(In)dependent Contractors: Combatting Employee Misclassification in Title 26

Abstract

This comment addresses the use of 26 U.S.C. § 7434 as an alternative remedy for individuals who are misclassified by their employers as independent contractors for federal tax purposes. Historically, misclassified employees have used more well-known employment laws such as the Fair Labor Standards Act to sue employers who engage in employee misclassification. 26 U.S.C. § 7434 provides an underutilized, alternative means for misclassified employees to recover damages for wrongful misclassification. Originally enacted in 1996 as part of the Taxpayer Bill of Rights, 26 U.S.C. § 7434 is a tax fraud statute that allows a taxpayer to seek civil damages when another person files a fraudulent information return with respect to payments purported to be made to the taxpayer. However, there is disagreement among federal courts as to whether the statute allows employees who have been misclassified as independent contractors to recover damages from their employer. This comment discusses the practical implications and drawbacks of using the statute as a remedy for misclassified employees. Further, this comment argues that the discord among federal courts should be resolved in favor of employees by allowing individuals who are misclassified to recover under the statute.