Voluntary Classification Settlement Program and Eligibility

Tax Professionals' Resource
August 8, 2013 — 1,746 views  
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Internal Revenue Service recently extended the Voluntary Classification Settlement Program. This move by the IRS has made way for many taxpaying professionals to benefit from this low cost choice. It will help them in obtaining assurance in the eyes of the law by being able to reclassify their workers for future tax phases as employees.

Voluntary Classification Settlement Program is a voluntary program which gives an opportunity to the taxpayers to reclassify their workers as their employees for the purpose of employment tax for upcoming tax periods. It also gives them partial release from national employment taxes. For being able to be a part of this program, the taxpayer needs to have certain eligibility checks. Once he is said to be eligible for the program, he can go ahead and apply for participating in VCSP by filing the application for the program, Form 8952 and by entering in a closing contract with IRS.

Eligibility for VCSP

This program permits the eligible taxpayers to get relief which is similar to one that is presently available in Classification Settlement Program for all the taxpayers under assessment.

VCSP is obtainable to all those taxpayers who wish to make a voluntary change in the forthcoming categorization of their workers. This program is applicable to all those taxpayers who are presently treating their group of workers or individual workers as other nonemployees or independent contractors and wish to treat them as employees.

To be eligible for the program, the taxpayer should have constantly treated his workers as other nonemployees or independent contactors. In addition to that, he should also file all the necessary Forms 1099 for his workers for the last three years that he wishes to be reclassified under the program.

Apart from that, the taxpayer is not allowed to be under the employment tax audit of the IRS. He is also not allowed to be under audit relating to the categorization of his workers by any state government agency or Department of Labor.

In case the Department of Labor or IRS has previous audits of the taxpayer relating to the categorization of his workers, the taxpayer remains eligible only if he is not presently contesting the categorization in the court and has obeyed the outcome of the audit. Exempt government entities and organizations can participate in this program in case they meet the specified eligibility requirements.

Applying for the Program

For participating in this program, the taxpayer firstly needs to apply for it by using Application for VCSP, Form 8952. This application needs to be filed prior to a minimum of 60 days before the date on which the taxpayer wishes to start treating his workers as his employees. After this, the IRS will try to take every possible effort for processing the form with enough time for allowing the voluntary re-categorization on the desired date. 

Eligible taxpayers who are accepted in the program then enter a closing contract with IRS for finalizing the terms of the program. The taxpayer is also simultaneously supposed to make the full payment of his dues under the closing contract.

Tax Professionals' Resource