I think Uber can maybe weather this storm but I wonder how this will trickle down to the smaller personal service players like TaskRabbit/Caviar/Luxe etc who employ independent contractors.
If the IRS determines the same, Uber will be on the hook for back taxes and penalties for all of its US drivers. I don't think Uber can weather that storm.
Theoretically, if this is the first driver to report Uber for misclassification, then the contractors have been paying the correct amount in self employment taxes.
Über will be on the hook for penalties for the misclassification, but there is reason to believe that the drivers knew that they were classified as contractors and no imminent tax bill is due.
There's a lot of nuance there however and a big if (on a federal determination).
Its also not in the IRS's best interest to put Uber out of business. Even assuming the worst it seems likely that there would be some sort of compromise brokered that would allow Uber to stay operational. They've got a pretty big war-chest to work with.
> Its also not in the IRS's best interest to put Uber out of business.
Why? Uber has shown they're a terrible company when it comes to following regulations. If anything, I would assume the IRS would take a more critical eye towards them, allowing Google's self driving vehicle program to get a head start.
Disclaimer: My opinion is "self driving cars are the future, but f* Uber"
Why? Uber has shown they're a terrible company when it comes to following regulations.
Look the IRS is a revenue generating organziation. Saddling Uber with a 100 billion dollar tax bill will get them a bankruptcy proceeding and $0. Finding a way to collect some percentage of what's past owed and then having them pay, at least, payroll taxes moving forward can bring hundreds of millions of dollars into the IRS's coffers.
I'm not a huge fan of Uber's business practices either but killing them does the IRS no good.
> Saddling Uber with a 100 billion dollar tax bill will get them a bankruptcy proceeding and $0.
OTOH, it will also discourage future violations of the same kind, because people don't generally start businesses to lose the time and resources poured into it just for the joy of denying the IRS taxes. So, even though it may not be optimal on a narrow view, it may be desirable on a longer view. Corporate tax evasion is motivated by profit, and as long as it is more profitable to break the law and make a partial settlement later, businesses will be encouraged to do it. It if it is catastrophically not profitable to do that, the incentives are different.
And if Uber's entire business model is predicated on them avoiding taxes, then killing Uber doesn't matter to the IRS.
If most corporations can avoid taxes other than payroll, why would Uber be any different? They're a tech company! Their only expenses are HQ/on the ground labor, server/storage operating expenses, and whatever real estate they have in the US (with most of it in SF).
Doesn't tax debt have seniority to all other creditors? So if Uber went bankrupt because of back taxes the IRS would either receive all back taxes in full with the remainder going to the other creditors/investors or they would receive all of Uber's assets and everyone else would get nothing.
I don't think the IRS cares that much about losing the income from Uber. On the other hand, killing Uber would send a strong signals to other companies to follow the law.
Of course it will affect them. It will be a huge factor in whether or not they get funding, or an additional round of funding, etc. All of a sudden the business model isn't profitable unless they can go into higher-margin businesses.
