A small private school with 501(c)(3) status has around 10 part-time teachers and has been around for about 10 years. Up until tax year 2014, the school paid the teachers as "employees" for IRS tax purposes, meaning FICA withholding and unemployment insurance tax withholding took place, and a W-2 was issued.
A new headmaster took over in mid-2014. His corporate board has three directors: The new headmaster himself; a CPA who co-owns a house with the headmaster's mother in another state; and a third friend of the headmaster's in another state. In summer 2014, the new headmaster and his board ordered that all teachers would now be paid as "independent contractors," with no withholding, and to be issued a 1099-MISC at year's end. Two teachers who had taught at the private school for many years objected. There was some back-and-forth with the first teacher, with the teacher giving the headmaster an ultimatum: Pay him as an employee or he would not continue. The second teacher objected and asked to meet with the board. The second teacher spoke with the CPA board member. The CPA said that the IRS raised an eyebrow when a worker who worked less than 10 hours a week was paid as an "employee" and not as an "independent contractor." A few months went by. This second teacher gathered more information and had another meeting . The Board stood firm with the second teacher, and he remained an independent contractor. Both these teachers were harassed (I am leaving out the details purposely) until the headmaster terminated the first in December claiming they had enough teachers already. The second quit in late December (arguably an instance of constructive discharge?). The first applied for unemployment. The headmaster challenged this, saying the first teacher had been terminated for insubordination. The first teacher gave his side. The unemployment office told the headmaster what happened was not insubordination and that the first teacher would receive unemployment benefits.
A third, newer teacher (myself) did not realize what was going on with the "independent contractor" status until recently. I researched the matter and agreed with the first two teachers that all teachers were "employees" for tax purposes. I informed the headmaster of my concern about the "independent contractor" status. (I had already given notice that I would not be seeking another contract for the coming school year.) The headmaster wrote back; offered a meeting; and included a link to a Form SS-8. The headmaster and I spoke and agreed that the IRS should make a determination. (He is young--but clever--claims to not understand this, trusting his CPA relative/board member to answer questions.) I recently mailed the SS-8 to the IRS, all questions answered and documents required included. I also included a short account of the intimidation of the first two teachers and a written statement from the second on same, as part of my answer to one of the questions on the SS-8.
Reports on the net are that the IRS can be (will be?) severe in cases like this. I also believe the CPA has violated various rules of professional conduct, such as doing the non-profit's tax work (the school's most recent Form 990 and directing workers be paid as independent contractors) while serving as a director and setting the salary of the headmaster (a relative of his) and giving insane advice about how to pay the teachers. The two other teachers and I wonder whether we should report this CPA to his state's regulating agency (we have the contact info). None of us are continuing at the school. But of course reputations are at stake. There are other irrgularities. E.g. the state corporation oversight agency has this nonprofit on record as being not in good standing due to owing reports and fees.
Would you report this CPA to his state regulating agency?
Also we are wondering whether we should file a Form 3949-A so we have whistleblower protection. If so, when?