More than three years ago, industry representatives were invited to the IRS offices in Washington, D.C. to familiarize IRS personnel with industry practices and job functions. Participating in a series of meetings which subsequently took place were MCA-I (ITVA), represented by Karen Rogers, national president, attorney Mike Reed, of Porter, Wright, Morris & Arthur's Cincinnati office, and attorney George Knox of Maloney & Burch, a Washington, D.C. law firm; the Association for Independent Commercial Producers (AICP), represented by Michael Cohen, an attorney with the Los Angeles law firm DeCastro, West, Chodorow & Burns; and the Minnesota Film and Video Association (MFVA) represented by attorney Lee Henderson with the office of Hessian McKasy & Soderberg in Minneapolis. Media Communications Association-International and AICP are national associations which represent professionals in the industry. MFVA, a state coalition of local film and video professionals, was instrumental in bringing the issue to the attention of federal IRS officials.
Structure of the IRS Guidelines
The new IRS guidelines are contained in a 49-page explanatory document centered on answering the key question of who has the right to direct and control work on film and video productions. This document is presented in its entirety on the Media Communications Association World Wide Web site.
A tiered series of questions has been developed which will yield sufficient evidence to support classifying the worker as either an employee or independent contractor.
First, all industry job functions have been classified into three categories:
Category One workers, who control the overall production, have a high likelihood of independent status.
Category Two workers, who control significant aspects of production, will be approached neutrally by the IRS.
Category Three workers, who usually have little or no control of production segments, have a high likelihood of employee status.
Next, three Critical Factors are examined. Workers who are subject to these Critical Factors -- continuous employment status, training paid by their employer, and/or are union or guild members -- are automatically classified as employees.
Those who are not subject to the Critical Factors then undergo further analysis. They must provide sufficient documented evidence to support their independent status by satisfying Significant Factors.
Category One Workers must provide proof of two Significant Factors -- business presence and risk of profit or loss. The documentation required for these two Significant Factors is explained in the IRS guidelines.
Category Two workers must provide proof of three Significant Factors -- business presence, risk of profit or loss, and control over worker activities not involved with the shoot. Again, guidelines are provided.
Category Three workers must provide proof of the three Significant Factors and an additional Factor -- method of instructions under which work is performed.
Based on this analysis, and accompanying documentation, the worker is then classified.
Marshall V. Washburn, executive director, Specialty Taxes for the Internal Revenue Service, states in a cover letter accompanying the final document, "The guidelines benefit [the IRS and the Television Commercial Production and Professional Video Communication industries] by providing clear and applicable criteria for determining worker status. We anticipate that contention between members of the industries and the Service will decrease and accuracy and consistency in our determinations will increase as a result of these guidelines."
According to former Media Communications Association President Karen Rogers, "It is clear that most of corporate America and independent contractors within the industry are going to have to reexamine some of their practices. This document removes much of the ambiguity under which we all have been operating. Now that IRS guidelines exist which are tailored to our industry, we will know how to properly operate our businesses, be they large or small, and have confidence that we are complying with federal income tax rules."
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