Abstract
The distinction between independent contractors and employees misclassified as independent contractors in the financial services industry is a complicated and critical tax issue. Misclassification is often the result of tax-savings measures instituted by financial services firms. Consequently, the federal, state, and local governments suffer revenue losses due to misclassification as financial services firms circumvent their tax obligations. This article will cover a range of issues surrounding the misclassification of employees as independent contractors in the financial services industry, including: the legal definition of an independent contractor, the tax reasons why a financial services firm would misclassify an employee as an independent contractor, the tax revenue consequences of employee misclassification, an overview of the financial services industry, and an application of the substance over form tax doctrine as an alternate approach to minimize the tax revenue losses resulting from employee misclassification.
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