The single most effective thing you can do to avoid IRS and other government audits is to hire ICs who have formed corporations, rather than those who operate as sole proprietors or partnerships.
To understand why this is so, you need to know a little about the various legal forms a business can take. ICs can legally operate their businesses as:
- sole proprietors
- partnerships
- limited liability companies, or
- corporations.
Find out which category ICs fall into before hiring them, since it could affect the outcome of an IRS or other government audit.
Caution There Is Nothing in a Name
ICs may call themselves by a variety of names: consultants, independent business people, freelancers, self-employed workers, entrepreneurs and the like. None of these names has any legal significance; ICs can use any of them no matter how their businesses are organized. What’s important is whether they’re sole proprietors, partnerships, limited liability companies or corporations.