Oeeite est sian concems acing landmen today is the issue of “landmen as independent contractors” We continue to hear more and more from land men who are being scrutinized and audited by the IRS. In January, a lead broker and AAPL member was chal- lenged by the Texas Workforce Commission on the same issue. The govemment sees landmen as an opportunity to generate revenue through additional taxes by classifying | them as employees. itis imperative that we be ever vigi- lant to ensure that we are in the best position to defend ‘ourselves against these challenges. There is a 20-point IRS test to determine whether an individual is an employee or an independent contractor. | However, as is usually the case, itis almost impossible to | adhere to all of these points. Yet in talking with Roger | Soape and Alan Morgan, who lead our tax issues commit- tee, we leam that there are a few things individuals and brokerage firms can do to reduce their exposure: 1. Have a written contract. Every subcontractor doing field landwork should have a written contract with his ‘or her employer regardless of the size of the job. Every broker should have a written contract with each land- man, This is the first line of defense and has been a big deterrent. | cannot stress enough how important a contract is. if you don’t have one, the AAPL website has one available for free. It can be found at ‘http://wearurlandman.org/WCM/Documents/ MasterLandServicesContract pdf. 2, Subcontractors should be single-member LLCs (limited liability companies). Not only should you be a single-member LLC, but you should have your ‘own employee identification number (EID) to use for reporting taxes instead of using your Social Security number. We have often seen that the IRS will move on once they determine that an individual has and works under a single-member LLC. Its just more of a chal- lenge for them to prove that the individual is an employee. LLCs and ElDs are not extremely costly to obtain and are definitely worth the investment, No employee-type benefits. | know in this day and time when work is out there and lead brokers are challenged to find and retain top quality individuals to work on their crews, the impulse is to offer a little more in the form of benefits to keep the talent. Yet this is a major red flag to the IRS and will ultimately ‘Cause more grief and cost you more money in the Landmen as Independent Contractors: Five Tips for Avoiding IRS ‘Red Flags’ meme RV DP long run once the a IRS gets wind of this. Avoid this at all costs. Ol & 4. No office space = cue fling provided. Again, i Sich you are providing the Nidited, office space, supplies, equipment, comput- et, etc, this is a defi nite sign to the IRS that an individual is an employee instead of an inde, pendent contractor. If the landman is an inde contractor, he of she must provide these things foo themselves. 5. Membership listing in the AAPL or a local asso. ciation under the individual name. Vie have seoy several instances in the past where landmen have identified their client company or broker as ther employer. This is another re flag to reguiators, Please be conscientious when completing your profile fr ‘AAPL and/or your local association. If you are a sub- contractor, do not list your client company of your bro kers name as employer. Rather, identity yourself as on independent Finally, as a footnote to all of this, if you are a sub- contractor and yo: and your broke: it company releases you, you cannot go to nployment commission in your respective st: 4 2 claim to receive unemploy- ment until yor at next “gig” This is tantamount to walking into ti ommission and saying, “I was an employee and |...°3se of that you should bill me and my broker/client company for more taxes” Please do not do this. Hopefully these points are beneficial. Roger and Alan stand ready to provide any advice or counsel they can to help with your individual situation. Stil itis up to each of you to be aware of the potential problems and to take all the steps to protect yourself and your client company of broker. It is just “good business” Da. Marty Schardt, CPL ‘AAPL Executive Vice Pres itis ident | i