Determining the status of an organization’s employees is often not a straightforward task. The penalties for misclassifying an employee as an Independent Contractor as defined by the IRS can be stiff. Employers who are found to have made this error can be subject to an IRS audit, back employment taxes, penalties and interest for prior years.
If your company has workers with questionable status, the IRS has recently enacted a new program that could save you a lot of money and anguish, The Voluntary Classification Settlement Program.
VCSP is one of several new initiatives (including the successful Offshore Voluntary Disclosure Initiative that ended August 31st of this year) that IRS Commissioner, Douglas Shulman, has enacted in an effort to motivate people to “come clean” about their tax liabilities. These programs also shine light on the fact that the IRS realizes that not all tax violations are committed consciously. Programs like this allow the government to collect some of the revenue (roughly ten percent) that was lost due to those taxpayers’ errors without making them amenable to the maximum penalty for their transgressions. This may be a good time to “come clean” because the IRS is enacting this program in tandem with a three-year program that increases the number of worker classification audits.
Applicants who are eligible must have:
- Consistently treated workers as non employees
- Filed all the required Forms 1099 for its workers for the previous 3 years
- Not be under audit by the IRS or any other state agency concerning the classification of its workers.
Taxpayers who are eligible for this program will pay no interest and no penalties on their tax liability in exchange for classifying their workers as employees in the future. This program is a fantastic opportunity to get in line with the law with nominal costs, but one should consult with an attorney to ensure that your participation in the Amnesty program is the right choice for your business.
If you need a tax professional to guide you through this program, contact M. Robinson and Company, PC.