Then when the tax rules on employees vs independent contractors changed in 1986, he was too stupid to just go with the flow and incorporate himself immediately.

According to this article, it's not that simple (or at least it wasn't as of 1998):

Programmers and their lawyers say that as a result of inaction by Congress, many corporations have revised their policies to explicitly forbid the hiring of programmers who are independent contractors.

In response, some people, like Mrs. Johnson, incorporated. They reasoned that if they were employees of their own corporations they would be treated by the I.R.S. the way that many doctors and others are and could expand their enterprises.

But internal I.R.S. documents show that in Alaska, California, Ohio, Minnesota, New York and New Jersey, I.R.S. auditors as recently as last year hunted for corporations created by computer programmers. They found scores of such companies and then disallowed them for tax purposes. The papers show that they were disallowed because they were less than a year old and had only one employee, the programmer who created the corporation.