Strange Problem and Proposed Solution

[Edsel]

Federal contracting regulations (in general) require that consultants cannot exceed more than 49% of the work for any given contract.  This is to keep contractors from outsourcing their work and bailing out of problems that come with employees.

One situation I have proposes 51% of the work to be performed by an employee, and 49% of the work to be performed by a consultant.  Sounds good from the outset, but the employee and the consultant are the same person.  In other words (fictitious numbers), $51,000 goes on a W-2, and $49,000 goes on a 1099 to his consulting company for the same work.  For this person, $100,000 in total revenue and the 1099 portion is allowed full above-the-line business deductions.

I'm not sure what the IRS thinks of a W-2 and 1099 going to the same person, especially for the exact same work.  Is there a cite that definitively addresses the problem?

Whady'allthink?

[ILLMAS]

http://www.hrmorning.com/workers-can-be-both-employees-and-ics-irs-rules/

[DANRVAN]

5 hours ago, ILLMAS said:

http://www.hrmorning.com/workers-can-be-both-employees-and-ics-irs-rules/

The IRS letter specifically mentioned situations where the employee/contractor is performing  different roles for the company.  That makes sense.  For example an individual might work as a employee during regular business hours  and also have a part time janitorial business which contracts out to the same company after hours.

On the other hand, Edsel stated that the individual would be performing the same duties as an employee and as a contractor.  In my opinion, the answer is clearly no, he is either one or the other.  Besides that,  I believe your proposal is crossing the line of legal vs. tax advice. When the federal agency smells a rat guess who the client is going to point his finger at.

[Catherine]

10 hours ago, DANRVAN said:

who the client is going to point his finger at

In anything resembling this possibility, I always try to be elsewhere when the finger is pointed!  As in, at least a full county away.  If I don't CMA (my) at all times, I can't help anyone.  And I hate jumpsuits.  Orange is OK, but not jumpsuits.  Blech.  

[Edsel]

Thanks to all.  I think the information in the link is definitive and clear.  The situation calls for charging a timecard and billing as a consultant for the exact same duties.  I advise against.