With IRS employment audits on the rise since the new law being passed employers need to be careful on how they classify, whether their independent contractor or employee. Congress passed section 530 of the Revenue Act of 1978, which prohibited the IRS from releasing any guidelines of defining who was an employee. Section 530 also created a loop hole that set out four safe havens to protect businesses that were audited from having independent contractors reclassify as employees. The four safe havens of section 530 that created this loop hole are:

• Over the course of hire the business did not have a history of treating the independent contractor as an employee.
• In all aspects of work, the business consistently treated the individual as an independent contractor.
• The business treated all individuals performing similar work or in similar positions as the individual in question as an independent contractor and not employees.
• The business had a rational basis for treating the individual as an independent contractor. A business could show that they reasonable basis by demonstrating that it relied on such things as a previous IRS ruling, an IRS determination letter or the result of a previous IRS audit. They could also use long standing industry practice as a reasonable basis.

After passing Section 530, if the IRS held a business it could not use section 530 to prevent the reclassification of an independent contractor to an employee unless the business is able to prove that when the individual was hired the business relied on one of the loop holes in determining that individual was an independent contractor. Under PMTA 2011-15, IRS loosened its interpretation; if a business is subjected to a federal employment audit, the business no longer has to prove that it relied or was aware of the section 530 safe havens before that individual was hired as long as the business displays that its decision to treat the individual as an independent contractor falls within one of the safe havens mentioned above and occurred before the tax period under audit.