An individual may work for one organization as both an employee and an independent contractor

Plain-English summary

Chief Counsel Advice discusses whether a worker may serve one organization in two capacities, as both an employee and an independent contractor. It relies on prior IRS guidance stating that separate and distinct services can support separate classifications, while interrelated duties or compensation generally indicate one capacity. The advice notes that the analysis may apply to the worker in question, although the context of custodial workers was described as unusual.

Ruling snapshot

• Question: Can one individual perform separate services for the same organization as both an employee and an independent contractor?
• Outcome: Advice given
• Key authorities: IRC § 3121; Rev. Rul. 58-505; CCA 200206053

Full text (IRS public release)

ID: CCA_2010082716002632 Number: 201039029
Release Date: 10/1/2010
Office: -----------------------------
UILC: 3121.00-00

From: --------------------
Sent: Friday, August 27, 2010 4:00:34 PM
To: ----------------------------------------------------------------
Cc: ------------------------------------
Subject: RE: [ ---------------]

I haven't heard of this treatment in this particular context. I remember, though, that we do have some
rulings on "dual capacity" where an individual can work for the same organization as both an independent
contractor and an employee, but these usually involve corporate officers, as I recall. The following
discussion is from CCA 200206053:

The Service recognizes that an individual can work for one entity in a dual capacity. In Rev. Rul.
58-505, 1958-2 C.B., 728, the officers of an insurance company performed administrative duties
for the company and also sold insurance policies under a standard independent contractor
agreement. The Service held that they worked in two distinct capacities, employee and
independent contractor. The ruling states that, if the two services are “interrelated,” the officers
do not act in two separate capacities. If, however, the services in the two capacities are separate
and distinct, then the status of each type of service must be considered separately. This means
that there is no interrelation either as to duties or remuneration in the two capacities. In this case,
the two types of work are sufficiently different that it is possible, thought not certain, that the
employee is working in two capacities.

It seems very unusual (inappropriate?) in the context of custodial workers, though. Is the ---------------------
--------------paying employment taxes on the W-2 income? I'm copying the ----- managers because they
have seen lots of worker classification issues.