The Treasury Inspector General of For Tax Administration recently issued a report entitled Employers Do Not Always Follow Internal Revenue Service Determination Rulings that indicated the employers just do not get it when it comes to treating workers correctly for tax purposes. This report sheds more light on non-compliance and will result in more audits of small businesses who have miss-classified workers as independent contractors. So employers beware!
Employers illegally treating employees as independent contractors can come clean through a program called the Voluntary Classification Settlement Program (VCSP). To explore in more detail the merits of this VCSP program and how it works, readers should look at Risky Business: Playing Fast and Loose with Worker Classification. Basically, this program allows employers to voluntarily correct erroneously classified workers from independent contractors to employees in exchange for paying less taxes and penalties than if audited by the IRS. Recently, the IRS provided some needed clarifications of this standard VCSP program under IRS Announcement 2012-46:
Additional Information and Insights:
For those interested in gaining greater insight into this problem and a lot more, please give a listen to my guest appearance on Money For Lunch at the following link.
We discuss not only the VCSP program but also explore the allowable “piercing of the corporate veil” by the IRS to impose individual personal tax liability on shareholders and officers for corporate tax obligations under Section 6672 of the Internal Revenue Code. We also discuss related criminal tax implications. So please click on the triangle to hear our discussion: