On November 17, 2011, Janine Cook, Deputy Division Counsel/Associate Chief Counsel of the IRS Tax Exempt and Government Entities Division announced that IRS anticipated issuing new Frequently Asked Questions regarding the Service’s Voluntary Classification Settlement Program (VCSP). VCSP is a new program which allows employers to reclassify workers as employees for future tax years and pay reduced employment taxes for previous years. The program, which according Cook has drawn approximately 120 applicants in its first month, also allows participants to avoid interest and penalties on previous years’ employment taxes.
To be eligible for the program, an employer must have consistently treated its workers as nonemployees and have filed all required Forms 1099 for the prior three years. In addition, the employer cannot be under IRS audit or under an audit relating to worker classification by the Department of labor or a state government agency. If an employer previously has been audited with regard to worker classification, it will only be eligible for the VCSP if it has complied with the results of the audit.