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Employment tax issues affect newspaper circulation departments.

The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  has identified the employment classification of "home delivery agents" and "rack agents" working in the newspaper industry as a significant issue for its Industry Specialization A career option pursued by some attorneys that entails the acquisition of detailed knowledge of, and proficiency in, a particular area of law.

As the law in the United States becomes increasingly complex and covers a greater number of subjects, more and more attorneys are
 Program (ISP (1) See in-system programmable.

(2) (Internet Service Provider) An organization that provides access to the Internet. Connection to the user is provided via dial-up, ISDN, cable, DSL and T1/T3 lines.
). Many newspaper publishers treat these workers as independent contractors A person who contracts to do work for another person according to his or her own processes and methods; the contractor is not subject to another's control except for what is specified in a mutually binding agreement for a specific job. , and planning opportunities exist for continued treatment as such. However, the Service has intensified in·ten·si·fy  
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies
1. To make intense or more intense:
 its employment tax examinations, with the general view that newspaper publishers should treat carriers and rack agents as employees.

Traditionally, newspaper delivery systems have been either buy-sell arrangements or delivery-for-fee systems. In buy-sell arrangements, home delivery agents purchase and take title to newspapers from the publisher and, in turn, sell them to consumers. The agents in a buy-sell system earn their profit by retaining the excess of the retail price over the wholesale price of the newspapers, less selling expenses. In a delivery-for-fee system, delivery agents earn their profit based on the number of units delivered. Today, many hybrid variations of these systems exist.

As early as the 1940s, Congress recognized the variety of delivery systems and that some did not involve an employment relationship between the newspaper publisher and delivery agents. Consequently, Congress created two statutory exceptions from the definition of employment covering newspaper sales arrangements. Sec. 3121(b)(14)(A) states that newspaper delivery services performed by individuals under the age of 18 are not included in the definition of employment. Sec. 3121(b)(14)(B) generally provides that services performed by individuals in and at the time of sale to the ultimate consumer, in which that individual's compensation is determined by retaining the excess of the sales price over the wholesale price, do not constitute employment. The IRS has sought to limit sharply the availability of this latter exception.

The Service has argued that a newspaper publisher sells newspapers prior to their delivery if the publisher solicits sales and collects subscriber payments. Delivery agents, the IRS asserts, merely deliver newspapers. Consequently, the Service analogizes the home delivery agent's services to those performed by a delivery person who delivers merchandise and is compensated on a "piecework piecework, work for which the laborer is paid on the basis of the amount of work done. The system is best adapted to standardized operations in which quantity is preferred to quality. Its advocates maintain that it pays the worker according to his ability. " basis for each package delivered. As a result, the IRS contends the exemption provided by Sec. 3121(b)(14)(B) is not available, since the delivery agent's services are not being provided "at the time of sale."

Even if delivery agents cannot use the statutory exceptions, relief may be available under the "common law" definition of independent contractor. In Letter Rulings 9421029 (later revoked by Letter Ruling 9447027) and 9421044, the Service emphasized the following common-law factors in determining whether a delivery agent is an independent contractor. Does the agent:

1. establish the delivery route?

2. establish the time of paper pick-up and delivery?

3. hire, supervise and pay assistants?

4. perform services personally?

5. pay for all papers received, regardless of whether or not the customers pay for them?

6. pay all costs associated with operating a vehicle?

7. charge subscribers an additional delivery fee?

8. assume the risk of realizing a loss?

Because of the large variety of distribution systems, common-law factors critical to one publisher--such as those discussed in the two letter rulings--may not be as critical to another. Under the auspices aus·pi·ces 1  
Plural of auspex.

Noun, pl

under the auspices of with the support and approval of [Latin auspicium augury from birds]

 of the Compliance 2000 program, the IRS has asked members of the newspaper industry to work with it to identify which of the 20 common-law factors are critical to the industry as a whole.

In response to concerns about the Service's application of the 20 common-law factors, Section 530 of the Revenue Act of 1978 was enacted. Although the legislative history reveals congressional intent that Section 530 should be liberally construed in favor of upon the side of; favorable to; for the advantage of.

See also: favor
 the taxpayer, many taxpayers have become concerned that the IRS has chosen to narrow the availability of Section 530. Rep (programming) REP - A directive used in IBM object code card decks (and later PTF Tapes) to REPlace fragments of already assembled or compiled object code prior to link edit. . Nancy Johnson Nancy Lee Johnson (born January 5 1935, Chicago, Illinois) is an American politician.

Johnson was a Republican member of the United States House of Representatives from 1983 to 2007, representing first the 6th district and later the 5th District of Connecticut following the
 (R-Conn.), chair of the House Ways and Means WAYS AND MEANS. In legislative assemblies there is usually appointed a committee whose duties are to inquire into, and propose to the house, the ways and means to be adopted to raise funds for the use of the government. This body is called the committee of ways and means.  Oversight
For Oversight in Wikipedia, see Wikipedia:Oversight.

Oversight may refer to:
  • Government regulation — The role of an official authority in regulating a separate authority.
 Subcommittee sub·com·mit·tee  
A subordinate committee composed of members appointed from a main committee.

, has called for hearings on this case.

The ISP's identification of delivery agents and rack agents as a significant issue may lead to a resolution of the classification controversy. However, in light of the significant differences among newspaper publishers, a solution acceptable to the entire industry may be difficult to find. In the interim, the Service's differing applications of the statutory exceptions of Sec. 3121(b)(14), the common-law factors and the relief available under Section 530 may affect fundamental relationships between newspaper publishers and delivery agents.

Newspaper publishers should review their distribution relationships to ensure that those relationships fit within the parameters of Sec. 3121 or establish a common-law independent contractor relationship.
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Author:Bridgham, Bethany J.
Publication:The Tax Adviser
Date:Jul 1, 1995
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