Alaska Employment Law

Yesterday’s Wall Street Journal (12/03/07, A-14) carried an article about the tax status of the security guards employed by Blackwater Worldwide in Iraq.  Blackwater classifies the guards as independent contractors, arguing, according to the WSJ,  that they “like the ability to come and go between assignments, which [the IC status] makes easier.”  Chairman Henry Waxman (D-Cal) of the House Oversight Committee alleges that Blackwater has engaged in tax evasion by avoiding payment of Social Security, Medicare, and unemployment taxes, etc.

Some of the underlying documents are available on the Internet.  They provide a glimpse into the way one employer has tried to thread this needle.  

The House Oversight and Government Reform Committee’s website includes an IRS Form SS-8 ruling private ruling on one former Blackwater guard, finding that he was an employee, not an IC, and relying on the usual factors of control, whether the job is integral to Blackwater’s operations, etc.  After that ruling, Blackwager and the ex-guard entered into a Settlement & Mutual Release Agreement in which Blackwater agreed to pay an undisclosed amount to the ex-guard, but obtained his agreement not to contact any public officials.  (See para. 7-8) 

In its defense, Blackwater says:

The United States Government has always been aware of Blackwater’s relationship with its deployed personnel. The U.S. Small Business Administration has determined in an official finding applying “the criteria used by the IRS for Federal income tax purpose,” that “Blackwater security contractors are not employees.” The Chairman’s contention depends heavily upon a single letter from an IRS Field Office. Chairman Waxman’s letter fails to point out that this IRS Field Office letter is not a final determination and by law “may not be used or cited as precedent.” The Chairman also fails to mention that Blackwater has appealed the ruling by the IRS Field Office and that no final determination by the IRS has been made.

Blackwater’s on-line recruitment announcement for the position (called “Protective Service Specialist”) seeks “independent contractor(s),” but the application ends with this Certification: ”I certify that this information is complete and accurate. I understand that this information will be used to determine my employment considerations.” (Emph. added.)

Does the IRS really care about how the SBA reads the tax code, or whether the State Department (Blackwater’s client) knows that Blackwater has classified the guards as independent contractors?  (Did Blackwater qualify for a small business loan?)