IRS OFFERS VOLUNTARY SETTLEMENT PROGRAM FOR WORKER CLASSIFICATION

Brian Wynne, CPA

In Announcement 2011-64, the IRS details an offer for settling potential worker classification issues. The IRS is offering employers a chance to reclassify workers as employees (as opposed to independent contractors) going forward. An employer who wishes to avail themselves of this settlement offer will pay 10% of the employment taxes (as calculated under IRC section 3509) that would have been due for the most recent tax year (if the worker had been classified as an employee), but will not be charged any interest or penalties. Further, the IRS will not subject the employer to an employment tax audit related to worker classification for those workers for any prior year.

The employer must apply with the IRS, and the IRS retains discretion on whether to accept the settlement. However, this could be a unique opportunity to correct misclassification issues with very little cost. The IRS has increasingly been focusing on worker classification issues, and the Obama administration seems to be particularly aggressive about pursuing misclassified workers.

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