CLIENT T ADVIS SORY Ap pril 2013
IRS Eases E Qua alificationss for Employers to R Reclassifyy Independ dent Work kers as Employee E es Thee Internal Reevenue Serv vice (IRS) haas recently an nnounced exxpansion of iits Voluntaryy Classificattion Setttlement Program (VCSP P). This program, developed by the IRS, allowss employers tto voluntarilly recclassify indep pendent conttractors as em mployees fo or future tax periods. Thhe program’ss expansion arises from thee relaxation of o certain qu ualification reequirementss so as to inccentivize morre employerrs to properlyy classify em mployees. Thee VCSP prov vides partiall relief from federal payrroll taxes forr eligible em mployers whoo have treateed any woorkers as indeependent con ntractors or other nonem mployees andd who now w wish to treat them as empployees. In eexchange for agreeing to o reclassify these t workerrs, the particcipating empployer will not be subjectt to an em mployment taax audit with h respect to th he worker cllassification for prior years. The em mployer will be reqquired to pay y only 10% of o the employment tax liability, calcuulated underr statutorily rreduced ratees that woould have beeen due for th he most recent tax year if those workkers had beenn classified as employeees. No inteerest or penaalties are imp posed. Sinnce its initiall launch in September, 2011, the program has beeen used by nnearly 1,0000 employers. Relaxed Qualiifications Unnder the revissed program m, described in i IRS Anno ouncement 2012-45, empployers who are under ann IRS auddit, other thaan an employ yment tax au udit, can stilll qualify for the VCSP. Previously, any federal or state auddit precluded d participatio on. In additiion, taxpayerrs accepted iinto the proggram will noow only be suubject to thee usual three (3) year, and no longer to a six (6)-y year, audit oof their payrooll taxes. Unntil recently, employers were w barred from the pro ogram if theyy failed to file the requirred Forms 10099 for the passt three (3) years y with respect to the workers they y are seekingg to reclassify. Pursuannt to IRS Annnouncementt 2012-46, however, the IRS will waaive this addditional eligibbility requireement until JJune 30, 20113. Filling Requireement Em mployers who o wish to parrticipate in this t relief pro ogram must file IRS Forrm 8952, Appplication Foor Vooluntary Classsification Seettlement Program, at least sixty (600) days prior to the date tthe taxpayerr wants to
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begin treating the applicable workers as employees. Eligible applicants will be asked to enter into a VCSP closing agreement with the IRS. Payment of any amounts due will be made at the time the signed agreement is returned by the employer. All business employers with concerns about their current worker classifications should consider taking advantage of this program, as worker classification is currently an area of increased scrutiny. Given the favorable settlement provisions offered by this program, now is the time to make these corrections. Because reclassification can have ramifications with respect to other areas of the law aside from tax, taxpayers are strongly advised to consult with counsel in exploring their potential participation in the program.
For further information, please contact: Louis Vlahos, Tax Partner (516) 227-0639
[email protected]
Katherine A. Heptig, Tax Associate (516) 227-0688
[email protected]
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