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The IRS said because of advertising agencies’ heavy reliance on freelancers, they have already been among a list of targeted businesses in the East and are now being given heightened scrutiny in San Francisco as well.
Sources within the advertising community here say at least two of the city’s major shops are currently being audited. At issue is whether so-called ‘independent contractors’ used by many of San Francisco’s advertising agencies should be categorized as employees and have federal income tax withheld from their pay.
The IRS audits can extend back three years and, if they determine an agency misclassified a worker, they can charge not only up to 35% of the wages paid, but interest and penalties as well.
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