CCA 200952040: Section 530 relief requires proof of reasonable reliance on industry practice

Plain-English summary

Chief Counsel Advice addresses whether a taxpayer could rely on industry practice for section 530 relief from treating landsmen as employees. The advice states that substantive consistency, reporting consistency, and reasonable basis must first be considered. To rely on industry practice, the taxpayer would need to show that the practice existed during the relevant period, that the taxpayer actually knew of and relied on the cited surveys, and that the reliance was reasonable. If the taxpayer did not satisfy section 530, the Service could proceed with the employee versus independent contractor classification issue if the facts supported reclassification.

Ruling snapshot

• Question: Could a taxpayer rely on industry practice and cited surveys to obtain section 530 relief for classifying landsmen as independent contractors?
• Outcome: Advice given
• Key authorities: IRC § 3121; Revenue Act of 1978 § 530(a)(2)(C)

Full text (IRS public release)

ID: CCA_2009102913095130 Number: 200952040
Release Date: 12/24/2009
Office: -----------------------------
UILC: 3121.10-04

From: ------------------
Sent: Thursday, October 29, 2009 1:09:57 PM
To: ------------------
Cc:
Subject: Your question

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I read through your email and have the following comments. Yes, the application of Section 530 and its requirements of substantive consistency, reporting consistency and reasonable basis must be considered first. It appears that the taxpayer is asserting that they are relying on section 530(a)(2)(C) industry practice as the reasonable basis for not treating the landsmen as employees. The taxpayer cites to several surveys in its area of operation and in --------- as support for satisfying the industry practice for treating the landsmen as independent contractors. In order to satisfy industry practice, the taxpayer must show the industry practice existed at the time they purportedly relied on it for treating the landsmen as independent contractors during the years at issue, show that they actually relied on it for treating the landsman as contractors (i.e., that they knew of and relied on the cited surveys), and that such reliance on the industry practice was reasonable. While it is possible that knowledge of the purported industry practice could come in other ways, it appears that here taxpayer is asserting it relied on the surveys. If the taxpayer does not satisfy the requirements for section 530 relief then the Service can proceed on the worker classification issue, that is employee vs. independent contractor, so long as the facts support the reclassification. If you have any further questions, please let me know.