IRS Extends and Revises its Voluntary Classification Program

The Internal Revenue Service (IRS) announced that it is revising and expanding eligibility for its Voluntary Classification Settlement Program (VSCP), extending the program through June 30, 2013. The VSCP is available to businesses, tax-exempt organizations and government entities that erroneously treat their workers, or class of workers as nonemployees or independent contractors and want to correctly treat these workers as employees. Additionally, the IRS is amending some technical requirements that, in the past, prevented taxpayers from participating in the VCSP.

The IRS has modified the VCSP to include the following changes:

(1) Permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP;

(2) Clarify... 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 VCSP 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.

A taxpayer participating in the program agrees to prospectively treat a class or classes of workers as employees for future tax periods. Under the VCSP, an employer would pay 10% of the amount of employment taxes calculated under the reduced rates of ยง 3509 for compensation paid for the most recent tax year to the workers being reclassified. Interest and penalties are waived, and the taxpayer is not subject to an employment tax audit related to these workers for prior years.

To participate in the VCSP the employer must apply using Form 8952, Application for Voluntary Classification Settlement Program. The application should be filed at least 60 days before the date that the employer wants to begin treating its workers as employees. Accepted employers must enter into a closing agreement with the IRS to finalize the terms of the VCSP, at which time they will pay the full and complete amount due under the closing agreement.

To read the Internal Revenue Bulletins click here and here.

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