Outcomes and obligations
The company must agree to treat the class or classes of workers as employees for future tax periods for employment tax purposes. It will not be subject to an employment tax audit with respect to the classification of the workers for prior years.
The company will pay 10 percent of the employment tax liability that may have been due on the compensation paid to the workers for the most recent year, with no liability for any interest or penalties. In addition, the company will extend the period of limitations on the assessment of employment taxes for the first, second and third calendar years beginning after the date the taxpayer has agreed to begin treating the workers as employees.
Divulging information to the IRS about possible transgressions of the past is never easy. That is why the VCSP comes with a set of assurances in this regard. The IRS will not share information about applicants with the Department of Labor. Nor will it share information about participating companies with any state agencies.
If a company's application to the program is rejected, it will not automatically trigger the initiation of a federal audit. You could be audited for another reason, of course, but not as a result of the information contained on Form 8952.
It is also important to note that by signing the VCSP closing agreement, a company is not admitting any liability or wrong doing for past periods. The program concerns future years only. The IRS is not making any determination with regard to prior years, and you are not making any representation as to the workers' proper status for prior years as far as federal employment taxes are concerned.
Bill Rucci is a partner in the Boston area accounting and business advisory firm Rucci, Bardaro & Falzone PC, where he heads the firm's Construction Business Services Group. For a complimentary copy of "Employee vs. Independent Contractor: 7 Tips for Business Owners," contact Mr. Rucci at (781) 321-6065 or firstname.lastname@example.org.