DLT to share data with IRS to identify lawbreakers

The R.I. Department of Labor and Training is joining a multi-state initiative next month to share company records with the U.S. Internal Revenue Service to identify employers who might be misclassifying workers to evade taxes, or not filing all the returns they should.
Starting Nov. 9, Rhode Island will among 29 states sharing data with the IRS to rout out “questionable employment tax practices,” as such violations are known.
Raymond Filippone, assistant director of income support at the DLT, said some of the practices the initiative aims to uncover include failing to file returns with state government; claiming to be a sole proprietorship with the state while federal tax returns show multiple employees; and misclassifying employees as independent contractors.
Companies might engage in such practices to avoid or reduce contributions to the state unemployment insurance and temporary disability insurance funds, or to reduce their workers’ compensation costs or to avoid having to offer health insurance to some workers.
Right now, violators are most often caught when a worker files an unemployment claim and the DLT can’t find any record of the person having been an employee of the company in question, Filippone said.
The lawbreakers are found in multiple industry sectors, but these practices seem to come up especially with seasonal jobs, in construction, landscaping and agriculture, for example, Filippone said.
“For example, a landscaping company may report to the feds that they employ X number of individuals, say five, while with us … they’re saying they’re independent contractors, so they receive a 1099 form,” Filippone said. “We know that it happens across the country.”
Not only is an employer that does this breaking the law, Filippone said, but there are consequences for the workers: They might not be able to get unemployment benefits if they lose their jobs; they might have to pay higher taxes, as if they were self-employed; and they might fail to file required tax returns because they are unaware that they are being reported as independent contractors instead of as employees.
With the new system, Filippone explained, the DLT will get periodic reports from the IRS showing how companies are classifying their employees, and the data will be compared with state data to identify any inconsistencies.
“Now we can catch them before an employee contacts us with a claim,” he said.
In a news release, DLT Director Adelita Orefice said that “prevention, detection and elimination of abuse in the unemployment insurance program are top priorities for our department.” She added: “We want to ensure that employers are paying only their fair share of employment taxes and are not subsidizing any dishonest employers.”
Unemployment insurance, which is funded through state and federal employment taxes, compensates workers who are unemployed through no fault of their own and are actively seeking work. •