The IRS announced a new program to enable employers to voluntarily reclassify their workers for federal employment tax purposes (IR-2011-95; Ann. 2011-64). The Voluntary Classification Settlement Program (VCSP) is open to employers that currently treat their workers as independent contractors and want to prospectively reclassify the workers as employees. In exchange for prospective treatment of the workers as employees, the IRS is offering a reduced penalty framework. Employers will not be liable for any interest and penalties on the amount and will not be subject to an employment tax audit with respect to the workers being reclassified.
The VCSP, the IRS explained, is intended to give employers a streamlined way to voluntarily reclassify their workers as employees. Employers must have consistently treated the workers as nonemployees and must have filed all required Forms 1099 for the workers for the three preceding calendar years (with a six-month grace period).
Employers under audit by the IRS cannot participate in the VCSP. They may, however, be eligible to participate in the IRS Classification Settlement Program (CSP).
In other worker classification news, the Tax Court found that an adjunct professor who taught online courses was an employee and not an independent contractor (Schramm, TC Memo. 2011-112, CCH Dec. 58,746(M)). The court found that the university controlled the taxpayer’s performance and treated the arrangement as an employer-employee relationship, despite the lack of brick-and-mortar surroundings.