IRS and Teacher Payments
In November 2016, Clemson University concluded a year-long IRS examination by executing a closing agreement stipulating that Certified Teachers and Writing Project Workers “and persons performing equivalent duties regardless of taxpayer’s job titles will be treated as employees for all federal employment tax purposes”.
To learn more about how this closing agreement impacts sponsored projects, please download this memo from the University Controller and review the Frequently-Asked-Questions below.
In light of the 2016 closing agreement between Clemson University and the IRS regarding worker classification of “certified teachers,” the University is prepared to forward proposals involving teachers to its external tax consultants for an interpretation of teachers as employees or participants.
The purpose of the Frequently-Asked-Questions (FAQ) is to provide background and guidance to assist faculty as they develop proposals for sponsored research projects that include teacher participants as research subjects and/or for training, workshops, professional development, etc.
General Procedures for Working with University’s External Tax Consultant
1) Regarding the 20 factors the IRS uses to determine if an individual is an independent contractor or employee, which of the 20 factors determines that a teacher who participates in a sponsored project should be classified and paid as an employee?
The “20 factors” are considered collectively, not individually. In the sampled transactions examined for the Clemson University audit the IRS maintained that, in fulfilling sponsored project responsibilities, the individuals were functionally “teaching”, and, consequently, should be compensated as employees by either the University or their school districts.
Understandably, facts and circumstances may be different for other sponsored projects. That is why we will provide for an independent and knowledgeable review by external tax consultants to interpret the distinction between employee/participant support classifications for each proposed sponsored project.
2) How do I determine if my proposal should be reviewed by the University’s external tax consultant? Is this voluntary or required?
Review by external tax consultants will be voluntary. However, at least until a base-line resulting from accumulated decisions is established, the presumption will be that teachers will be classified and compensated as employees.
3) Will this service be available to faculty in other Colleges and Units who are developing proposals that involve teachers as participants?
4) What proposal sections should be submitted to the University’s external tax consultant? How early in the proposal process can these sections be submitted to minimize impact on the overall submission deadline (especially regarding budget development, project design, and collaboration with school districts)?
There is no standard submission format. PI’s should make their “best case” for participant support classification. Presumably, this might include narrative and budget information from the developing proposal indicating the number of teachers to be retained, their role in the project and the amounts to be paid. An email or Memorandum summarizing the developing proposal information would likely be helpful. Submissions should occur as early as possible, certainly well before the submission deadline.
5) How and by whom will the proposal sections be transmitted to the University external tax consultant? Will the PI and associated grant support office be cc’d on this transmittal?
Submit via email to:
Steven H. Crump, CPA
Associate Vice President and University Controller
All individuals included in the submission will be copied on the emailed submission to the external tax consultants, and all follow-up correspondence (particularly questions) will be shared with individuals included in the original submission.
6) How will the recommendation from the University’s external tax consultant be transmitted back to the PI and the associated grant support office?
The recommendation from the external tax consultants will be received via email and will be shared with all individuals included in the original submission.
7) A maximum of 3 business days is proposed by the University’s external tax consultant to complete their review “under normal circumstances.” What are the exceptions to this 3-business day turnaround? How will these exceptions be handled on an individual basis?
An initial backlog of accumulated proposals and a deluge of proposals prior to a standard submission deadline would constitute “unusual circumstances”. Provided developing proposal information is shared early in the process (as opposed to standard proposal deadlines), there should not be any exceptions to the 3-business day turnaround decision.
8) Is any communication between the University and its external tax consultant protected and exempt from FOIA?
9) At what point can the university make its own determination about teacher participants on individual proposals, based on a pattern of recommendations from the University’s external tax consultant?
As referenced in the response to Question #2, it is anticipated that a base-line of accumulated recommendations and decisions will emerge and may preclude forwarding materials to the external tax consultant for consideration.
However, individual facts and circumstances are different for each proposed project. Materials should still be submitted to the University Controller. If the University Controller decides that, based on historical precedent, individuals can and should be classified and paid as participants, the PI and all individuals will be notified as such and approved to proceed with that classification. If, in the opinion of the University Controller, the facts and circumstances necessitate a review by the University’s external consultants, the materials will be forwarded to them.