According to iaedp’s records, it has ZERO full time employees.

According to iaedp’s records, it has ZERO paid employees.

According to iaedp’s records, no officer, employee or director has any reportable compensation from iaedp.

Consider those facts.

ZERO full time employees.

ZERO paid employees.

ZERO reportable compensation for any officer, employee or director.

Since those facts come from iaedp’s own Form 990 tax forms, we can assume they are accurate. If those fact are accurate, iaedp could have many tax issues and quite frankly, does not even need a Board of Directors.

This is because a Board of Directors can only oversee the operations of an organization which has actual employees. Independent contractors must be completely free from control of the organization for which they provide their services or they cease to be independent contractors.

Iaedp is a 501(c)(3) organization with ZERO paid employees and yet generates revenue exceeding $1,000,000 annually. An organization with ZERO paid employees and yet, is charged with operating and overseeing a Board Certification program for the care and treatment of eating disorders. A Board Certification program ostensibly not subject to the whims and direction of a Board of Directors since iaedp’s “managing director,” as an independent contractor can do whatever she pleases with no direction and no oversight.

So, let us explore how iaedp and Ms. Harken performed these feats of “Keyser Sose like” prestidigitation.

The Devil’s in the Details (or Documents)

On iaedp’s Form 990 tax returns, its “managing director” Bonnie Harken, declares under penalties of perjury, that her “management company,” Crossroads Programs, Inc. is managing iaedp and that it is an independent contractor instead of employee.

To this we can safely say:

The records from the Illinois Secretary of State indicate Crossroads Programs, Inc. dissolved on June 10, 2016. Crossroads has not been in existence since that date.

When confronted with this reality, Ms. Harken through her attorneys admitted this information submitted on its Form 990 was wrong. They stated that Ms. Harken was operating through her “sole proprietorship” presumably with the same name. A sole proprietorship is merely a person doing business under an assumed name. It may have a separate tax ID number. But the individual and the sole proprietorship are the same, they are one.

We can only wonder how long Ms. Harken’s misrepresentation regarding her corporate status would have continued if not brought to their attention. We do know that corporate misrepresentation appears on at least five (5) of iaedp’s Form 990 last tax filings.

We can certainly understand and sympathize if this matter is overlooked for one year. But FIVE years? That is not a mistake. That is intentional. And it is deceptive.

Independent Contractor or Employee … Is there really a difference?

If we review Ms. Harken’s statement made under penalties of perjury that she is an independent contractor of iaedp and not an employee, we are justified in asking is that too another falsehood? For if she is an employee, the ramifications for Ms. Harken and iaedp could be quite draconian.

Since iaedp is a California organization, we must look to California law to determine if Ms. Harken is an independent contractor, as she represents to the IRS, the California Labor and Workforce Development Agency and the general public or is in fact, an employee.

The facts, and common sense do not support Ms. Harken’s sworn statement that she is an independent contractor.

The State of California utilizes the “ABC test” to determine if workers are employees or independent contractors.

California law presumes that a worker is an employee and not an independent contractor. The employer (in this case, iaedp) has the burden to prove a worker is in fact, an independent contractor.

Under the ABC test, a worker is considered an employee and not an independent contractor, unless the employer satisfies all three of the following conditions:

• The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Iaedp cannot satisfy even one of these criteria.

Ms. Harken, is purportedly working 40 hours a week, has employed her son and pays him approximately $76,ooo annually. They are allegedly providing work and services clearly within the usual course of business of iaedp corporate chapters and other eating disorder organizations.

She organizes iaedp’s annual symposium and oversees all aspects of the manner in which iaedp conducts business. She can run iaedp with an iron fist without any oversight or control.  And she does. Within the context of iaedp, Ms. Harken has “unlimited power.” How likely is unlimited power likely to be ceded by an organization to an independent contractor? Someone over whom you have no control. Unlimited power!

Ms. Harken, her dissolved corporation and d/b/a/ a sole proprietorship cannot show under any circumstances that she was performing work outside the usual course of business of an eating disorder organization. To the contrary.

The facts show that on iaedp’s tax forms, Ms. Harken misrepresented Crossroad’s status, misrepresented its existence, misrepresented that she was not an employee and illegally operated in the State of California.

In Ms. Harken’s defense, we must raise the question, “If Ms. Harken is a resident of the State of Illinois, would she be subject to California taxation law as either an employee or independent contractor?” The answer is yes.

California companies have to withhold state income taxes for resident employees wherever they perform their services, and generally for nonresident employees for services performed in-state. But this is not the case for nonresident employees who perform all their services outside of California.

This provision does not apply to Ms. Harken since she performs some of her services within the State of California. We know this for a fact because the iaedp annual symposium is hosted every other year in Palm Springs, California.

But let’s give Ms. Harken the benefit of the doubt and assume, for some reason known only to God and broccoli, all state and federal agencies determine that Ms. Harken is in fact, an independent contractor. The result would still be the same.

Specifically, the issue is not where the independent contractor performed the services, but in what state the benefit was received. Accordingly, even if nonresident independent contractors never set foot in California, if they perform services for a California-based customer, they have an economic nexus with the state and are likely doing business in California for income tax purposes.

We know for a fact that Ms. Harken has set foot in California at least during those years in which the symposium is conducted in Palm Springs. Presumably the California iaedp corporate chapters pay the national chapter certain revenue.

In iaedp’s tax filing in California it reports that iaedp has no paid employees and has not withheld any state income taxes. That is a significant problem.

California requires employers to withhold state income tax from wages paid to employees. There are also three other state payroll taxes: State disability insurance, which are withheld from employees’ wages; Unemployment insurance, which the employer pays; and Employment training tax, which the employer also pays. Iaedp did not do this.

California has a reputation of strictly enforcing withholding requirements. Failure to comply may result in penalties against the organization, its directors, and employees. The penalty is generally equal to the tax evaded or not collected.

Senator Dave Cortese (D-San Jose), Chair of the Senate Labor, Public Employment and Retirement Committee stated, “An independent contractor is a specific designation for self-employed people or businesses engaged in contract work. It’s not a gimmick for organizations to avoid paying for employee healthcare and other benefits or reducing their tax liability. Any company found breaking the law will be brought to justice, and they would certainly have no business advising other companies on labor law.”

Iaedp (or Ms. Harken since they are one and the same) employed a dissolved corporation as an independent contractor as its managing director. This resulted in iaedp having ZERO full time employees.  These facts are not in dispute.

And yet, that alleged independent contractor (Ms. Harken) is performing all the work for iaedp. If allowed, that would result in a Board of Directors having no power or authority over the only person acting as a full-time employee. Further, to whom does this independent contractor, this dissolved corporation or sole proprietor or individual report?

As egregious as Ms. Harken’s conduct, conduct which has a possibility of significant tax penalties being assessed against iaedp and Ms. Harken, as investigations conducted by the California Labor Board, the IRS and other entities will inevitably ramp up (followed closely by litigation), legal and financial exposure for third parties is also likely to be explored by federal and state agencies.

But it could be far worse. And it is.

In the next article, we shall discuss how Ms. Harken, and iaedp’s current president, Charlynn Smith may have exposed iaedp’s Board of Directors to significant financial liability.