sympathy for the company (not the employees). The folks there are making lots of money and not facing any consequences – tax or otherwise.
Kelly,
I don’t understand if I received a Form 1099 like the Blackwater personnel, I would have to file a US tax return and pay the appropriate federal and state tax plus 15.3% social security tax. So if each person who received the Form 1099 did that what tax is being evaded?
First of all, the company is responsible for paying its share of the withholding, so in that regard, even if the tax is being paid, it is being paid by the wrong party. Blackwater is shifting its tax burden to the employees – that is evasion. The big case on this matter involved Microsoft, in case you’re interested in background info about why it’s inappropriate and against the law.
Second, there are other taxes that do not get picked up by independent contractors but would be paid for by an employer – state unemployment compensation taxes, for example. By misclassifying personnel, a company would avoid those additional taxes.
Kelly – Thanks for responding. Can’t Blackwater simply claim relief under Section 530 safeharbor? Also I am curious does the Comm. on oversight and goverment reform, which Congressman Waxman heads, have authority on this issue. Shouldn’t this matter be for the IRS to handle Dept. of Justice? I just find it odd!