In recent years, the IRS has increased the number of worker classification audits.  The goal of such audits is to determine whether a business incorrectly classified its workers as independent contractors.  Many businesses have complained that the already unclear facts-and-circumstances standard is arbitrarily applied by the IRS in such audits.

Perhaps the business community’s pleas did not go unnoticed.  Just last week, the IRS announced an initiative to provide significant relief from federal employment taxes for certain businesses who agree to treat workers as employees going forward.  This new program, called the Voluntary Classification Settlement Program, allows those eligible businesses to significantly reduce their employment tax and penalty exposure.

Generous Tax and Penalty Relief

In exchange for treating certain workers as employees going forward, the business will pay only 10% of back employment taxes for the most recent year, and will not be assessed any interest or penalties.  Additionally, the business will not be subject to a worker classification audit for prior years.

Eligibility Restrictions

The program is limited to eligible businesses.  Eligible businesses must have consistently treated the workers as independent contractors and filed all required Form 1099s for each worker for each of the past three years.  Additionally, the business cannot be currently under any worker classification audit by the IRS, the Department of Labor, or any state agency.  Tax-exempt organizations, which have been the subject of recent classification audits, are eligible.

The attorneys of Williams Coulson regularly represent businesses with respect to federal employment tax matters and encourage all businesses with independent contractors to seek advice as to whether they should participate in the program.

 

IRS CIRCULAR 230 TAX ADVICE DISCLAIMER: Any federal tax advice contained in this communication (including attachments or enclosures) is not intended or written to be used, and it cannot be used, for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing or recommending any transaction or matter.