No need to seek therapy. You've got good reason to be paranoid.

The 8.5 million consultants who work as independent contractors nationally have been singled out for special attention by the Internal Revenue Service.

Word of the heightened scrutiny got widespread attention in June, when Washington, D.C.-based NetCompliance reported that the IRS Web site contained new guidelines governing the auditing of consultants.

The IRS guidelines are part of its "Market Segment Specialization Program," an ongoing effort to arm IRS examiners with detailed information on common practices, standards and ratios for a host of industries. (For more information on the overall IRS program, see this story.)

Because it closely monitors government regulation via the Internet and crafts compliance solutions for customers, NetCompliance called attention to the new guidelines governing consultants. Otherwise, many less astute seekers might never have found it.

Trust me, though, if you're a consultant, it's a must read. It's available free of charge as a PDF download at the NetCompliance Web site. (Look for the link inside the June 22 press release, "Corporate downsizing causes IRS to look at role of business consultants, according to NetCompliance Inc.")

The guidelines are based on a simple and demographically irrefutable premise — that the corporate downsizing of the past two decades has kicked a lot of highly trained individuals out of corner offices and into business for themselves, often peddling the expertise they gained while in the corporate embrace. What's more, many of these new entrepreneurs are selling their expertise back to companies for which they once worked.

If you're an IRS sleuth, this apparently raises a couple of red flags:

• First, are these consultancies really that, or are they merely extensions of the old employer-employee relationship painted up to look like something different? If the latter, corporations all over the country have successfully shed tax obligations they really should be paying, and which the IRS is intent on collecting.

• Second, with the ranks of independent contractors swelling daily, doesn't it stand to reason that some of the new arrivals are confused by, if not intentionally flouting, rules governing the deductibility of such expenses as travel and entertainment?

Meanwhile, if you're a consultant, you probably should assume you're courting trouble — if not disaster — if you're guilty of any of the following sins:

• You allow personal or family expenses to creep into the business-travel deductions you claim, particularly when the travel is overseas.

• You do not account properly for expenses for which you've been reimbursed by a client. (In other words, you pocket the cash but claim the expense as a deduction anyway.)

• You cannot pass the IRS's decidedly labyrinthine test for determining independent contractor status.

While the IRS guidelines don't have the weight of a papal bull, it should be assumed that they'll have an effect on agents in the field.

"It's a signal from the IRS that anyone involved in doing audits of small-business consultants had better start using some of these criteria to do the screening," says NetCompliance CEO Krish Krishnan.

Individual consultants aren't the only ones vulnerable. Companies that hire them — often small businesses that outsource functions they can't support in-house — run the risk of being hit with unexpected and potentially crippling tax bills if the IRS determines a consultant is really an employee.

And, again, telling one from the other isn't as easy as one might assume, or as it should be. The IRS determines employment status using a three-page, 46-part questionnaire, and solicits input from both sides of the contracting relationship. Then, an IRS "technician" makes the call.

The sad irony is that all of the confusion over what an independent contractor is and is not could be cleared up relatively easily by legislation already in the pipeline. However, the bill (the Independent Contractor Determination Act of 2001, introduced in the spring by Sen. Christopher Bond, R-Mo.) languishes in political limbo.

Opposition from organized labor hurt this bill's chances. But they were further diminished when Jim Jeffords' defection gave Democrats control of the Senate. While refusing to pronounce the measure "dead on arrival," a Republican staffer on Capitol Hill concedes the bill is a long shot that certainly won't be taken up before this fall, if ever.

The bill's slim chance of passage is unfortunate, because it could bring clarity where murkiness now reigns. Applying a kind of if-it-quacks-like-a-duck logic to the process, the legislation would reduce the current agonizing determination process to a couple of simple tests.

If a consultant can demonstrate economic and workplace independence, and has a written contract with the service recipient, then enough said. Likewise, individuals who conduct business through corporations or limited-liability companies would be treated as independent contractors.

With such rules in effect it would be relatively easy for both contractor and contracting company to know going in whether there was a problem, and to take appropriate action if there was. But government isn't in the business of making things easy for people.

Still, there's some consolation in the fact that if you're a small-business consultant, your paranoia is legitimate. Someone really is keeping close tabs on you.