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IRS asks IBM about contractors' status


ARMONK, N.Y. -- International Business Machines Corp. said yesterday the Internal Revenue Service is auditing the company over the status of thousands of workers who are employed as independent contractors.

Armonk, N.Y.-based IBM said the audit is routine and centers on the tax withholding procedures for workers who are paid as freelancers and don't have federal income tax or Social Security taxes withheld from their paychecks.

L "Audits are a way of life," said IBM spokesman Tom Beermann.

IBM, which has about 220,000 regular employees, employs thousands of workers who are considered temporary contractors. Those employees are expected to pay their own Social Security and federal income taxes, and IBM doesn't withhold those amounts from the paycheck.

The law states that a regular employee is one over whom the company has direct control, said Marshall Washburn, national director of specialty taxes for the IRS. Companies use contract workers to avoid being stuck with extra employees, he said.

"Where we get into the picture is where an employer wants to have the same degree of control over the worker but they don't want to call them an employee" because of cost savings, Mr. Washburn said.

If the IRS finds that IBM mistakenly classified those employees as contractors rather than regular employees, the company HTC could be liable for past Social Security payments, the IRS said. IBM didn't specify how much that might be.

For regular employees, Mr. Washburn said, companies are responsible for paying half of all Social Security taxes. Often, with contracted workers, the taxes aren't paid by the worker.

The audit centers on workers employed in 1986-92, IBM said.

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