May 9, 2025
Internal Revenue Service
Attn: CC:PA:01:PR (Notice 2025-19)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Re: Notice 2025-19
Recommendation for 2025-2026 Priority Guidance Plan
Dear Sir or Madam:
The Coalition to Promote Independent Entrepreneurs (“CPIE”) appreciates this opportunity to submit the following recommendation for inclusion in the 2025-2026 Priority Guidance Plan.
CPIE has only one request. It respectfully requests that the Internal Revenue Service (“IRS”) revoke Rev. Proc. 2025-10, 2025-4 IRB 492 (Jan. 8, 2025). This revenue procedure contradicts decades of consistent IRS guidance and court decisions interpreting Section 530 of the Revenue Act of 1978 (“Section 530”).
Section 530 is a safe-harbor provision Congress enacted in 1978 to protect a taxpayer against potential federal employment-tax liabilities arising out of its classification of individuals as independent contractors for federal employment-tax purposes. The novel interpretations of Section 530 contained in Rev. Proc. 2025-10 are not supported by the statutory language.
The revocation of this revenue procedure would further the objectives reflected in Executive Order 14219 (90 FR 10583) in multiple ways. First, Rev. Proc. 2025-10 exceeds the scope of power vested in the Federal Government by the Constitution, as it represents a substantive change to Section 530 by IRS. But the power to change a statutory provision is vested in the Legislative Branch, not the Executive Branch.
Second, the revenue procedure does not reflect the best reading of Section 530. This is demonstrated by its novel interpretations being remarkably different in material respects from the consistent interpretations given Section 530 for nearly 50 years by both IRS and the courts.
Third, Rev. Proc. 2025-10 will impose substantial new costs on small businesses and introduce new uncertainty into IRS employment tax audits of taxpayers that previously would clearly have qualified for Section 530 protection. It grants IRS a new right to examine a taxpayer’s nontax treatment of individuals and its contracts with third-party vendors in its evaluation of the taxpayer’s eligibility for Section 530 protection. In addition, the guidance will disqualify an incalculable number of taxpayers from Section 530 protection that prior to Rev. Proc. 2025-10 would have qualified. A taxpayer’s disqualification from Section 530 will lead to an analysis of its relationship with the individuals at issue under the common law test, which for the taxpayer will be a much more expensive and burdensome audit.
Finally, the new guidance will impose undue burdens on small business and impede private entrepreneurship because taxpayers that lose their Section 530 protection, due to Rev. Proc. 2025-10, will be less likely to do business with independent contractors. This will result in a loss of business opportunities for independent entrepreneurs – who are, themselves, small businesses.
Revoking Rev. Proc. 2025-10 would also promote sound tax administration. This guidance contradicts nearly half a century of consistent IRS guidance and court decisions applying Section 530 – on which countless taxpayers in good faith relied. And the changes discussed herein do not derive from any legislative amendment to Section 530. Rev. Proc. 2025-10 interjects instability and unpredictability into an area of the tax law that had been long settled. This is anathema to sound tax administration.
- Section 530
To qualify for Section 530 safe-harbor protection with respect to an individual, a taxpayer must (i) consistently classify as independent contractors for federal employment tax purposes all individuals who hold substantially similar positions relative to the individual, (ii) comply with the Form 1099 reporting requirements with respect to the individual, and (iii) have a reasonable basis for classifying the individual as an independent contractor for federal employment tax purposes – which can be established in a statutorily recognized way or “in some other manner.”[1]
Following the enactment of Section 530, IRS issued extensive guidance interpreting the provision, namely, Rev. Proc 78-35, 1978-2 C.B. 536, Rev. Proc. 81-43, 1981-2 C.B. 616, and Rev. Proc. 85-18, 1985-1 C.B. 518. In addition, on October 30, 1996, IRS issued a training document that includes extensive guidance on Section 530, Independent Contractor or Employee? Training Materials, Training 3320-1012(10-96) (“IRS Training Guidelines”).[2]
Rev. Proc. 2025-10 provides new interpretations of Section 530 that materially depart from the statutory language of Section 530 and from IRS’s prior guidance and court decisions interpreting the provision. It does so in two different respects, namely, (i) a taxpayer’s ability to demonstrate reasonable basis “in some other manner,” and (ii) the substantive consistency requirement. Each is discussed below.
- New Standard for Establishing Reasonable Basis ‘In Some Other Manner’
As noted, a taxpayer can establish a reasonable basis for purposes of Section 530 by satisfying a statutory basis or “in some other manner.” Rev. Proc. 2025-10 provides – for the first time – that when a taxpayer claims to establish a reasonable basis “in some other manner” IRS may consider whether the taxpayer considered the individual an employee for nontax-law purposes, including whether it complied with the Fair Labor Standards Act (“FLSA”)[3] or provided state unemployment insurance or worker’s compensation insurance coverage for such individual.[4]
But an individual’s status for purposes of the FLSA is determined under an “economic realities” test, which is a much broader test than the common law test that applies for purposes of federal employment taxes.[5] An individual’s status for purposes of the FLSA has little, if any, relevance to the individual’s status relative to a taxpayer for purposes of federal employment taxes. It has never been considered in the context of Section 530 in any IRS guidance or court decision prior to Rev. Proc. 2025-10.
Similar concerns arise out of the new consideration that Rev. Proc. 2025-10 gives to whether a taxpayer provides state unemployment insurance or worker’s compensation insurance coverage for independent contractors. In practice, companies pay state unemployment “SUTA” taxes and/or provide workers-compensation coverage for independent contractors for a variety of reasons.[6] In either case, IRS guidance prior to Rev. Proc. 2025-10 made clear that a taxpayer’s treatment of an individual for purposes of state laws is not a factor in the context of Section 530.[7]
- New ‘Substantive Consistency Requirement’ Considers Third-Party Vendors
The relevant statutory language of Section 530 and prior IRS guidance and court decisions concerning the “substantive consistency requirement” consider only actions performed by the taxpayer claiming Section 530 protection. But Rev. Proc. 2025-10 – for the first time – provides that a taxpayer can violate the “substantive consistency requirement” by “[c]ontracting with a third party to perform acts required of employers with respect to an individual….”[8]
This new interpretation, which can deem the substantive consistency requirement violated by an action performed by a third-party vendor, arguably describes a taxpayer that contracts with a third-party staffing firm, whereby the staffing firm assigns one of the staffing firm’s own employees to provide a service for or on behalf of the taxpayer.[9] This interpretation directly contradicts prior IRS guidance.[10]
- Conclusion
Rev. Proc. 2025-10 – if not revoked – will be highly disruptive to an area of the tax law that was otherwise well settled. It departs in material substantive respects from decades of prior IRS guidance and court decisions applying Section 530, it undermines the objective nature of the Section 530 safe harbor provision that Congress enacted, and it will irrevocably disqualify from Section 530 protection taxpayers that prior to Rev. Proc. 2025-10 would clearly have qualified. cpie respectfully urges that Rev. Proc. 2025-10 be revoked.
We would welcome an opportunity to meet with you or your colleagues to discuss this issue in further detail. Thank you very much for your consideration.
Respectfully submitted,
Russell A. Hollrah
Executive Director
(202) 659-0878
[1]A taxpayer can establish a reasonable basis in a statutorily recognized way by demonstrating the taxpayer’s reasonable reliance on any of the following:
- judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;
- a past IRS audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or
- long-standing recognized practice of a significant segment of the industry in which such individual was engaged.
If the taxpayer cannot satisfy any of the three statutory safe havens, it nevertheless is entitled to relief if it can demonstrate a reasonable basis “in some other manner,”
[2] Available at https://irp.cdn-website.com/7bc682fd/files/uploaded/IRS%20Independent
%20Contractor%20v%20Employee%20160%20pages.pdf.
[3] The FLSA is a federal law that imposes “minimum wage and overtime pay rules.”
[4] Rev. Proc. 2025-10, §6.07.
[5] The U.S. Department of Labor (“DOL”) observed in its recent regulations interpreting the term “employee” for purposes of the FLSA:
the U.S. Supreme Court has stated … that “the term ‘employee’ under the FLSA had been given ‘the broadest definition that has ever been included in any one act.’ ” In particular, the Court has noted the “striking breadth” of section 3(g)’s “suffer or permit” language, observing that it “stretches the meaning of ‘employee’ to cover some parties who might not qualify as such under a strict application of traditional agency law principles.” Thus, the Court has repeatedly observed that the FLSA’s scope of employment is broader than the common law standard often applied to determine employment status under other Federal laws.
Employee Independent Contractor Classification Under the Fair Labor Standards Act, 89 FR 1638-01, 1640 (Jan. 10, 2024) (citations omitted) (emphasis added).
[6] In the case of SUTA taxes, a multi-state taxpayer that is audited by a state unemployment agency and determined to be the employer of individuals whom it classifies as independent contractors for federal employment-tax purposes may decide, for business reasons, not to appeal the determination and instead to pay the SUTA tax in that state, e.g., if the amount of SUTA taxes assessed is immaterial and the taxpayer does little business in that state. In the case of workers’ compensation, sometimes a taxpayer will contract with a client to refer independent contractors to perform services at the client’s location and the client demands that the taxpayer maintain workers’ compensation coverage for the independent contractors, see, e.g., Mississippi Dep’t of Emp. Sec. v. Prod. Connections, LLC, 963 So. 2d 1185, 1188 (Miss. Ct. App. 2007) (while finding that one of the company’s customers required it to carry workers’ compensation coverage and liability coverage on an individual who performed services at the customer’s premises, the individual and others similarly situated were held to be independent contractors for state unemployment purposes).
[7] IRS Training Guidelines, at 1-11. Accord, Priv. Ltr. Rul. 9338039 (Jun. 29, 1993) (concluding that a taxpayer’s payment of state unemployment taxes with respect to individuals is not considered “treatment” for purposes of Section 530 and will not negate the taxpayer’s qualification for Section 530 protection with respect to such individuals). The IRS Training Guidelines only reaffirm the guidance IRS has provided in all its prior revenue procedures interpreting Section 530. For example, Rev. Proc. 85-18, at § 3.03, interprets the term “treat” as including different actions that can signify an individual’s employee status – but only for purposes of federal taxes. It follows that the consideration of a taxpayer’s treatment of an individual as an employee for purposes of state unemployment insurance or workers’ compensation insurance coverage – in the context of ascertaining whether the taxpayer can establish a reasonable basis in some other manner – is unprecedented and contrary to prior IRS guidance.
[8] Rev. Proc. 2025-10 §3.03(5) (emphasis added).
[9] The quoted language also arguably describes a taxpayer that hires an individual as its own employee and contracts with a third-party payroll-processing firm to process payroll on its behalf for the individual and to comply with applicable federal, state, and local payroll tax obligations on its behalf with respect to the individual. This interpretation would be benign.
[10] See IRS CCA 200948043, 2009 WL 4092540 (Aug. 6, 2009) (“the temporary *** are not taken into account for purposes of the substantive consistency requirement as it related to the Category A Workers for Taxpayer. Thus, we conclude that Taxpayer has satisfied the substantive consistency requirement of Section 530(a)(3).”)
