IRS Employment Tax Initiative

The IRS has targeted the employment tax problem (many companies treating workers as independent contractors instead of employees) with numerous resources, including increased numbers of revenue agents. With these additional resources the IRS expects to curb this problem. Consequently, if you are a business owner who treats some workers as independent contractors then you can expect that the IRS will conduct a payroll tax audit.

What is the IRS Employment Tax Initiative?

The Internal Revenue Service today launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.

This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

This is part of a larger "Fresh Start" initiative at the IRS to help taxpayers and businesses address their tax responsibilities.

What is the Purpose of the Voluntary Classification Settlement Program?

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

Am I Eligible for the Voluntary Classification Settlement Program?

To be eligible, an applicant must:

  • Consistently have treated the workers in the past as nonemployees,
  • Have filed all required Forms 1099 for the workers for the previous three years
  • Not currently be under audit by the IRS
  • Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers

Should I Apply for the Voluntary Classification Settlement Program?

This is the difficult question and needs to be analyzed from a seasoned tax professional. It's extremely important that you understand your options under the VCSP as well as exposure for not submitting an application. It is certainly in your best interests to have a thorough examination of the treatment of your independent contractors and decide if the VCSP is the right step for you. Or, are there steps needed to ensure that your independent contractors are properly classified?

Call for a Free Consultation with a Tax Lawyer

Do not hesitate to call 818-224-7935 or 888-408-9486 (toll free) to arrange a consultation with Mr. Leonard. We are based in Woodland Hills and proudly serve clients in Los Angeles, the San Fernando Valley and other communities across the country.