Third Quarter 2011
In this issue:
- Client Alert: IRS Announcement
- Christian J. Jensen Joins the Firm
- Blog: Zip Code Collection: An Invasion of Privacy?
Client Alert: IRS Announces New Voluntary Worker Classification Settlement Program; Past Payroll Tax Relief Provided to Employers Who Reclassify Their Workers
As all employers are aware, there are significant tax consequences resulting from the classification of a worker as an employee or independent contractor, including withholding and payroll tax requirements. As a result, many employers with large workforces have made the unfortunate mistake of classifying employees as independent contractors or non- employees in order to avoid these tax consequences despite the ever-present risk that an IRS audit will lead to substantial penalties in addition to paying many years of back taxes.
The IRS is now offering employers the ability to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. As part of the IRS’ “Fresh Start” initiative, employers may now become compliant by making a minimal payment covering past payroll tax obligations rather than risking an IRS audit.
Under the new Voluntary Classification Settlement Program (VCSP), eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations, and government entities that are erroneously treating their workers or a class or group of workers as non-employees or independent contractors, and now want to correctly treat these workers as employees.
To be eligible, an applicant must:
- Consistently have treated the workers in the past as non-employees,
- Have filed all required Forms 1099 for the workers for the previous three years, and
- Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers
Interested employers can apply for the program by filing Form 8952: Application for Voluntary Classification Settlement Program at least 60 days before they want to begin treating the workers as employees. A link to the IRS form is attached to this alert.
Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year.
No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.
As with any other significant labor issue, we highly encourage our clients to consult us regarding the classification of their labor force and whether it would be advantageous to apply for relief under the new IRS program.
OlenderFeldman LLP Welcomes Christian J. Jensen, Esq.
Christian focuses his practice in the areas of complex commercial litigation including business and consumer fraud, construction and employment law.
He represents clients in State and Federal courts at the trial and appellate levels, as well as in various alternate dispute resolution forms.
Christian is admitted to practice before the State courts in New Jersey and New York, as well as the District Court for the District of New Jersey and the District Courts for the Southern and Eastern Districts of New York.
Christian can be reached at cjensen@olenderfeldman.com and 908-964-2446
Blog: Zip Code Collection: An Invasion of Privacy?
By Michael J. Feldman, Esq., CIPP
A February 2011 ruling against Williams-Sonoma by the California Supreme Court held that a consumer’s ZIP code was “personal identification information” that merchants are not permitted to demand from customers under a California consumer privacy law. The result was a rash of lawsuits against businesses such as Wal-Mart Stores Inc., Bed Bath & Beyond Inc., Crate & Barrel and Victoria’s Secret. Though some stores claim to use the ZIP code information to protect against credit card fraud (i.e., if the card was stolen, the user is less likely to know the ZIP code of the true owner), most businesses use the information for marketing purposes.
Read more here: ZIP Code Collection – An Invasion of Privacy?
