# Anyone use Independent Contractors?



## dougchips (Apr 23, 2006)

If your fear of risk is based on facts or a particular court case, please forward the info to me. I play by the IRS' rules and if courts are interpreting these rules differently then the way I read them I might need to change my policies and procedures. (please make sure they are from a US court)

In regards to your feelings/fears of your sub-contractors behaviors, would you hire subs that you would not trust to represent your company? For instance if you were a kitchen installer and hired Barney as a plumber would you make it clear to your client that Barney does not reflect your company.....or if you had a good working relationship with Barney would you be proud to have him on your job site? If Barney was one of my regular subs and I provided him with a good quantity/quality of jobs I would feel comfortable asking him to wear one of my companies shirts while on the job site. There are several benefits of having uniformed workers on a job site even if they are from different companies. That is a subject for a different post.


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## Debookkeeper (Jul 23, 2006)

This is a nice, simple booklet that explains it well. And just remember that just because there may be some extensive direction to your subcontractor on how the work is to be done, does not make him an employee! :no: All three factors are considered when the determination is made. We have all been in this business long enough to know if someone is an employee and if someone is a legit subcontractor. 



http://www.irs.gov/pub/irs-pdf/p1779.pdf


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## dougchips (Apr 23, 2006)

Debookkeeer, even safer fill out this form and they will declare the person either a employee or sub. http://www.irs.gov/pub/irs-pdf/fss8.pdf


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## Melissa (Feb 23, 2006)

Debookkeeper said:


> We have all been in this business long enough to know if someone is an employee and if someone is a legit subcontractor.
> 
> 
> http://www.irs.gov/pub/irs-pdf/p1779.pdf


I couldn't open the link. It froze up my computer! 

That is true. I'm sure we do all know the difference between subs and employees, but I'm talking about Independent Contractor's, which is a bit more complicated. They don't carry licenses, etc. 


What exactly _is_ the difference between subs and IC's?


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## maj (Mar 13, 2006)

Melissa said:


> I couldn't open the link. It froze up my computer!
> 
> That is true. I'm sure we do all know the difference between subs and employees, but I'm talking about Independent Contractor's, which is a bit more complicated. *They don't carry licenses, etc*.
> 
> ...


They don't????

How could that be in a state that requires licensing?

I thought Cali. people HAD to be licensed?

So IC's are the hacks referred to on this board?


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## maj (Mar 13, 2006)

Melissa said:


> I couldn't open the link. It froze up my computer!
> 
> That is true. I'm sure we do all know the difference between subs and employees, but I'm talking about Independent Contractor's, which is a bit more complicated. They don't carry licenses, etc.
> 
> ...


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## Melissa (Feb 23, 2006)

Maj, I almost put a disclaimer in my post that this relates to states that require licensing only, and for you speficically not to respond! Jesus criminy already! That is why I posted this question, to see if anyone knew the legalities of it. Is that okay with you?


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## Melissa (Feb 23, 2006)

I know that IC's can't charge, labor and materials included over a certain dollar amount, I think it's $800 per day?? But this just sounds too easy to get around paying employee taxes, can it really be as easy as to just hire IC's instead of Employees? As long as they carry their own liability insurance? And what about performing tasks that require a license, like Electrical, etc.


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## maj (Mar 13, 2006)

Melissa said:


> I know that IC's can't charge, labor and materials included over a certain dollar amount, I think it's $800 per day?? But this just sounds too easy to get around paying employee taxes, can it really be as easy as to just hire IC's instead of Employees? As long as they carry their own liability insurance? And what about performing tasks that require a license, like Electrical, etc.





> Payments to an independent contractor that total $600 or more for the tax year must be reported by the business owner on Form 1099-MISC, "Miscellaneous Income," and filed with the IRS. A copy also must be given to the independent contractor.



I'm simply trying to help Melissa, so don't go gettin' all hot & bothered this time. The quote above is from the IRS.


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## Debookkeeper (Jul 23, 2006)

Melissa - I am not sure what you are asking, because I honestly am not familiar with the term of "independent contractor" to mean anything other than a contractor who is in business for himself with his own insurance and licences, etc, and if you hire him for some occassional work, he would be what we commonly refer to as a "subcontractor". That link I posted from the IRS is called "independent contractor or employee". So essentially, they are one in the same. I would then assume if he does not have his own insurance and license he wouldn't be an independent contractor - because he would be operating a business illegally! Try the link again, it may help

Deb


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## R&S Exteriors (Aug 4, 2006)

Debookkeeper said:


> Melissa - I am not sure what you are asking, because I honestly am not familiar with the term of "independent contractor" to mean anything other than a contractor who is in business for himself with his own insurance and licences, etc, and if you hire him for some occassional work, he would be what we commonly refer to as a "subcontractor". That link I posted from the IRS is called "independent contractor or employee". So essentially, they are one in the same. I would then assume if he does not have his own insurance and license he wouldn't be an independent contractor - because he would be operating a business illegally! Try the link again, it may help
> 
> Deb


Deb is right

Independent Contractors are sub-contractors. (same thing)

The IRS terminology is Independent Contractor.

In the Construction tades we call them subs. 

You are hiring an Independent Contractors to perform as a substitute for your company for work you as the GC has under contract.


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> I know that IC's can't charge, labor and materials included over a certain dollar amount, I think it's $800 per day?? But this just sounds too easy to get around paying employee taxes, can it really be as easy as to just hire IC's instead of Employees? As long as they carry their own liability insurance? And what about performing tasks that require a license, like Electrical, etc.


I've never heard of this. The only rule I know of is that if you hire and independent contractor (sub) and the cost is more than $600 the GC has to report it on a 1099.

An Independent Contractor (sub) could subcontract work from you for millions of dollars. The only problem with that is that you have to make sure they don't become "exclusive" to your company. If they stop working for anyone else the IRS could classify them as your "employee"

Independent contractors have to carry the same licenses and insurance as any other contractor.

*Maybe the terminology is confusing when the IRS says "independent Contractor" they are not talking about the construction trade specifically.* Independent Contractor means someone or a company that another company (any profession) hires to perform work. There are lawyers, doctors, contractors (every profession) that are classified as Independent Contractors. The "contractor" in independent contractor refers to a contract. (a document) and not to the constuction profession.

The tricky thing is to make sure your not treating the Independent Contractor (sub) as an employee. Because then the IRS will screw you on an audit.


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## Debookkeeper (Jul 23, 2006)

> Maybe the terminology is confusing when the IRS says "independent Contractor" they are not talking about the construction trade specifically. Independent Contractor means someone or a company that another company (any profession) hires to perform work. There are lawyers, doctors, contractors (every profession) that are classified as Independent Contractors. The "contractor" in independent contractor refers to a contract. (a document) and not to the constuction profession


.

Thanks RS - lying in bed last night I was thinking how I should of made that point about independent contractrators meaning any trade! 

Melissa, hope that clarifies things - 1099's would go to any independent contractor you pay over 600.00 a year for services. Even your accountant would get a 1099. Now to add to the confusion, the only time you do not 1099, is if they are incorporated.


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## maj (Mar 13, 2006)

Debookkeeper said:


> Melissa - I am not sure what you are asking, because I honestly am not familiar with the term of "independent contractor" to mean anything other than *a contractor who is in business for himself with his own insurance and licences, etc*, and if you hire him for some occassional work, he would be what we commonly refer to as a "subcontractor". That link I posted from the IRS is called "independent contractor or employee". So essentially, they are one in the same. I would then assume if he *does not have his own insurance and license he wouldn't be an independent contractor *- because he would be operating a business illegally! Try the link again, it may help
> 
> Deb





> *Independent contractors have to carry the same licenses and insurance as any other contractor.*



This is what I thought I was saying, but I still get my head chewed off!
Sheez.


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## Melissa (Feb 23, 2006)

I guess the term "Independent Contractor" is confusing, since it has different meanings in different states. I'll try to explain what I mean. 

Around here a sub-contractor carry's a license, and an independent contractor doesn't. There either isn't such a license available, like for odd lines of work, or it's not needed, like for handyman work. 

I'm not asking about how to report income. I'm asking how to make sure we're playing by the rules/staying out of trouble when using one. If it is even legal at all. I can't find a simple answer on the CSLB website, and I don't have time to spend hours searching, so I thought I'd ask a question on here to see if anyone knew off hand. 



> Quote from the California Contractors State License Board website-- In California, anyone who contracts to perform work that is valued at $500 or more for materials and labor must hold a current, valid license from the Contractors State License Board in the specialty for which he or she is contracting.


So, I guess it just comes down to making sure the people we hire to do work for us, has a license if one is required, otherwise, I'm sure we'll be the one's getting in trouble. I know a license isn't required for handyman work as long as it's less then the amount in the quote above. But what exactly constitutes handyman work? I'll have to look it up I guess.


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## Debookkeeper (Jul 23, 2006)

maj said:


> This is what I thought I was saying, but I still get my head chewed off!
> Sheez.


:laughing: C'mon now... we ALL now most men are lousy communicators. You were thinking exactly what I typed, but when you typed it, it came out like this ...


> They don't????
> 
> How could that be in a state that requires licensing?
> 
> ...


But don't worry Maj.. most men have your disease. :w00t: :shifty: 

(I am ducking for cover)


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## Debookkeeper (Jul 23, 2006)

Okay Melissa, that explains where the confusion is coming from. So, If I were you, and you were going to use someone occassionaly who is not required to have a license in the state of CA, then I would check with your insurance agent on how that works for your company. You may not be able to. If you use someone like that - and it's under 600.00 - classify it has "incidental labor" . Example - My contractor has a truck load of lumber to unload onto his barge, and then has to carry all of it from dock, up the island. He gets the local drunk that hangs out on the dock, who is sober at 9:00am to help, and throws him 100.00. That's incidental labor.


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## dougchips (Apr 23, 2006)

So long as he does not use the same drunk 7 times in a year.


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> I guess the term "Independent Contractor" is confusing, since it has different meanings in different states. I'll try to explain what I mean.
> 
> Around here a sub-contractor carry's a license, and an independent contractor doesn't. There either isn't such a license available, like for odd lines of work, or it's not needed, like for handyman work.
> 
> ...


Don't know anything about how California classifies I/C vs Subs. Sorry.

Just remember that the IRA classifies anyone who does work for your company that is not an employee as an Independent Contractor.

SO you would not only have to comply with your states requirements on both, but you would also have to take into consideration the IRS rules on how they would classify someone. (employee vs I/C)


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## Melissa (Feb 23, 2006)

Debookkeeper said:


> Okay Melissa, that explains where the confusion is coming from. So, If I were you, and you were going to use someone occassionaly who is not required to have a license in the state of CA, then I would check with your insurance agent on how that works for your company. You may not be able to. If you use someone like that - and it's under 600.00 - classify it has "incidental labor" . Example - My contractor has a truck load of lumber to unload onto his barge, and then has to carry all of it from dock, up the island. He gets the local drunk that hangs out on the dock, who is sober at 9:00am to help, and throws him 100.00. That's incidental labor.


The person would carry his own insurance. 



dougchips said:


> So long as he does not use the same drunk 7 times in a year.


I don't know what you mean by this. 



My husband used to be an "Independent Contractor" for a company when he serviced Nextel cell sites, and he carried his own insurance. 

Anyway, thanks for the good info. I'll try to find more info on CA rules. My husband says what we want to do is legal, but I like to make sure for myself. Because to me, it just seems too easy, I mean why doesn't everyone (in CA) use IC's so they don't have to pay any employment taxes or WC???


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> My husband used to be an "Independent Contractor" for a company when he serviced Nextel cell sites, and he carried his own insurance.
> 
> Anyway, thanks for the good info. I'll try to find more info on CA rules. My husband says what we want to do is legal, but I like to make sure for myself. Because to me, it just seems too easy, I mean why doesn't everyone (in CA) use IC's so they don't have to pay any employment taxes or WC???


Melissa I did a little research for you on California Law. It is confusing, but I think the difference between an independent contractor and sub-contractor is whether they are licensed. And if they are not licensed and your hire them for a job then they are classified as your "EMPLOYEE's". So be careful

Your right it does seem to easy and is. Here is an information sheet on your law. 



> http://www.edd.ca.gov/Taxrep/de231g.pdf#search=%22california%20subcontractor%20independent%20contractor%22
> 
> Under California law, a contractor, licensed or unlicensed, who engages the services of unlicensed subcontractors or construction workers is, by specific statute, the employer of those unlicensed subcontractors or workers, even if the subcontractors or workers are independent contractors under the usual common law rules.
> 
> ...


Here is a recent ruling by your states court. Fed-Ex has been having this problem all over. They hire "independet contractors" so they do not have to pay benefits and other employee related expenses. Problem is they "control" everything they do. They require a uniform and most of these "independents" work exclusively for Fed-EX


> http://releases.usnewswire.com/GetRelease.asp?id=69157
> 
> In a major ruling, the California Unemployment Insurance Appeals Board says former FedEx Ground/Home Delivery route driver Jerry Ferguson is eligible for unemployment compensation even though he was not directly employed by the company nor was he a subcontractor. "Jerry A. Ferguson was clearly an employee of FedEx," according to the Appeals Board.​


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## Melissa (Feb 23, 2006)

Wow! Thank you so much R&S! I'll forward this to my hubby (however he'll still probably think it's legal!  :laughing: )

So, this also tells me that when he was an IC before it was illegal, which I kind of had a feeling too. 

However, what license would a person get to do that line of work???

Also, my sister-in-law has a business where she services fish tanks and sells them, etc. and she has about 100 subs/IC's, they don't have a license either. But there isn't really a license to be had??? 

I'm still confused! :blink:


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## R&S Exteriors (Aug 4, 2006)

Melissa said:


> Wow! Thank you so much R&S! I'll forward this to my hubby (however he'll still probably think it's legal!  :laughing: )
> 
> So, this also tells me that when he was an IC before it was illegal, which I kind of had a feeling too.
> 
> ...


The fact sheet I linked to only deals with the construction industry. I'm pretty sure your sister-in-laws line of work would not fall under that and not sure about what your husband use to do. It looks like California regulates each industry different. Your state is know for it's many complicated laws. If I were you I would meet with an attorney or CPA that deals with the construction industry and ask them to explain the law. It would be worth an hour or two at $150 an hour to get the right info.

Good luck


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## Melissa (Feb 23, 2006)

Good idea. Thank you :thumbsup:


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## MasterworksLLC (Jan 24, 2008)

Melissa said:


> If so, what's legal and what isn't? We have a guy that is a stucco sub, and we've started using him a lot more for other odds and ends- installing doors, windows, molding, drywall, etc. We are supplying the materials, so does this classify him as an employee? He only works a couple days per week, when he's not busy with his own work.


Hi, Brand new to this site, but have some input on this. We are a custom builder in the Seattle area and have been for 20+ years. Using subcontractors simply requires a lot of checking. A check with the Dept. of Labor & Industries website will tell us that they have a valid state business license and give us their UBI #, Contractor license #, liability insurance information, bonding information, how long they've been in business, what type of entity they use (sole/LLC/Inc.), contact information, and whether any employees they use are properly covered for accidents with L&I, and if they've paid their premiums. Next, we send them a form to complete and return to verify this information and provide their federal ID # or social security # (for the purpose of sending them a 1099 if they are paid over $600.00 in any year and are not incorporated) and we also request that they have their insurance company send us a certificate of insurance with an additional insured endorsement. Good record keeping will always impress the IRS and may be necessary in the case of an insurance audit by your own carrier. The IRS will look at the whole picture and it is not cut and dried as to whether they will classify someone as your employee or not. Number one is that the sub needs to run their own business with all required paperwork and file properly with the IRS; the point about you not being in control of the sub and them deciding how they will accomplish their job and being paid by the job, rather than hourly is also important. Again, I wouldn't want to continue to work with a sub who had no other jobs besides ours, even if he met the above criteria as it would enter a gray area. When you start asking for what we do of them, they usually aren't interested if they aren't legal and above board as an independent contractor. Then, when you go to pay them, you might also be careful to make sure they've paid their employees and materialmen or your job could be liened by them and your sub is off with his money.


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## MasterworksLLC (Jan 24, 2008)

MasterworksLLC said:


> Hi, Brand new to this site, but have some input on this. We are a custom builder in the Seattle area and have been for 20+ years. Using subcontractors simply requires a lot of checking. A check with the Dept. of Labor & Industries website will tell us that they have a valid state business license and give us their UBI #, Contractor license #, liability insurance information, bonding information, how long they've been in business, what type of entity they use (sole/LLC/Inc.), contact information, and whether any employees they use are properly covered for accidents with L&I, and if they've paid their premiums. Next, we send them a form to complete and return to verify this information and provide their federal ID # or social security # (for the purpose of sending them a 1099 if they are paid over $600.00 in any year and are not incorporated) and we also request that they have their insurance company send us a certificate of insurance with an additional insured endorsement. Good record keeping will always impress the IRS and may be necessary in the case of an insurance audit by your own carrier. The IRS will look at the whole picture and it is not cut and dried as to whether they will classify someone as your employee or not. Number one is that the sub needs to run their own business with all required paperwork and file properly with the IRS; the point about you not being in control of the sub and them deciding how they will accomplish their job and being paid by the job, rather than hourly is also important. Again, I wouldn't want to continue to work with a sub who had no other jobs besides ours, even if he met the above criteria as it would enter a gray area. When you start asking for what we do of them, they usually aren't interested if they aren't legal and above board as an independent contractor. Then, when you go to pay them, you might also be careful to make sure they've paid their employees and materialmen or your job could be liened by them and your sub is off with his money.


Forgot about the material issue; in the case of a framing subcontractor, they should not provide only their labor, but some nails, etc. as well, to be safe.


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## tnt specialty (Apr 19, 2007)

All I can say is, thank God there appears to finally be some interest in correcting the _"sub-game"_ that has gone on for many years unchecked.

By _"sub-game",_ I'm referring to is the common in some areas, practice of employer's missrepresenting employees as "independent subcontracors" to skirt appropriate labor burdens. Here in Colorado it's rampant; It's so commonplace, people think it's OK/legal. Well, it's not!

Each state has it's own laws. However the U. S. Dept. of Labor, as well as the IRS can enforce via federally. There is quite straight-forward information/statutes out there. It's just that they haven't been enforced.

In layman's terms; An employer can't "subcontract" his/her own primary service.....In other words; A GC can sub various trades. However a framer or roofer cannot sub framing or roofing. These statutes typically override any and all other employer-employee determination criteria. Colorado has a particular statute that states it quite plainly, yet the illegal practice goes on, unchecked.....

We need to keep after our gov't reps. They'll get it eventually. Walmart got popped, now this Fedex thing.....


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## gachogavacho (Nov 30, 2012)

IHI said:


> So long as he has GL insurance and provides his own tools, then he is a sub-contractor that gets 1099'd so your safe. Anything other and it's a grey area.


Well, If there is a Contractor agreement and it states that they must carry their own General Liability insurnace, is that enough? I mean, I can't force him/her to go and buy a policy and the IRS or the government does not MANDATE insurance as a requirement so if If the contractor has insurance when they are hired but then somewhere, a year or two down the road, cancels the policy does that somehow invalidate our relationship as contractor/sub if I require them to carry insurance in our agreement? I'm talking about someone who works long term for me.


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## gachogavacho (Nov 30, 2012)

R&S Exteriors said:


> Melissa I did a little research for you on California Law. It is confusing, but I think the difference between an independent contractor and sub-contractor is whether they are licensed. And if they are not licensed and your hire them for a job then they are classified as your "EMPLOYEE's". So be careful


What if my industry, janitorial, does not issue licenses?


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## IHI (Dec 25, 2004)

gachogavacho said:


> Well, If there is a Contractor agreement and it states that they must carry their own General Liability insurnace, is that enough? I mean, I can't force him/her to go and buy a policy and the IRS or the government does not MANDATE insurance as a requirement so if If the contractor has insurance when they are hired but then somewhere, a year or two down the road, cancels the policy does that somehow invalidate our relationship as contractor/sub if I require them to carry insurance in our agreement? I'm talking about someone who works long term for me.


Does not matter, if YOU are the general contractor, it is your job to oversee the entire job and every scope of the job; and that also means YOU must carry/have copies of all UP TO DATE insurance and licsencing information on every sub-contractor you use....why, well, LOL, IF something horrible goes wrong ultimately you are involved since the job is YOUR BABY, not your sub contractors...you hired them, not the homeowner. So at the end of the day IF something goes horribly wrong you will be the one on the hook if the sub has no insurance, and your insurance company will tell you exactly what I just did and then smile and say "we're not covering it, so this is 100% on you and 100% out of YOUR POCKET, because law states YOU must have copies available of all the sub-contractors you hire" 

It's just a standard annual thing you must keep track of and have on file.


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## IHI (Dec 25, 2004)

gachogavacho said:


> What if my industry, janitorial, does not issue licenses?


If your industry does not require a licsence, wipe your brow and smile, you are lucky, one less requirement/expense you have to worry about...but regardless, insurance is a must for you and any independant contractor you hire.

There are millions of illegal dealings going on in the trades where GC's treat their employee's as independant contractor's and 1099 them. Most get by doing that for yrs or forever, but if you were ever to be audited, the IRS will dig deep and go back years, a fwe friends of mine were subject to a business audit and they went back 15yrs checking for descrepencies..basically tyingto wringe as much money out of them as possible. Luckily they played by the rules and both got off for under $20K "back taxes" they had to pay in.

Being 100% legal and legit pretty much makes it almost impossible for a small guy with a handful of employee's to keep the doors open, all because every year that goes by consumers are wanting more and more "for free"...ie cheap as possible, and unfortunately there are probably 100 under the table/working illegal guys to every 1 legit guy.


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## J F (Dec 3, 2005)

Josh back from the dead! In a dead thread! :laughing:

:thumbup:


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## IHI (Dec 25, 2004)

J F said:


> Josh back from the dead! In a dead thread! :laughing:
> 
> :thumbup:


boo


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## IHI (Dec 25, 2004)

J F said:


> Josh back from the dead! In a dead thread! :laughing:
> 
> :thumbup:


LOL, this is all in your imagination, you thought you saw a ghost but your just seeing things...go back to your regularly scheduled program:laughing:


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## J F (Dec 3, 2005)

:laughing:


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## IHI (Dec 25, 2004)




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## J F (Dec 3, 2005)




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## IHI (Dec 25, 2004)

that's messed up, we still call eachother about once a month LOL


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## J F (Dec 3, 2005)

Tell him he needs to check in over here and pick up his ride. :laughing:


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## Bone Saw (Feb 13, 2006)

wow
last time this thread was active, w was in office


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