I have been audited by the IRS 4 times in my life. The last time was for 2009, 2010 AND 2011 (so recently) for ALL 3 years at once. My CPA handled the fight for me. IRS did NOT reclassify me, they just audited me. The classification is another battle.
IRS said I owed around $38k in taxes. When we asked the IRS why they audited me, they said they couldn't believe I drove all that mileage? And talking with them, nicely, and my CPA-ONE of the main triggers for the IRS is the mileage you write off on a schedule C!
Since I have been audited before, I keep immaculate records. Gas receipts WITH the mileage written on them when I get gas, off the vehicle, a log, and ALL my work orders with addresses on them and ALL my receipts filed nicely. I received refunds or DID not pay taxes for those years and probably made more than you, so in MY mind, I deserved to get audited because I did make some conscious 'mistakes'. LOL
I ended up proving my write offs were correct since I had ALL the documentation. they did make me pay for ONE mistake that I truly did make, that was around $800 to the IRS. And I did pay my CPA over $4000 for the fight. Was it worth it? Absolutely! I went from the IRS saying I owed $38k plus fees, interest etc. to fighting it and paying the IRS around $800 and my CPA around $4000, for a total of $4800 instead of over $38000.00. Even if I had payed $10,000 it would have been worth it.
The IRS is a business like any other. If an AUDIT sits on an auditors desk too long, it's NOT good for the auditor. My CPA talked with the auditor for awhile, then when he didn't budge, requested a supervisor, then went up from there. In they end, they settled. Again, the IRS scares people, but it is just a business with a quota for the Agents and bonuses for when they resolve or bring in money. If you can prove most of your case, they still will want to settle in the end!
As far as your situation: If the IRS changed your classification, your employer needs to fix MOST of it and recalulate everything FOR you as all the advice given. There are some differences here depending on what they re-classified you as. Are you a sole proprietor? LLC? Corp? It does make a huge difference. Did the IRS reclassify you as a corp and your own company has to pay you, etc? If it is indeed what you say, THE COMPANY you worked for is in a lot of trouble and most of the burden SHOULD be on THEM, but that's NOT how the IRS operates-they like to go after the little guy. The company then needs to pay back taxes on you, SSN, FICA etc...and then based on hours you work, pay for overtime, and as everyone says here, you CAN still write off your mileage and you will need to pay taxes, but it won't be $34k.
Get a CPA, fight it, hope you have great records...as stated, IRS is a business, they don't want this sitting on their desk too long. But you NEED to get a CPA/Attorney who specializes in dealing with IRS Audits AND labor law for the company you worked for. They KNOW the game. It will probably cost you less in the end that way.
If you do read the IRS classification, most independent cable/Sat installers etc SHOULD be employees...but we don't do that. The reason for more and more audits lately is, as we all have heard, the IRS isn't doing so well...
They NEED money as a company....