Your spouses attorney is technically right but not for the same thing that is happening here. If the parties are in dispute and there is a tax liability issue, the IRS will define who is an employer and who is not. But where the parties agree that an IC relationship exists, then the intent of the parties prevails. I don't care how much the other party helped to set up the business.
This same issue arises in workers comp disputes, and in unemployment comp disputes. Worry not. The relationship is legal so long as tax is paid on income by somebody.
Last question: if I then become an LLC tomorrow, and I keep working for my colleague as described above but I tell the IRS that I am independent contractor is this OK for me?
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