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7/16/2012 © www.TaxMama.com 2010 TeamTaxMama Series 1

Clarification of the Voluntary Classification

Settlement Program for Employers (VCSP)

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Who is Eva Rosenberg MBA, EA

Eva Rosenberg, EA, Your TaxMama® has been teaching Enrolled Agents Exam review courses off and on since developing the program for UCLA Extension over 15 years ago. These days, she’s teaching her own course online at www.irsexams.com

Eva has a BA in Accounting and an MBA in International business. Your TaxMama® is a TaxWatch columnist for Dow Jones' www.MartketWatch.com and author of the ever-popular book, Small Business Taxes Made Easy, published by McGraw-Hill – to be re-released in 2010.

As a speaker, TaxMama® is popular with both tax professionals and taxpayers.

You can find her at www.TaxMama.com and subscribe to

her free daily podcast at www.TaxQuips.com


Table of Contents

What is the VCSP?

What is the deadline?

Sec 530 Workers

Which employers qualify?

What benefits do you get?

Sample Form 8952

What are the penalties if you don't participate, but you get caught?

What are the chances you will get caught?What are the caveats, or problems to consider. if an employer DOES participate?

Anything else that comes up – your questions!


What is the VCSP?

There has been a long battle between IRS and employers about defining a worker’s status as employee or independent contractor.

� IRS payroll audits

� Reliance on State audits

� Collections actions are time-consuming and costly

� And then someone decided that IRS could collect more money if they offered a chance for employers to come clean!

And so was born the IRS’ Voluntary Classification Settlement Program (VCSP)


What is the deadline?

There is no deadline!

90 day lead time:

But, to participate and convert your workers to payroll, you do have to apply to the program at least 90 days in advance of when you want to put them on payroll.

For instance, if you wanted to start on October 1st, you would have needed to apply by July 1st.

So your best bet for now, is January 1st.


Sec 530 Workers

Q. What if an employer’s workers are already approved as non-employers under the Section 530 safe-harbor?

A. They are exempt, since they are already protected by Section 530.

• That means, they are NON-Employees

• They are not subject to payroll taxes

• Their compensation may be reported on a 1099-MISC

• But…if they employer really wants to convert them to employees, s/he may.


Which employers qualify?

• The taxpayer must have consistently treated the workers as nonemployees,

• and must have filed all required Forms 1099 for the workers to be reclassified under the VCSP for the previous three years to participate in VCSP.

• Household employers DO qualify

• Corp or S Corp officers who did not take payroll and did not receive 1099s for their compensation do NOT qualify.

• Additionally, the taxpayer cannot currently be under audit by the IRS and the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency.

• If the IRS or the Department of Labor has previously audited a taxpayer concerning the classification of the workers, the taxpayer will be eligible only if the taxpayer has complied with the results of that audit.

• Exempt organizations and Government entities may participate in VCSP if they meet all of the eligibility requirements.


What benefits do you get?

• You will pay 10 percent of the employment tax liability that mayhave been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code.

� See VCSP FAQ 16, for information on how payment under the VCSP is calculated. http://www.irs.gov/businesses/small/article/0,,id=246014,00.html

� Also see Instructions to Form 8952 - www.irs.gov/pub/irs-pdf/f8952.pdf

• 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 worker classification of the workers being reclassified under the VCSP for prior years.

• Will not notify state about the arrangement or give them a copy of the details.


Form 8952 – Page 1


Form 8952, page 2 – the computation


What are the penalties if you don't participate, but you get caught?

• The IRS will audit all open years� Note: Since you have never filed a payroll tax return –

ALL years are open

� However, IRS will generally only go back 3-6 years, depending on their discretion.

• Taxes of 10.68% (10.28% for 2011 and 2012)

• Penalties –� Late payment 10%

� Late filing 25%

• Interest

• Plus corresponding state taxes – IRS will provide copy of audit to the state


Using same numbers as before


What are the chances you will get caught?

• IRS is hiring more examiners in the payroll area.

• IRS is actively auditing corporations with profits where no owner/shareholder compensation appears on the tax return.

• The relatively new IRS Form 8919 is generating tattle-tale audits from workers who receive 1099-MISC but should have gotten W-2s.

• Several States are increasing their payroll tax audits.


What are the caveats, or problems to consider - if employer DOES participate?

• You agree to allow IRS to audit the next 3 years of payroll reports for 6 years instead of 3 years.

• There is no similar agreement with the state.• Although IRS will not notify your state(s) about the

arrangement, you WILL suddenly start filing payroll tax returns with the state.

• Will this cause the state to look back at earlier years?• Remember, there is NO statute of limitations for unfiled

returns.

• The employer never filed payroll tax returns with the state.

• So if they DO look back, how far back will they look?

• Compute the potential state liability, compared to the savings of federal taxes

• Explain this clearly to the employer – in writing!


Anything else that comes up!

IRS has a page full of frequently asked questions – read them to see if they apply to you!

http://www.irs.gov/businesses/small/article/0,,id=246014,00.html

Note: If you or your client (if you are a tax pro) don’t EXACTLY fit the parameters to qualify –ask anyway. There is a reliable rumor that IRS may accept your Form 8952 application just to get you into compliance.


Research Services

www.naea.org -

Tax Knowledge Base – free use to members

$35 (member) $50 (non-member) for basic questionhttp://www.naea.org/MemberPortal/Research/

www.natptax.com -

(Member –first question free)

$26.50 (member) ($56 non-member)http://www.natptax.com/TAXKNOWLEDGECENTER/RESEARCH/Pages/NATPResearch.aspx

www.nsacct.org -

Members get 5 questions free

$25 for the next 5 questions (not per question)

Question 11 and forward $40 per questionhttp://www.nsacct.org/MembersOnly/NSATaxHelpDesk/tabid/7014/Default.aspx


Wrap-Up

Thanks for coming.

Remember to give me any feedback and ideas

Drop by to sign up for other TaxMama classes:

CPELink – Tax Practice Series and RTRP Exam Review and more! http://www.cpelink.com/teamtaxmama

Lorman – Accounting and Taxation of Home Office Expenses and Deductions http://www.lorman.com/audio-conference/389791

CPA Academy - IRS RULES AND RESPONSIBILITIES OF REGISTERED TAX RETURN PREPARERS (RTRPS) AND PTIN HOLDERS (2 hours of Ethics for EAs and RTRPs and Provisional RTRPs)

http://cpaacademy.org/webinars/a0DC000000Ms7wCMAR

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