IRS Temporarily Expands Voluntary Worker Classification Settlement Program

The Internal Revenue Service (the "IRS") has intensely scrutinized the classification of workers as independent contractors as a high priority compliance initiative. One self help remedy available to taxpayers is the Voluntary Worker Classification Settlement Program ("VCSP"). The purpose of the VCSP is to permit employers who are treating some workers as independent contractors to reclassify those workers prospectively with certain protections for prior years.

Recently, the IRS announced a temporary expansion of the VCSP to taxpayers who were not originally eligible for the program. The expansion of the VCSP provides a terrific opportunity for employers with concerns over tax classification of certain workers to get a fresh start and minimize exposure for treatment of workers in prior years.

Qualification for the VCSP

To be eligible to participate in the original VCSP, the taxpayer must meet four requirements: 

The taxpayer must have consistently treated the workers as nonemployees, and must have issued all required Forms 1099 to the workers for the previous three years. Neither the taxpayer nor certain affiliates can currently be under an employment tax audit by the IRS. The taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency. A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit. The temporary expansion modifies the eligibility requirements to permit taxpayers who have not issued all required Forms 1099 for the previous three years to participate...