Employee Benefits-IRS Expands Eligibility Requirements For VCSP

Further to yesterday’s blog, in Announcement 2012-46, the Internal Revenue Service (the “IRS”) has expanded the eligibility requirement for participating in the Voluntary Classification Settlement Program (“VSCP”).Under this Announcement, the VSCP is being made available, through June 30, 2013, to taxpayers who would be eligible for the current VCSP-as described in yesterday’s blog- except for the fact that they have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified.

In addition to the other conditions of the VSCP, a taxpayer participating under this temporary expansion-referred to as the VCSP Temporary Eligibility Expansion- must furnish to the workers and electronically file all required Forms 1099, consistent with the nonemployee treatment, with respect to the workers being reclassified for the previous three years prior to executing a VCSP Temporary Eligibility Expansion closing agreement with the IRS. Taxpayers must electronically file such Forms 1099 in accordance with IRS instructions, which will be provided once the IRS has reviewed the application and verified that the taxpayer is otherwise eligible for the VCSP Temporary Eligibility Expansion. Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must submit an application, using IRS Form 8952, on or before June 30, 2013.The Form should be completed as described in the Announcement.

In lieu of the otherwise applicable payment under the VCSP, a taxpayer participating in the VCSP Temporary Eligibility Expansion pays: (1) 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 if those workers were classified as employees for such year, determined under the reduced rates of section 3509(b) of the Internal Revenue Code and (2) a reduced penalty, described in the Announcement, for unfiled Forms 1099 for the previous three years with respect to the workers being reclassified. The taxpayer must certify, as part of the VCSP Temporary Eligibility Expansion closing agreement with the IRS, that it has furnished to the workers and has electronically filed all required Forms 1099 for the previous three years with respect to the workers being reclassified.