In IR-2011-95 (9/21/11) (the “Announcement”), the Internal Revenue Service (the “IRS”) announced that it has begun a new program, called the Voluntary Classification Settlement Program (the “VCSP”). The VCSP will enable many employers to resolve past worker classification issues-primarily incorrectly classifying workers as independent contractors (or other nonemployees) instead of employees- and become compliant with the law by paying a small amount to cover past payroll tax obligations.
According to the Announcement, to be eligible for the VCSP, an employer must:
• have consistently treated the workers as nonemployees,
• have filed all required Forms 1099 for the workers for the previous three years, and • not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers.
An eligible employer may apply for the VCSP by filing Form 8952 (Application for Voluntary Classification Settlement Program), at least 60 days before it wants to begin treating the workers as employees. Employers accepted into the VCSP will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the VCSP, be subject to a special six-year statute of limitations for their payroll taxes, rather than the usual three years.