IRS wants you to come clean on this … should you?

If your company has leaned on this popular cost containment strategy in recent years, you’re going to want to take note of a new offer from the feds.

IRS has just announced the new “Voluntary Worker Classification Settlement Program.” It’s an amnesty initiative that would help you avoid both an audit and hefty penalties and fines if you’ve treated certain folks as independent contractors who actually are employees.

And if you even suspect there’s someone being paid through A/P who belongs on your payroll, it’s worth at least looking into what it’s all about.

Here’s what you need to know.

3 criteria to be met

To be eligible, your company must:

1. Consistently have treated the workers in question as independent contractors
2. Have filed all 1099s for the workers for the previous three years, and
3. Not currently be under audit by the IRS, the Department of Labor or the state concerning the classifications.

Meet those three? Then if you suspect you have been misclassifying someone, you’d apply by filing Form 8952, Application for Voluntary Classification Settlement Program. Timing matters, too – you have to file the form at least 60 days before you want to begin treating them as employees.

What do you get in return for “coming clean?” The feds say you’ll make a “minimal” payment covering past payroll tax and avoid an audit. And your company would be granted a clean slate.

9 states who want in on the action

There’s extra incentive to consider this right now. The feds are pledging a major enforcement blitz on this particular compliance issue, led by both IRS and the Department of Labor.

And you may in fact get double-teamed on this one. Several states have stepped up and said they’d join forces with federal agencies to crack down on this pay issue.

Is yours on the list? At the present, here’s who’s participating:

• Connecticut
• Hawaii
• Massachusetts
• Maryland
• Minnesota
• Missouri
• Montana
• Utah, and
• Washington.

Not only that, but New York and Illinois are expected to join up with the DOL any day now.

Considering all the angles that are about to come at you, even if you decide not to take the feds up on their offer, it’s worth making sure that you’re confident in all your independent contractor calls – and have the paper trail to back those decisions up.

Cite: IRS IR-2011-95, 9/21/11