IRS offers a clean slate for the past. . .
Last year’s tax returns included two new questions. They both pertain to 1099 payments and, if unanswered, prevented you from E-Filing. If you’ve worried about 1099 vs employee problems with the IRS, there’s now a chance to wipe the slate of the past clean and start over. IRS is willing to forgo the audit of past years in exchange for W-2 treatment of certain payments to contractors who might be classified as employees.
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In September 2011, the IRS announced a new program under which employers can reclassify independent contractors as employees and limit the resulting federal payroll taxes for their most recent tax year, plus avoid related penalties and interest for prior years (Announcement 2011-64).
To participate in the VCSP, as originally announced, employers had to submit an application and agree to prospectively treat their workers or a class or group of workers as employees for federal employment tax purposes in future tax periods. Employers also were required to agree to extend the period of limitation on assessment of employment taxes for three years for each of the three calendar years beginning after the date of the agreement.
In return, employers paid 10% of the employment tax liability otherwise due for the most recent tax year, which was not subject to interest or penalties. In addition, the IRS agreed not to conduct an employment tax audit with respect to the employer’s worker classification for prior years.
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