Approximately a year ago, the IRS provided an amnesty program for employers who did not correctly report their workers as employees, but instead treated them as independent contractors. An article that describes the prior amnesty program, and the rules for independent contractor vs. employee classification appears here.
IRS Announcement 2012-45 makes the following changes to the Voluntary Classification Settlement Program (“VCSP”) which was initially established in Announcement 2011-64:
- A taxpayer under IRS audit, other than an employment tax audit, is now eligible to participate.
- A taxpayer must no longer agree to extend the limitation period on employment tax assessment as part of the VCSP closing agreement with the IRS.
In response to requests from taxpayers that requested VCSP relief, but did not qualify for the VCSP program because they had not filed Forms 1099 for their workers, IRS Announcement 2012-46 provides a temporary program through June 30, 2013. For those taxpayers who are otherwise eligible for VCSP, but who have not filed all required Forms 1099 for the prior three years, the taxpayer must furnish to the workers and electronically file all required Forms 1099, consistent with the nonemployee treatment. This effectively “catches up” participating employers in the situation that others using the VCSP program already faced. Then, for those workers who now received forms 1099, the employers agree to prospectively treat the identified class of workers as employees for future tax periods.
To participate, taxpayers must submit applications to the IRS. If the IRS approves a taxpayer’s application, the taxpayer will pay:
- 25 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 …
- A reduced penalty for unfiled Forms 1099 for the prior three years, graduated, based on the number of required Forms 1099 that were not filed . the IRS announcement includes penalty calculation details
Those employers who wish to file an application should following the following IRS instructions:
Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion should write “VCSP Temporary Eligibility Expansion” at the top of Form 8952.
Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must complete all parts of Form 8952, with the following modifications: (1) Taxpayers should put a line through Part V, Line A3, to indicate that Taxpayer has not satisfied all Form 1099 requirements for each of the workers for the 3 preceding calendar years ending before the date of the application; and (2) Taxpayers should not complete Part IV, Payment Calculation, of Form 8952. Instead, taxpayers should use the worksheet provided in this announcement to calculate their payment under the VCSP Temporary Eligibility Expansion. Taxpayers should attach the completed worksheet provided in this announcement to Form 8952.”