The IRS Categories of Evidence

It's important to note that while the 20 Questions continues to be referred to in most media discussions on the independent contractor issue, the IRS has focused their attention in recent years on three critical categories of evidence that encompass many of the 20 Questions. These categories of evidence were first introduced by the IRS as part of their 1996 Employees vs. Independent Contractor Training Manual.

The Categories of Evidence:

A. BEHAVIORAL CONTROLS

Factors that illustrate whether the firm has a right to direct or control how the worker performs the work:

1. Instructions
2. Training

B. FINANCIAL CONTROLS

Factors that determine whether the worker has a right to direct or control how the business aspects for his/her business activities are conducted:

1. Opportunity for profit or loss
2. Significant investment
3. Unreimbursed expenses
4. Method of payment
5. Services available to the relevant market

C. RELATIONSHIP OF THE PARTIES

Factors that illustrate what the actual relationship of the parties appears to be:

1. Intent of parties
2. Employee benefits
3. Permanency of the relationship
4. Services are part of regular business activities
5. Discharge and termination of services