The federal statute 26 U.S.C. § 7434 permits a person to claim that another has filed a false tax return on his or her behalf, potentially subjecting an employer to a statutory penalty of $5,000 and attorneys’ fees. Sometimes, disgruntled former employees and independent contractors (collectively referred to as “workers”) will use this statute to try to get leverage over an employer in a dispute. Often the former workers will claim that they were misclassified as an independent contractor when they should have been classified as an employee. While there are some cases which have found that “misclassification” of a worker as an independent contractor is a violation of § 7434, the view most courts have held that misclassification is not a violation of § 7434. Courts have held this even when the business believed the misclassification as an independent contractor is improper. Peter Mavrick is a Fort Lauderdale employment attorney who defends the interests of businesses and business owners against claims asserting alleged discrimination and retaliation (in federal and state court proceedings and before the EEOC, Florida Commission on Human Relations, and local government agencies enforcing anti-discrimination laws) and against claims for allegedly owed overtime wages, minimum wages, and other wages.
Determining whether a worker is an employee or an independent contractor is not always easy for Florida employers. Under Florida law, there are ten factors to consider in making this determination, the “most important factor” of which is the “extent of control” that the hiring company has over the worker. McGillis v. Dep’t of Econ. Opportunity, 210 So. 3d 220 (Fla. 3d DCA 2017). Accurately classifying whether a worker is an employee or an independent contractor can have important tax and liability consequences for a business; however, a Florida business should not be risking a violation of 26 U.S.C. § 7434 even if it misclassified a worker.
The federal tax fraud statute, 26 U.S.C. § 7434, allows a person to sue any other entity if that other entity issued a tax return which inaccurately represented the money being paid. In part, § 7434 provides: