Thanks, But No Thanks
Unless you’ve been hiding under a rock for the last week, you’ve probably heard about the IRS’ new Voluntary Classification Settlement Plan (VCSP). It’s the IRS’ token of generosity that allows employers who have misclassified their workers as independent contractors to come forward and admit their guilt. The IRS will show you their appreciation by requesting a payment of 10% of the employment tax liability that would have been due on what you paid your workers for the most recent year, determined under the reduced rates of section 3509 of the Internal Revenue Code. Hmm, sounds like a deal to me.
The VCSP Criteria
I can’t help but be sarcastic when speaking of this new plan. I want to believe that the IRS had good intentions when this was being created. Asking that the employer pay a small fraction of the cost on a worker who should have been an employee rather than an independent contractor is beneficial. Unfortunately, where the plan loses its luster is within the plan’s accompanying guidelines and how the IRS is perceived. To be eligible, the IRS has established a five point criteria which includes: 1) consistently treated workers as independent contractors, 2) have filed all required 1099 forms for workers for the previous three years, 3) Not currently being audited by the IRS, 4) not currently being audited by the DOL or any state agency for worker misclassification, and 5) if you were previously audited by the IRS or DOL, you’re only eligible if you complied with the audit result. And just when you thought that was the end of the criteria, there’s an “oh by the way” as the IRS has full discretion over who it accepts into their plan.
Employers Reluctant to Come Forward
The IRS is an acronym that nobody trusts. There are few people that divulge more information than what the IRS requests. It would have been in the best interest of the IRS to roll out a plan that prohibited information sharing between the IRS and DOL or other state agencies. Unfortunately that language was not included in their plan and because of that, employers will be reluctant to come forward. Employers who keep abreast of employment news also realize that the IRS is not their primary concern when it involves misclassification. That lies with private class action lawsuits stemming from wage and hour disputes.
Can you trust the IRS?
An employer wants to make amends for the lack of good judgment used in classifying workers as IC’s instead of employees. Sacrificing themselves to the IRS with hopes of getting off easy makes sense. Unfortunately that’s the only thing that does. Without assurance from the IRS that they will not share any information with the DOL or other state agencies, this plan goes nowhere. Maybe the IRS needs to makeover their reputation before rolling out a plan like this. Until employers can start trusting the IRS, most will say thanks but no thanks to this latest plan.
