Tuesday, December 18, 2012

IRS Voluntary Classification Settlement Program Update - More Tax Relief For Employers?

The Internal Revenue Service ("IRS") is revising and expanding eligibility for the Voluntary Classification Settlement Program ("VSCP") that offers tax relief for employers that agree to prospectively treat workers as employees. In addition to relaxing certain technical rules that, in the past, prevented taxpayers from participating in the VCSP as originally formulated, the IRS is offering an expanded program to permit employers that failed to file required Forms 1099 to elect to treat workers as employees going forward. The IRS stated in an annoucement this week that the new program will: (1) permit taxpayers under audit, other than employment tax audits, to participate; (2) eliminate the requirement that taxpayers agree to extend the assessment period of limitations for employment taxes as part of the VCSP closing agreement with IRS; (3) clarify eligibility for taxpayers that are members of an affiliated group under Section 1504(a) where another member of the group is under an employment tax audit; and (4) clarify that taxpayers contesting in court the classification of workers from previous audits are ineligible to participate. A taxpayer participating in the program agrees to prospectively treat a class or classes of workers as employees for future tax periods. In return, the taxpayer pays 10 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year, as though they had been classified as employees. Interest and penalties are waived, and the taxpayer is not subject to an employment tax audit for prior years. The announcements were published Dec. 17 in Internal Revenue Bulletin 2012-51.