An Empirical Assessment of Employee vs Independent Contractor Status in Taxation and the Effects of Judges’ Gender, Political Affiliation, and Industry on Those Decisions

Abstract

Worker classification continues to be a highly litigated area of taxation. That is, the status of a worker as an employee or independent contractor remains a topic closely scrutinized by the Internal Revenue Service. This study examines factors that the judiciary deems relevant in ruling whether a worker is an employee or independent contractor. A backward stepwise logistic regression model is implemented to categorize the factors that best predict the court’s decision on whether a worker is either an employee or independent contractor pursuant to the factors in Revenue Ruling 87-41 (1987-1 CB 296), judge gender, and political affiliation. The results indicate three factors (supervision/instructions, continuing relationship, and the right to discharge) are capable of accurately predicting 93 percent of the decisions made by the US Tax Court. Other findings support notable statistical differences between male and female judges rendering decisions and reaching conclusions. Also, there is a statistically significant difference based on the type of industry. Political affiliation appears to have no significant impact on judicial rulings.

Citation

Englebrecht, T.D. and Dowis, W.B. (2018), "An Empirical Assessment of Employee vs Independent Contractor Status in Taxation and the Effects of Judges’ Gender, Political Affiliation, and Industry on Those Decisions", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 21), Emerald Publishing Limited, Leeds, pp. 21-45. https://doi.org/10.1108/S1475-148820180000021002