The IRS Modifies the Voluntary Classification Settlement Program

On October 4, 2011, we reported on the Voluntary Classification Settlement Program (VCSP), a program in which the IRS permits employers to prospectively reclassify workers as employees in exchange for limited federal employment tax liability, no interest or penalties, and without an IRS audit or administrative correction procedure.

On December 17, 2012, the IRS announced certain clarifications and revisions to the program in response to taxpayer and practitioner feedback. Four aspects of VCSP have been modified. First, a taxpayer under an IRS audit, other than an employment tax audit, is now eligible to participate in VCSP. Previously, a taxpayer was ineligible to participate if the taxpayer was under audit by the IRS for any reason.  Second, the IRS clarified that a taxpayer who is a member of an affiliated group remains ineligible to participate in VCSP if any member of the affiliated group is under an employment tax audit. Third, a taxpayer is ineligible to participate in VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or Department of Labor. Fourth, the IRS eliminated the requirement that a taxpayer must agree to extend the period of limitations on assessment of federal employment taxes.

Please see our legal alert entitled “IRS Announces the 'Voluntary Classification Settlement Program' to Reduce Federal Employment Tax on Worker Misclassification” for additional details regarding the program.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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