reclassify

Regulations section 1.469-2 (f)(6) reclassifies as ordinary any net rental income from a lease of property to an activity in which the taxpayer materially participates.

In such situations, the IRS reclassifies part of the compensation as a dividend, which--unlike wages--is not deductible by the corporation.

92, page 63.) While companies are not obligated to withhold income taxes or pay employment taxes when they meet section 530's requirements, the IRS frequently uses the section as a bargaining tool, agreeing to its applicability only if a business reclassifies workers prospectively.