Employment Tax: Yet Another Opportunity to Come Clean –
Whether a worker is performing services as an employee or as an independent contractor depends on the facts and circumstances. This determination may be difficult for many companies and may lead to significant exposure. In order to facilitate voluntary resolution of potential worker classification issues and achieve the benefits of increased tax compliance and certainty for all parties, taxpayers, workers and the government, the IRS established the Voluntary Classification Settlement Program (“(VCSP”) on September 11, 2011. The program was created to allow for voluntary reclassification of workers as employees outside the administrative context.
In light of feedback received, today the IRS has announced changes to the VCSP. (Announcement 2012-45; 2012-51 IRB 724). The VCSP has been modified to: 1) permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP; 2) clarify the current eligibility requirement that a taxpayer that is a member of an affiliated group within the meaning of section 1504(a) is not eligible to participate in the VCP if any member of the affiliated group is under employment tax audit; 3) clarify that a taxpayer is not eligible to participate in the VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or the Department of Labor; and 4) eliminate the requirement that a taxpayer agree to extend the period of limitations on assessment of employment taxes as part of the VCSP closing agreement with the IRS.
In addition, today the IRS announced a temporary expansion of eligibility for the VCSP through June 30, 2013. The temporary eligibility expansion makes a modified VCSP available to taxpayers who would otherwise be eligible for the current VCSP but have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified. Eligible taxpayers that take advantage of this limited, temporary eligibility expansion agree to prospectively treat workers as employees and will receive partial relief from federal employment taxes. (Announcement 2012-46; 2012-51 IRB 725)
This program can be used as a tax planning tool with the advice of your tax counsel.